INDEPENDENT UNIVERSITY, BANGLADESH (IUB)

INTERNSHIP REPORT ON
GENERAL BANKING ACTIVITIES
AND FINANCIAL PERFORMANCE OF
AL-ARAFAH ISLAMI BANK LTD

SUBMITTED BY

Jannatul Ferdousi Akhi

ID : 1521907

PREPARED FOR
Ms. Susmita Mandal
Lecturer, Accounting
School of Business

DATE : 24th July, 2019

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Letter of Transmittal

10th July, 2019

Ms. Susmita Mandal

School of Business,

Independent University, Bangladesh

Submission of Internship report

Dear Ma'am

With due respect, I am hereby submitting my internship report, which is a part of the BBA
program curriculum. It is great achievement to work under your active supervision. This
report is based on, “Al-Arafah Islami Bank Limited”. I have got the opportunity to work at
this bank in General banking division for three months, under the supervision of Mr.
Mohammad Qayum Khadem (Himu), Senior Principal Officer of Al Arafah Islami Bank
Limited, Uttara Model Town Branch. This internship gave me both academic and practical
exposures. First of all I learned about the organizational culture of a prominent conglomerate
of the country. Secondly, this internship gave me the opportunity to develop a network with
the corporate environment.

I shall be highly obliged if you are kind enough to receive this report and provide your
valuable judgment. It would be my immense pleasure if you find this report useful and
informative to have an apparent perspective on the issue.

Sincerely yours,

Jannatul Ferdousi Akhi

ID: 1510907

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Acknowledgement

First of all, I would like to convey my heartiest gratitude to my Supervisor Ms. Susmita
Mandal, Lecturer, Independent University, Bangladesh for giving me the opportunity to
conduct my internship report on the "Al Arafah Islami Bank" and for her continuous support
in preparing this report. It would have been difficult for me to prepare my internship report
without her support.

Secondly, I am deeply grateful to Mr. Md. Qayum Khadem (Himu), Senior Principal
Officer of Al Arafah Islami Bank Limited, Uttara Model Town Branch, for supervising me in
my entire internship period and providing me with the necessary information required to
prepare my report.

Finally, I would also like to thank all the employees of Al Arafah Islami Bank Limited,
Uttara Model Town Branch for helping me in the workplace. My gratitude goes towards all
my colleagues. Without their co-operation and constant encouragement this internship would
not have been this much enjoyable.

Thank you.

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iii
Table of Contents
CONTENTS PAGE NO.
Executive Summery 1
Chapter One : Introduction
Company profile 2
Mission, vision and objective 3
Corporate departments/divisions 4
Details of the services 4
Operation details 7
CSR activities 8
Chapter two : Internship Experience
Job responsibilities 11
Functions of the department 12
Chapter Three : Internship Outcome/Issue Analysis
Industry Analysis of Banking Sector 15
Ratio Analysis 17
Main Competitors 27
Problems Identified in the workplace 34
Recommendations 34
Chapter Four
Conclusions 36
References 37
List of Tables
Table 1 Five Years Ratio of Al-Arafah Islami Bank Limited Page 17
Table 2 Five Years Ratio of Social Islami Bank Limited Page 27
List of Figures

Figure 1 Organizational Structure of AIBL Head Office Page 7

Figure 2 Organizational Structure of AIBL Uttara Model Town Branch Page 8
Executive Summery

This internship report focuses on the work experience I have gathered while working as an
Intern in the General banking division of Al Arafah Islami Bank Ltd from May 01, 2019 to
July 31, 2019. An internship program is a must for a student to apply the theoretical
knowledge into real life experience. I got the opportunity to work with AIBL and have gained
practical knowledge about the work place.

This report mainly divided into four chapters. First chapter deals with details about the
organization. I have tried my best to include all the necessary points in order to give a clear
understanding about Al Arafah Islami Bank Limited. Second chapter deals with my practical
experience as an intern in Al Arafah Islami Bank Limited, Uttara model town branch. I have
included all my daily job responsibilities. Third chapter is about industry analysis along with
bank related ratios. I have done the ratio analysis of Al Arafah Islami Bank Ltd. of last 5
years and did a comparison with another leading bank. And final chapter deals with
recommendation and conclusion.
Chapter-1

Page | 1
Company Profile

Al Arafah Islami Bank Limited is the most modern and a leading bank in Bangladesh. It is a
seconed generation bank. It operates its banking activities based on Islami Shariah. As an
Islami bank, that it operates on the basis of profit and loan sharing. They are unique with their
product, strict with their principles and honesty.

