Assessing the Performance of Selected Islamic Banks: Evidence from Bangladesh
The study aims to assess Islamic banking performance in Bangladesh using fundamental profitability ratios. The secondary data is collected from the financial statements of six respective Islamic Banks in Bangladesh from 2010 to 2019. The study applied the ratio analysis to measure the performance of selected banks. Finally, we used trend analysis to identify the selected ratios and factors’ present and future movement. The ratio analysis concluded that Al-Arafah Islami Bank Limited (AIBL), Export Import Bank of Bangladesh Limited (EXIM), Social Islamic Bank Limited (SIBL), and Shahjalal Islami Bank Limited (SJBL) are slightly in a good position in terms of profitability ratio and management efficiency ratio. In terms of credit risk performance, all banks are in a declining position. SIBL and IBBL are doing well in management ability. However, the study found that AIBL seems to be the most competent in terms of overall performance. Finally, the study is concluded that Islamic banks have a significant contribution to the banking industry of Bangladesh. This study provides clear guidelines about the basic performance indicators, risk, and management efficiency. The investors, stakeholders and the responsible parties should be more concerned while measuring the performance of overall Islamic banking in Bangladesh.
Abduh, M., Hasan, S. M., & Pananjung, A. G. (2013). Efficiency and performance of Islamic banks in Bangladesh. Journal of Islamic Banking and Finance, 2013, 94–106.
Achou, T. F., & Tenguh, N. C. (2008). Bank Performance and credit risk management. In University of Skovde; School of Technology and Society.
Akinleye, G. T., & Olufemi Dadepo, A. (2019). Assets utilization and performance of manufacturing firms in Nigeria. International Journal of Business and Management, 14(4), 107. https://doi.org/10.5539/ijbm.v14n4p107
Allen N. B. (1995). The profit-structure relationship in banking tests of market-power and efficient-structure hypotheses. Journal of Money, Credit and Banking, 27(2), 404–431.
Andreou, P. C., Karasamani, I., Louca, C., & Ehrlich, D. (2017). The impact of managerial ability on crisis-period corporate investment. Journal of Business Research, 79(May), 107–122. https://doi.org/10.1016/j.jbusres.2017.05.022
Azlina, R., Ruhaya, A., & Amrizah, K. (2017). Human capital efficiency and firm performance: An empirical study on Malaysian technology industry. SHS Web of Conference 36, 00026. https://doi.org/10.1051/shsconf/20173600026
Barus, J. J., Muturi, D. W., Kibati, D. P., & Koima, D. J. (2017). Effect of capital adequacy on the financial performance of savings and credit societies in Kenya. American Journal of Finance, 1(4), 1. https://doi.org/10.47672/ajf.159
Bhavani, G., Kumar, A., & Mehta, A. (2017). Impact of capital adequacy and cost-income ratio on performance of Nepalese commercial banks. International Journal of Management Research, 8(1), 6–18.
Chang, X., & Zhang, H. F. (2015). Managerial entrenchment and firm value: A dynamic perspective. Journal of Financial and Quantitative Analysis, 50(5), 1083–1103. https://doi.org/10.1017/S0022109015000423
Dehuan, J., & Jin, Z. (2008). Firm performance and stock returns: An empirical study of the top performing stocks listed on Shanghai Stock Exchange. Academy of Accounting and Financial Studies Journal, 12(1), 79.
Demirgüç-Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: Some international evidence. World Bank Economic Review, 13(2), 379–408. https://doi.org/10.1093/wber/13.2.379
Eshraghi, A., & Taffler, R. J. (2012). Fund manager overconfidence and investment performance: Evidence from mutual funds. SSRN Electronic Journal, 2–32. https://doi.org/10.2139/ssrn.2146864
Fairchild, R. J. (2011). The effect of managerial overconfidence, asymmetric information, and moral hazard on capital structure decisions. SSRN Electronic Journal, 1–26. https://doi.org/10.2139/ssrn.711845
Fiordelisi, F., Marques-Ibanez, D., & Molyneux, P. (2011). Efficiency and risk in European banking. Journal of Banking and Finance, 35(5), 1315–1326. https://doi.org/10.1016/j.jbankfin.2010.10.005
Fredrick, O. (2012). The effect of credit risk management on the financial performance of commercial banks in Kenya. DBA Africa Management Review, 3(1), 22–37.
Goderis, B., Marsh, I. W., Vall Castello, J., & Wagner, W. (2011). Bank behaviour with access to credit risk transfer markets. In SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1010101
Gottschalk, R. (2007). Basel II implementation in developing countries and effects on SME development. ICRIER- InWent Conference on ‘Financial Globalisation and Domestic Financial Sector Development in South and Central Asia’’,’ 22–23.
Haque, S. (2013). The performance analysis of private conventional banks: A case study of Bangladesh. IOSR Journal of Business and Management, 12(1), 19–25. https://doi.org/10.9790/487x-1211925
Herdinata, C. (2019). Asset utilization and company performance. Business and Finance Journal, 4(1), 15–24. https://doi.org/10.33086/bfj.v4i1.1091
Hill, C. W. L., Schilling, M. A., & Jones, G. R. (2015). Strategic management: An integrated approach (12th ed.).
Hosna, A., Manzura, B., & Sun, J. (2009). Credit risk management and profitability in commercial banks in Sweden. Master Degree Project 2009:36, 1–18.
