Comparative study of Profitability and Liquidity analysis of Islamic Banks in Bangladesh
DOI:
https://doi.org/10.18034/gdeb.v2i1.192Keywords:
Islamic banking system, Profitability analysis, Liquidity analysisAbstract
In this depressed world financial scenario, Islamic banking has emerged as a strong alternate financial system. Its growth is not restricted to the Muslim societies but Islamic financial products are also gaining popularity among non-Muslim countries. The objective of this paper is to scrutinize and compare the liquidity and profitability performances of five Islamic banks in Bangladesh in between the period 2005 and 2011. In order to scan the performances, this study highlights on different standards of liquidity and profitability measurements logical to Islamic philosophy; such as liquidity and profitability ratios, liquidity reserves by the banks, net liquidity gap, profit creation from different sectors of the banks, etc. Multiple correlations among liquidity and profitability ratios are shown here. The results of all these measurements are quite apparent. In particular, among all the independent variables, at 90% confidence level only investment to total assets is found to be significantly affecting Return on Assets (a measurement of profitability ratio) for Islami Bank Bangladesh Ltd., Shahjalal Islami Bank Ltd. and EXIM Bank Ltd., whereas with Return on Equity for only Shahjalal Islami Bank Ltd. However, multicollinearity has been found to be a great issue when considering liquidity impact on profitability for Islami Bank Bangladesh Ltd., EXIM Bank Ltd. and Social Islami Bank Ltd. Overall P-values suggest that at 95% confidence level liquidity model proves significant on ROA for Islami Bank Bangladesh Ltd. and Social Islami Bank Ltd., while on ROE for Islami Bank Bangladesh Ltd. and Shahjalal Islami Bank Ltd.
JEL Classification Code: G21; G30; M20
Metrics
Downloads
References
Ahmed, N., Ahmed, Z. and Naqvi, I. H., 2011, ‘Liquidity Risk and Islamic Banks: Evidence from Pakistan’, Interdisciplinary Journal of Research in Business, vol.1, issue.9, September, pp.99-102.
Akhtar, M. F., Ali, K. and Sadaqat, S., 2011, ‘Liquidity Risk Management: A Comparative Study between Conventional and Islamic Banks of Pakistan’, Interdisciplinary Journal of Research in Business, vol.1, issue.1, January, pp.35-44.
Akhter, Dr. W., Raza, A., Orangzab and Akram, M., 2011, ‘Efficiency and Performance of Islamic Banking: The Case of Pakistan’, Far East Journal of Psychology and Business, vol.2, no.2, February, pp.54-70.
Akkas, Ali, 1982, ‘Problem of Credit Creation by Commercial Banks in the Islamic Framework’, Thoughts on Islamic Banking, 1st Edition, February, Islamic Economics Research Bureau, Dhaka, pp.127-129.
Al-Arafah Islami Bank Ltd., 2005-2011, Annual Report 2005-2011, Al-Arafah Islami Bank Ltd., Dhaka, Bangladesh.
Ali, S. A. and Howlader, R. A., 2005, Banking Law and Practice, 1st Edition, November, Osman Gani of Agamee Prakashani, Bangla Bazar, Dhaka, pp.110-126, 390-419.
Faisal A. Alkassim (2005), “The Profitability of Islamic and Conventional Banking in the GCC Countries: A Comparative Study”, Interdisciplinary Journal of Research in Business, vol.II, issue.1, June, pp.15-24.
Anup, A. H., 2009, ‘Economic Crisis and the Overview’, New Straits Times, 21 March 2012.
Athanasoglou, Panayiotis P., Delis, Matthaios D. and Staikouras, Christos K., 2008, ‘Determinants of Bank Profitability in South Eastern European Region’, MPRA Paper No. 10274, September 2008 viewed 9 May 2012, <http://mpra.ub.unimuenchen.de/10274/1/MPRA_paper_10274.pdf>.
Awan, A.G., 2009, ‘Comparison of Islamic and Conventional Banking in Pakistan’, viewed September 28, 2012, http://www.scribd.com/doc/37430208/ISlamic-Banking http://www.ciitlahore.edu.pk/pl/abrc/Proceedings/All%20papers/COMPARISON%20OF%20ISLAMIC%20AND%20CONVENTIONAL(Abdul%20Ghafoor%20Awan).pdf>.
Bashir, Abdel-Hameed M., 1999, ‘Risk and Profitability Measures in Islamic Banks: The Case of two Sudanese Banks’, Islamic Economic Studies, vol.6, no.2, May, pp.1-24, viewed 19 June 2012.
Bashir, A. (2000),” Assessing the Performance of Islamic Banks: Some Evidence from The Middle East” presented at ERF Annual meeting, Amman, Jordan, October 26-26, 2000.
Bashir, A., Hassan, M. (2004),”Determinants of Islamic Banking Profitability”, ERF Paper, 10th Conference. DOI: https://doi.org/10.3366/edinburgh/9780748621002.003.0008
Bordeleau, Étienne and Graham, Christopher, 2010,‘The Impact of Liquidity on Bank Profitability’, Working Paper/Document de travail 2010-xx Draft, December, pp.4-22, viewed 17 July 2012.