Al Arafah Islami Bank Ltd. was registered as private limited company on 18 June 1995. The
opening ceremony was held on 27 September 1995. Islamic scholar, economist, writer and
ex- bureaucrat of Bangladesh government Mr. A.Z.M Shamsul Alam is the founder chairman
of the bank. Its authorized capital is Taka 15000 million and the paid-up capital is Taka
9,943.06 million as on 31 December 2018. Al-Arafah Islami Bank Ltd. has 154 branches and
a total of 3,446 employees (upto December 2018). It operates its banking activities with
30,386 shareholders as on 31 December 2018. The equity of the bank was Tk.
20,676,632,231 as on 31 December 2018. Al Arafah Islami Bank Ltd. is a listed bank of
Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd. AIBL has launched 112
Agent Banking outlets through 82 Agents as on December 2018 with an aim to bring the un-
banked population under banking services. It has achieved a continuous profit and declared a
good dividend over the years. The bank operates all the activities with high quality customer
service through the integration of modern technology and new products to achieve success.
The bank has updated their products and services to satisfy customer needs. Al-Arafah Islami
Bank Limited provides commercial and consumer banking, trade finance and other related
custody and clearing services in Bangladesh. Within this short time the bank has achieved a
lot success as progressive financial institution in the country. The bank contributes
significantly to the national economy. It has made a positive contribution towards the socio
economic development of the country with 140 branches.
Vision Mission and Objective

Vision

According to the website of Al-Arafah Bank, the company’s vision is “To be a pioneer in Islami
Banking in Bangladesh and contribute significantly to the growth of the national economy.”

Mission
According to the website of Al-Arafah Bank, the company’s mission is the followings,

 Achieve the satisfaction of Almighty Allah both here and hereafter.

 Proliferation of Shariah Based Banking Practices.

 Quality financial services adopting the latest technology.

 Fast and efficient customer service.

 Maintain high standard of business ethics.

 Balance growth.

 Steady and competitive return on shareholder’s equity.

 Innovative banking at a competitive price.

 Attract and retain quality human resources.

 Extending competitive compensation packages to the employees.

 Firm commitment to the growth of national economy.

 Involving more in Micro and SME financing.

Objectives

The objectives of AIBL are not only to earn profit, but also to do good and welfare to the people. The
main objectives of AIBL are listed below:

 To promote, foster and develop the application of Islamic principles, law and tradition
to the transaction of financial, banking and related business affairs.
 To establish participatory banking instead of banking on debtor creditor
relationship.
 To offer contemporary financial services in conformity with Islamic Shariah.
 To contribute towards economic development and prosperity within the principles
of Islamic justice.
 To introduce a well fare oriented banking system and also to establish equity.
 To facilitate efficient allocation of resources.
 To help achieving stability in the economy.

Corporate Department/Division

 General Banking Division

 Investment Division
 Foreign Exchange Division
 Audit Division
 Human Resources Division
 Financial Administration Division
 Establishment and Common Services Division

Details of the services

Deposit Products that are AIBL currently offering are given below:

 Al Wadiah Current Deposit (CD)

 Mudaraba saving deposit (MSD)
 Mudaraba term deposit (MTDR)
 Mudaraba short notice deposit (SND)
 Monthly profit based term deposit (PTD)
 Al-Ararah monthly Hajj deposit (MHD)
 Al-Arafah termed hajj deposit (THD)
 Foreign currency deposit (FCD)
 Pension deposit scheme (PDS)
 Mudaraba Lakhpoti deposit scheme (LDS)
 Mudaraba kotipoti deposit scheme (MKDS)
 Mudaraba Millionaire deposit scheme (MDS)

AIBL has introduced school banking for the school level minor and students. The bank has made
massive marketing and publicity to introduce this type of accounts. AIBL also has another
new type of account named “Garments Account”. This account entitled for the garment
workers. Any garment worker can open this account by only depositing tk.100. The account
holders can deposit, withdraw and get remittance through this account.

AIBL investment products:

 Investment in Agricultural sector

 Investment in Business sector
 Investment in Industrial sector
 Investment in Foreign Trade
 Investment in Construction and Housing
 Investment in Transportation sector
 Investment schemes in Masque and Madrasa
 Consumer investment schemes

Micro, Small & Medium Enterprises (MSME) Banking

Al -Arafah UDDOG Al
-Arafah UTHSOB
Al -Arafah UNNAYAN Al
-Arafah PUNJI
Al -Arafah SONIRBHAR Al
-Arafah KHAMERBARI
Al -Arafah SOLAR ENERGY

Cards

 Debit Cards
 Credit Cards
Card division of Al-Arafah Islami Bank Limited has been offering diversified range of products and
services depending on the customers need. Al-Arafah Islami Bank has introduced the first ever
Islamic MasterCard product in Bangladesh. The La- Riba Islamic Credit Card, designed in a way to
meet customer transactional needs while strictly maintaining the Sariah Principals. AIBL has been
offering discount facility for both Debit & Credit card holders & Equal Monthly Installment (EMI)
facility for credit card holders. They also are issuing Hajj card to honorable Hazzi Saheba & Saheban
with lowest service charge than any other bank in Bangladesh. They have launched Instant card for
account holders. Account holders collect their card from branch at the date of account opening. Card
division is working hard to provide efficient & satisfactory service to their valued customers. Card
Division will provide modern day banking service to their customer by adapting technological
advancement.
Operations Details

Organization Structure of AIBL

Board of Director Chairman Managing Director

Deputy Managing Director Pincipal
Ex. Vice President Senior Vice President Vice president
Asst. Vice President
First Asst. Vice President Senior Principal Officer Principal Officer
Senior Executive Officer Executive Officer Officer
Assistant Officer
Trainee Assistant Officer

Figure 1: Organizational Structure of AIBL, head office.

