Internship Report on Performance Evaluation of Islami Bank Bangladesh Limited- Banking Efficiency Model

The internship report titled on “Performance Evaluation of Islami Bank Bangladesh Limited: Banking Efficiency Model” has been prepared as a partial prerequisite of the Internship Program of Islami Bank Training and Research Academy. This Intern program is a perfect merge of the theoretical and practical knowledge.
Islami Bank Bangladesh Limited (IBBL) is trying to establish the maximum welfare of the society by maintaining the principles of Islamic Shari’ah which is based on “Quran” and “Sunnah”. Since 1983, IBBL is the pioneer in welfare banking in this subcontinent and it is trying to do all its activities for the betterment of its depositors. For the greater interest of the depositors the investment policy of IBBL is to invest on the basis of profit and loss sharing in accordance with the tents and principles of Islamic Shari’ah.

To complete my report I have used both qualitative and quantitative data. My report is composed of four chapters. Chapter one: Introduction, Chapter two: Background of Islami Bank Bangladesh Limited, Chapter three: Findings and Analysis, Chapter four: Conclusions and recommendations.

In the first chapter I have tried to discuss about the objectives , methodology, scope and limitations of the study. The main objective of the report is to acquaint with the different modes of investment of Islami Bank Bangladesh Limited and to evaluate its effectiveness. In the second chapter the macroeconomic condition of our country has been discussed. The year ending data of 2010 and 2011 is been given importance in this part. Another part of the second chapter is about the financial system of our country. In the third chapter I have tried to show about the concept of Islami banking and its background in Banking sector in Bangladesh. In the fourth chapter I have included four sub chapters. The first subchapter includes the theoretical analysis of investment products of IBBL. The second subchapter includes the evaluation of performance of IBBL through banking efficiency model. To make this happen last five years statistics is been counted. The graphical analysis also given in this perspective. The third sub chapter includes the SWOT analysis and Porter’s five forces model included in the fifth subchapter. In the fifth chapter I have given conclusion and some recommendations.
In general sense we mean “Bank” as a financial institution that deals with money. There are different types of banks like Central bank, State- owned Commercial bank, Private Commercial bank or Merchant bank, Foreign Commercial bank, Specialized Development bank, etc. But when we use the term bank it generally means ‘commercial bank’ that collects the deposit from surplus unit of the society and then lends the deposits to the deficit units of the society. But the new thing is that how it operates and presenting its activities for the purpose of serving customer requirements to increase their well being in the sense of wealth. Banks also provide many services for clients to make their life easy in this busy environment. In this competitive environment in today’s world, the entire bank increases their facilities in favor of their customers to retain them and capture more share of the market to be leader. Interest is one of the main factors in attracting customers. So, it can be said that conventional banking systems are interest-based system. Bangladesh is one of the largest Muslim countries in the world. The people are deeply committed to Islamic way of Life which is guided by Islamic Sunnah and according to the rules of Holy Al-Quran. But it is not possible for the people to establish and design their economic lives in accordance with Shariah. Shariah prohibits the payment or acceptance of interest fees for the lending and accepting of money. In this regard to establish a banking world that run according to Shariah, the concept of Islamic Banking Arise. Its establishment in Bangladesh on 13th March 1983, named Islamic Bank Bangladesh Limited. The definition of Islamic Bank, as approved by the General Secretariat of the OIC, is stated in the following manner. “An Islamic Bank is a Financial Institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation.”

This report is an attempt to gain the knowledge of evaluating the performance of ISLAMI Bank Bangladesh Ltd. in terms of productivity and effectiveness. Also, analyze and discuss the five years performance from fiscal year 2006-2010 to evaluate the position of ISLAMI Bank.

Mobilizing fund for Investment and Utilizing Fund are the main key work of banks. Bank earns profit making business between these two. But it is important to organize these works efficiently. The efficient performance of any bank depends mostly on the efficiency of investment and deposit activities. Analyzing the performance of a bank is not an easy task. There are several ways to make this work to be done. But the analyzing of the performance of bank activities in right way it will not be possible for any bank to move upward. There are some models used to analyze the performance of bank. Banking Efficiency is one model of the notable model. So analyzing the performance of a bank’s activity through Banking Efficiency model is quite new and modern approach.

The primary objective of this report is to observe the investment related activities for the Investment Department of Islami Bank Bangladesh Ltd.

The other objectives include:
 To understand the different investment and Deposit modes of IBBL
  •  To analyze performance through the flow of time.
  •  To Understand the Banking Efficiency Model
  •  Analyze the performance of bank through Banking Efficiency Model
  •  To understand various forces those have impact on investment operation.
  •  To Analyze the Bank about its strength, weakness, opportunities and threat

In this report I have focused on all the qualitative which include profiles of IBBL, investment modes like Bai mode, Profit & loss sharing, bearing mode, Rent sharing mode,. This study covers the performance of the bank through the years using ratio analysis, SWOT analysis etc.
a) Nature of the study: Exploratory
b) Sources of information: Both primary and secondary information sources were used to complete this report.
o Primary sources: Primary sources were officers and manager (AVP) of the Islami Bank Bangladesh Ltd., Local office branch. Following factors were considered to collect information:

Face to Face conversation.
o Secondary sources: Secondary information was collected from various books, journals, manuals, and also from the web sites.

c) Presentation of information: Collected information and findings of the analysis are presented in both table and graphical form
d) Methods of data analysis:

I analyze the data in both quantitative and subjective way. I used some techniques for the purpose of analysis. These are:
  •  Theoretical analysis
  •  Graphical analysis
  •  Tabular analysis
  •  Ratio Analysis
  •  SWOT Analysis
  •  Porter’s Five Forces Analysis
Islamic banks can provide efficient banking services to the nation if they are supported with appropriate banking laws, and regulations. This will help them introducing PLS modes of operations, which are very much conducive to economic development. It would be better if Islamic banks had the opportunity to work as a sole system in an economy. That would provide Islamic banking system to fully utilize its potentials. Studies show that Islamic banks cannot operate with its full efficiency level if it operates under a conventional banking framework, their efficiency goes down in a number of dimensions. The deterioration is not because of Islamic bank’s own mechanical deficiencies. Rather it is the efficiency-blunt operations of the conventional banking system that puts obstructions to efficient operation of Islamic banks. This does not mean that the survival of Islamic banks operating within the conventional banking framework is altogether threatened. Evidences from Bangladesh indicates that Islamic banks can survive even within a conventional banking framework by which over from PLS to trade related modes of financing. Regular return from investment can carry a bank into a healthy position. That is why every bank tends to make huge amount of investment and gaining maximum profit. So while investing there are a lot of tasks are interrelated. Making excessive investment not identifying the withdrawal behavior of depositor can put the bank in risky position and carry to bankruptcy situation. On the other hand bank cannot rest it money idly by not making investment fearing the withdrawal behavior of depositor. So there are needed to maintain a tradeoff between reserve money for depositor and money for investing.

It is also important for the bankers to assess the maximum return giving sectors to investment. Banks are committed to return the depositors money with some profit. So making sustainable profit is important for any bank. Profit Loss Sharing kind of business places the bank in a risky position. So it is interesting to see whether an Islami bank makes investment in profit loss sharing business.
In recent years there is economic slowdown occurred worldwide. The side effect of this economic slowdown put the investment situation of our country vulnerable. The RMG sector of our country is experiencing lots of trouble. Overall the economic environment of our country is not in most excellent mode. To overcome the crisis the banks are opted to invest in capital market to make quick profit which is not only making vulnerable situation of the capital market but also making the banks unable to meet the demand of the depositors.