Hult, G. T. M., Ketchen, D. J., Griffith, D. A., Chabowski, B. R., Hamman, M. K., Dykes, B. J., Pollitte, W. A., & Cavusgil, S. T. (2008). An assessment of the measurement of performance in international business research. Journal of International Business Studies, 39(6), 1064–1080. https://doi.org/10.1057/palgrave.jibs.8400398
Issah, O., & Ngmenipuo, I. (2015). An empirical study of the relationship between profitability ratios and market share prices of publicly traded banking financial institutions in Ghana. International Journal of Economics, Commerce and Management, 3(December 2015), 27–42.
Al Karim, R., & Alam, T. (2013). An evaluation of financial performance of private commercial banks in Bangladesh: Ratio analysis. Journal of Business Studies Quarterly, 5(2), 65.
Khandker, S. R. (1988). Input management ability, occupational patterns, and farm productivity in Bangladesh agriculture. The Journal of Development Studies, 24(2), 214–231. https://doi.org/10.1080/00220388808422064
Kolapo, T. F., Ayeni, R. K., & Oke, M. O. (2012). Credit risk and commercial banks’ performance in Nigeria: A panel model approach. Australian Journal of Business and Management Research, 2(02), 31–38.
Kuo, S. H., & Enders, W. (2004). The term structure of Japanese interest rates: The equilibrium spread with asymmetric dynamics. Journal of the Japanese and International Economies, 18(1), 84–98. https://doi.org/10.1016/S0889-1583(03)00046-7
Mathuva, D. M. (2009). Capital adequacy, cost-income ratio and the performance of commercial banks: The Kenyan scenario. The International Journal of Applied Economics and Finance, 3(2), 35–47. https://doi.org/10.3923/ijaef.2009.35.47
Million, G., Matewos, K., & Sujata, S. (2015). The impact of credit risk on profitability performance of commercial banks in Ethiopia. African Journal of Business Management, 9(2), 59–66. https://doi.org/10.5897/ajbm2013.7171
Mishra, D. R. (2014). The dark side of CEO ability: CEO general managerial skills and cost of equity capital. Journal of Corporate Finance, 29, 390–409. https://doi.org/10.1016/j.jcorpfin.2014.10.003
Mosko, A., & Bozdo, A. (2016). Modeling the relationship between bank efficiency, capital and risk in Albanian banking system. Procedia Economics and Finance, 39(2016), 319–327. https://doi.org/10.1016/S2212-5671(16)30330-6
Musyoki, D., & Kadubo, A. S. (2012). The impact of credit risk management on the financial performance of Banks in Kenya for the period. International Journal of Business and Public Management, 2(April), 72–80.
Naceur, S. B., & Goaied, M. (2001). The determinants of the Tunisian deposit banks’ performance. Applied Financial Economics, 11(3), 317–319. https://doi.org/10.1080/096031001300138717
Ojokuku, R. M., Odetayo, T. A., & Sajuyigbe, A. S. (2012). Impact of leadership style on organizational performance: A case study of Nigerian banks. American Journal of Business and Management, 2(4), 202–207. https://doi.org/10.11634/216796061706212
Okenwa, O. C., Amahalu, N., & Abiahu, M. F. C. (2017). Effect of intellectual capital on financial performance of quoted deposit money banks in Nigeria (2010-2015). Journal of Global Accounting, 5(1), 841-862.
Poudel, P. R. S. (2012). Impact of credit risk management on financial performance of commercial banks in Nepal. International Journal of Arts and Commerce, 1(5), 9–15.
Rahman, M. M. (2016). Financial Performance Analysis of Scheduled Commercial Banks in Bangladesh. Journal of Accounting and Finance, 4(5), 166–184. https://doi.org/10.13189/ujaf.2016.040503
Robin, I., Salim, R., & Bloch, H. (2018). Financial performance of commercial banks in the post-reform era : Further evidence from Bangladesh. Economic Analysis and Policy, 58(58), 43–54. https://doi.org/10.1016/j.eap.2018.01.001
Roelse, H. V. (2014). Some theoretical problems suggested by the movements of interest rates, bond yields and stock prices in the United States Since 1856. Journal of the American Statistical Association, 33(203), 609–612.
Salehi, M., & Moghadam, S. M. (2019). The relationship between management characteristics and firm performance. Competitiveness Review, 29(4), 440–461. https://doi.org/10.1108/CR-11-2018-0070
Selvam, M. (2011). Financial performance of Indian manufacturing companies during pre and post merger. Journal of Financial Markets Research, 2.
Serra, F. R., Três, G., & Ferreira, M. P. (2016). The ‘CEO’ effect on the performance of Brazilian companies: An empirical study using measurable characteristics. European Management Review, 13(3), 193–205. https://doi.org/10.1111/emre.12079
Shingjergji, A., & Hyseni, M. (2015). The determinants of the capital adequacy ratio in the Albanian banking system during 2007-2014. International Journal of Economics, Commerce and Management, III(1), 1–10.
Smirlock, M. (1985). Evidence on the (non) relationship between concentration and profitability in banking. Journal of Money, Credit and Banking, 17(1), 69. https://doi.org/10.2307/1992507
Yang, C., & Liu, H. M. (2012). Managerial efficiency in Taiwan bank branches: A network DEA. Economic Modelling, 29(2), 450–461. https://doi.org/10.1016/j.econmod.2011.12.004
Yousuf, s., Islam, M. M., & Islam, M. M. (2014). Islamic banking scenario of Bangladesh. Journal of Islamic Banking and Finance, 2(1), 23–29. http://aripd.org/journals/jibf/vol_2_no_1_march_2014/2.pdf
Copyright (c) 2021 Shaharin Akter, Md. Mufidur Rahman, Athkia Subat, Mohammad Rifat Rahman
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.