Ratio Analysis for Financial Performance Measurement of Al-Arafah Islami Bank Ltd.

Through this OCP report an attempt has been made to assess the performance of Al-Arafah Islami Bank Limited (AIBL). Basically this report has been developed from the basis of secondary data. The sources of information are annual report of the bank, internet, newspaper, magazine etc. My experience also helps me to establish this report by making this bank’s ratio analysis and by describing its overall banking system.

Banking is a system of intermediation. Modern commercials banks since their early days had been doing two main functions. These are Acceptance of deposits from the public and lending money to the people.
In addition, they also involved themselves in investment. Apart from the principal function, they also have to render various services to the people. The ever-changing demands of the society, business and industry have led the banks to undertake such services for enhancing their utility to the society at large. Based on nature of these services, they may be classified as under (a) agency services: collection and payment of cheques, payment on behalf of customs, purchase and sale of stocks, acting as trustees, acting as agency (b) General services: opening letter of credit, safe custody, dealing in foreign exchange, providing Investment reports, underwriting of loans, providing remittance facilities, complete service in foreign trade.

It is unlikely true that default culture in our banking sector is a common phenomenon which hampers the strength of the banking sector. But arrival of private bank in our economy has rapidly changed this environment. The classified loan over the total loan of our private bank is between 5%-8% whereas it is more than 25% in our government bank. As a private commercial bank we are very much conscious in this regards. One important challenge that the banking sector is facing is the introduction of information technology in the banking system in an aggressive manner. This is required to improve management efficiency, reduce operational cost, improve customer services, and increase transparency.

The earning and profitability of the banking sector have also improved in recent years and it is generally measured by return on assets (ROA) and return on equity (ROE).

Hence, the banking sector would play a vital role in the development of the country and efficient and sound banking management would led the country to reach at the highest peak of success.

AIBL aims at maintain in effective relationship with the customers, marketing of Investment products, exploring new business opportunities etc. AIBL takes well calculative business risk while safeguarding it’s capital, financial resources and profitability from various risk.

Presently, Al-Arafah Islami Bank Ltd. has got 100 branches and a total of 2,110 employees working in AIBL (as of December 2012). Its authorized capital is Taka 10,000 million and the paid-up capital is Taka 7130.98 million.The bank conducts its business on the principles of islami sarih. Musharaka, Bai-Murabaha, Bai-Muajjal and Hire Purchase investment modes are approved by Bangladesh Bank.

Naturally, its mode and operations are substantially different from those of other conventional commercial banks. There is a Shariah Council in the bank who maintains constant vigilance to ensure that the activities of the bank are being conducted on the precepts of Islam.

The Al-Arafah Islami bank has an Asset Liability Committee (ALCO) that reviews liquidity requirement of the bank, the maturity of assets and liabilities, deposit and lending pricing strategy and the liquidity contingency plan. The prime objective of the ALCO is to monitor and avert significant volatility in net profit income, investment value and exchange earnings.

AIBL strives hard to optimize profit through conduction of transparent business operations with in the legal and social framework with malice to none and justice for all.

To achieve the maximum benefit from the investment both funded and non funded the major issue is select the sound ones. In this regard project appraisal as well as evaluation should be considered most. Before financing in any project the quantities and qualitative judgment is essential. The financial strength, management structure, business size, business line, nature of business, competitor etc. should be identified. After financing strong monitoring is also required. As a member of the banking family we are bound to follow the rules and regulation of the government. So we are conscious enough to conduct our operation abiding by direction of Bangladesh Bank. For this reason we have to serve different information in the credit information bureau of Bangladesh Bank.