Chowdhury, Tanbir A. and Ahmed, Kashfia, 2009, ‘Performance Evaluation of Selected Private Commercial Banks in Bangladesh’, International Journal of Business and Management, vol.4, no.4, April, pp.86-97, viewed 15 May 2012, <http://ccsenet.org/journal/index.php/ijbm/article/download/1179/1127>. DOI: https://doi.org/10.5539/ijbm.v4n4p86
Demerguç-Kunt, A. and Huizinga, H., 1999, ‘Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence’, World Bank Economic Review, vol. 13, no.2, May, pp. 379-408. DOI: https://doi.org/10.1093/wber/13.2.379
EXIM Bank Ltd., 2005-2011, Annual Report 2005-2011, EXIM Bank Ltd., Dhaka, Bangladesh.
Foster, George, 2002, Financial Statement Analysis, 2nd Edition, Pearson Education (Singapore) Pte. Ltd., Indian Branch, New Delhi, pp.57-94.
Hamid, Mohamad A. and Azmi, Shaja M., 2011, ‘The Performance of Banking During 2000- 2009: Bank Islam Malaysia Berhad and Conventional Banking in Malaysia’, International Journal of Economics and Management Sciences, vol.1, no.1, pp.9-19, viewed 25 June 2012.
Haron, Sudin, 2004, ‘Determinants of Islamic Bank Profitability’, Working Paper Series 002, March, pp.1-18,viewed 23 April 2012.
Haron, Sudin and Shanmugan, Bala, 1997, Islamic Banking System- Concepts & Applications, Pelanduk Publications, Malaysia, pp. 35-42.
Hasan, Zulfiqar and Saimoon, Ayesha, 2012, Principles of Islamic Economics, 1st Edition, February, University Publications, Dhaka, Bangladesh, pp.47-60.
Hassoune, Anouar, 2002, ‘Islamic Banks’ Profitability in an Interest Rate Cycle’, International Journal of Islamic Financial Service, vol.4, no.2, July-September, viewed 17 March 2012, <http://www.iiibf.org/journals/journal14/vol4no2art2.pdf>.
Ika, Siti Rochmah and Abdullah, Norhayati, 2011, ‘A Comparative Study of Financial Performance of Islamic Banks and Conventional Banks in Indonesia’, International Journal of Business and Social Science, vol.2, no.15, August, pp.199-207, viewed 5 May 2012, <http://www.ijbssnet.com/journals/Vol_2_No_15_August_2011/22.pdf>.
Islam, M. Muzahidul, 2008, ‘Liquidity Management’, Text Book on Islamic Banking, 2nd Edition, November, Islamic Economics Research Bureau, Dhaka, Bangladesh, pp.101- 111.
Islam, M. Muzahidul and Chowdhury, Hasibul Alam, 2009, ‘A Comparative Study of Liquidity Management of an Islamic Bank and a Conventional Bank: The Evidence from Bangladesh’, Journal of Islamic Economics, Banking and Finance, vol.5, no.1, January-April, pp.89-108.
Islami Bank Bangladesh Ltd., 2005-2011, Annual Report 2005-2011, Islami Bank Bangladesh Ltd., Dhaka, Bangladesh.
Khan, Dr. Tariqullah and Ahmed, Dr. Habib, 2001,‘Risk Management: An Analysis of Issues in Islamic Financial Industry’, Occasional Paper, no.5, pp.38-39, viewed 7 July 2012.
Khrawish, H. A., Siam, W. Z. and Khrawish, A. H., 2011, ‘Determinants of Islamic Bank Profitability: Evidence from Jordan’, Middle Eastern Finance and Economics, issue.13, May, pp. 43-57.
Kuppusamy, M., Saleh, Ali S. and Samudhram, Ananda, 2010, ‘Measurement of Islamic Banks Performance using a Shariah Conformity and Profitability Model’, Review of Islamic Economics, vol.13, no.2, pp.35-48, viewed 21 May 2012, <http://www.islamicfoundation.org.uk/JournalsPDF/IslamicEconomicsReviewAd.pdf>
Latif, Muhammad Abdul, 1982, ‘Is Indexation of Loan Permitted?’, Thought on Islamic Banking, 1st Edition, February, Islamic Economics Research Bureau, Dhaka, Bangladesh, pp.112-113.
Lau, M. S., 2008, ‘The Recent Crisis: Economic Review’, New Straits Times, 3rd April 2012.
Levin, Richard I. and Rubin, David S., 2003, Statistics for Management, 7th Edition, Prentice Hall of India Private Limited, New Delhi, India, pp.717-790.
Lewis M. And Algaoud L. (2001), “Islamic Banking”, Edward Elgar Publishing Limited. DOI: https://doi.org/10.4337/9781843762959
Lind, Douglas A., Marchal, Willian G. and Warthen, Samuel A., 2005, Statistical Techniques in Business & Economics, 12th Edition, McGraw-Hill Companies, U.S.A, pp.474-521.
Maheshwari, Dr. S. N. and Maheshwari, Dr. S. K., 2002, Banking, 11th Edition, Kalyani Publishers, New Delhi, Section VII, pp.37-84.
Mahmud, Abdullah Al and Islam, M. Muzahidul, 2008, ‘A Comparative Study on Performance Evaluation of Conventional Banks and Islamic Banks in Bangladesh with Special Reference to Islamic Bank Bangladesh Ltd.’, Journal of Thoughts on Economics, vol.18, no.5, October-December, pp.25-43.
Maali, B. Casson, P. and Napier C. (2006),” Social Reporting by Islamic Banks”, Accounting Foundation, The University of Sydney. DOI: https://doi.org/10.1111/j.1467-6281.2006.00200.x
Naceur, Samy Ben and Goaied, Mohamed, 2008, ‘The Determinants of Commercial Bank Interest Margin and Profitability: Evidence from Tunisia’, Frontiers in Finance and Economics, vol.5, issue.1, pp. 106-130.
Raquib, A., 2006, Emergence of Islamic Banking in Bangladesh and Related Financial Issues, 1st Edition, February, Sabdarup Publications, Dhaka, Bangladesh, pp.1-62.
Rashid, Hafiz A. and Ashraf, Mian M., 2011, ‘Achievement Anecdote of Islamic Banking Practices in Pakistan: A Review of Past, Present and Future Performance with Pragmatic and Analytical Approach’, Journal of Money, Investment and Banking, issue.22, Eurojournals Publishing Inc., pp.70-86, viewed 13 July 2012.
Rashid, Mamunur and Nishat, Ainun, 2009, ‘Disparity of Performance Indicators of Islamic Banks: Study on Bangladesh’, International Journal of Business and Management, vol.4, no.8, August, pp.52-72, viewed 9 May 2012. DOI: https://doi.org/10.5539/ijbm.v4n8p52
Rose, Peter S., 2004-2005, Commercial Bank Management, Irwin/McGraw-Hill, U.S.A, pp.149-198.
Rosly, Saiful A. and Bakar, Mohd. A. A., 2003, ‘Performance of Islamic and Mainstream Banks in Malaysia’, International Journal of Social Economics, vol.30, no.12, pp.1249-1265, viewed 1 June 2012.
Rosly, Saiful A. and Zaini, Mohammad Ashadi Mohd., 2008, ‘Risk-return analysis of Islamic banks’ investment deposits and shareholders’ fund’, Managerial Finance, vol.34, no.10, pp.695-707, viewed 11 July 2012, <http://www.kantakji.com/fiqh/files/banks/c1017.pdf>. DOI: https://doi.org/10.1108/03074350810891010
Sadeq, Dr. Abul H. M., 2006, Readings in Islamic Economic Thought, 1st Edition, October, Islamic Foundation Bangladesh, Agargaon, Dhaka, pp.17-18.
Safiullah, Md., 2010, ‘Superiority of Conventional Banks & Islamic Banks of Bangladesh: A Comparative Study’, International Journal of Economics and Finance, vol.2, no.3, August, pp.199-207, viewed 29 April 2012. DOI: https://doi.org/10.5539/ijef.v2n3p199
Saleem, Qasim and Rehman, Ramiz Ur, 2011, ‘Impacts of Liquidity Ratios on Profitability (Case of Oil and Gas Companies of Pakistan)’, Interdisciplinary Journal of Research in Business, vol.1, issue.7, July, pp.95-98, viewed 3 August 2012, <http://www.idjrb.com/articlepdf/idjrb7n9.pdf>.
Samad, Abdus, 2004, ‘Performance of Interest-Free Islamic Banks VIS-À-VIS Interest Based Conventional Banks of Bahrain’, IIUM Journal of Economics and Management, vol.12, no.2, pp.1-15, viewed 21 May 2012, <http://iium.edu.my/enmjournal/122art1.pdf>.
Samad, Abdus and Hasan, M. Kabir, 1999, ‘The Performance of Malaysian Islamic Bank During 1984-1997: An Explanatory Study’, International Journal of Islamic Financial Services, vol.1, no.3, October-December, viewed 13 June 2012.
Siddiqui, S. A., 2010, ‘Establishing the Need and Suggesting a Strategy to Develop Profit and Loss Sharing Islamic Banking’, Journal of Islamic Economics- Banking and Finance, vol.6, no.4, October-December, pp.29-52.
Shahchera, Mahshid, 2012, ‘The Impact of Liquidity Asset on Iranian Bank Profitability’, International Conference on Management, Behavioral Sciences and Economics Issues (ICMBSE'2012), Penang, Malaysia, pp. 131-135.
Shahjalal Islami Bank Ltd., 2005-2011, Annual Report 2005-2011, Shahjalal Islami Bank Ltd., Dhaka, Bangladesh.
Social Islami Bank Ltd., 2005-2011, Annual Report 2005-2011, Social Islami Bank Ltd., Dhaka, Bangladesh.
Toni, Uhomoibhi, 2008, ‘Determinants of Bank Profitability: Macroeconomic Evidence from Nigeria’, Deakin university, (working paper).
Usmani, Muhammad Taqi, 1993, An Introduction to Islamic Finance, March, IDATARUL
--0--