Organization Structure of AIBL

Executive Vice President and Branch Manager

First Assistant Vice President

Principal Officer

Senior Executive Officer

Executive Officer

Officer

Assistant Officer

Figure 2: Organization Structure o AIBL, Uttara model town branch.

CSR Activities
From the feeling of doing something good for the general people of the society, CSR is main
concerned issue now. CSR is an integral part of a corporate culture and ethics. Every
institution has responded positively in every sphere of social activities. From this
responsibility AIBL takes initiatives of doing welfare to the society priority basis. Al- Arafah
Islami Bank is very active to social activities. AIBL is delivering innovative solution to their
valued customer and in the same way they are also doing social activities in different areas
through their CSR activities.

The bank has been giving various facilities to their customer to enhance social service as part
of corporate social responsibility. The Bank has facilitated farmers & freedom fighters to
open savings accounts with special facilities of giving profit on daily balance without any
account maintenance fee. The bank also offered same facility to the school students. During
the year 2018, they accomplished different humanitarian and social activities which include
allocation of fund Tk. 157.40 million. They donated to the honorable Prime Minister’s fund
for flood victims and blankets to help cold effected people. The bank also donated an
Ambulance to Kurmitola High School. Besides, AIBL has taken a program to develop
manpower and make them employed as well as assisting them for employment in abroad.

Al-Arafah Islami Bank Foundation

The Bank has a Foundation for launching philanthropic activities. The foundation manages
all the social activities done by AIBL. Al-Arafah Islamic International School & College and
Al-Arafah Islami Bank Library are major two wings for launching philanthropic activities.

Al-Arafah Islamic International School & College

Al-Arafah Islamic International School & College has been established at Dhanmondi by the
Al-Arafah Bank Foundation in 1998. The institution was established with a view to build
ideals of peace and equality of Islam to next generation and to establish banking and other
aspects of life in the way of Islam. The prime aim of this Islamic International School &
College is to contribute towards human resource and in the broader sense to ensure human
welfare. Such institution has class level up to O level for the first time in Bangladesh.

Al-Arafah Islami Bank Library

Library is the source & reservoir of knowledge. Al-Arafah Islami Bank has established a
public library at 32, Topkhana Road, Chittagong Bhaban (1st floor), Dhaka in 2000. It has
shown that other than generating profit, AIBL can also contribute significantly in the field of
providing good source of knowledge, thus strengthening its social development. It is situated
in a sound and healthy surroundings and accessible to everyone. The library has 23,000 books
of reference for the researchers, students, professionals, bankers, physicians, engineers,
politicians, writers or journalists, even for the kids. It has some exceptional collection of
books on religion, economics, banking, computer science, business administration, sociology,
English & Arabic language and juvenile literature in Bangla, English, Urdu & Arabic, which
are very rare.
Chapter-2
Internship experience / observation details

Job responsibilities

At Al-Arafah Islami Bank Ltd, I worked in remittance division, which is under General
banking department. Throughout my internship period I have gained a lot of experience and
knowledge about banking activities and working environment.

 Collect account opening documents: In the account opening section, I had to collect
all the necessary documents like two copy passport size photo of both account holder
and nominee and photocopy of National ID card/Passport/Birth Certificate whenever
a customer opens an account. After that I had to fill up the entire application form for
the applicant.
 Check and write Account closed: I used to do check old file and write “accounts
closed” on the front page in which accounts confirmed as a closed accounts.
 Checking accounts number: I used to do write down the accounts number of maturity
accounts from the old file and copy that to computer with account number and
account holder name.
 Match files and cheques: I have done finding file and cheque from the almirah
according to the account number and cheque number.
 Do entry of thanks letter: I used to do entry of thanks letter in the register book
serially with account number and account holder name and give a serial number to the
thanks letter. I have done the same process with the other documents.
 Maintain register books: I used to maintain different types of register book. I also
used to do filling different documents to the file.
 Numbering cheque books: I used to do numbering the cheque book on the front page
and then keep those at almirah serially. I also have done the entry of cheque number
and account number to the computer in a excel sheet.
 Help the customers: I used to help customers to write cheque for them. I also used to
help customers to fill up the various form like MoneyGram form, XpressMoney form,
Western Union form and other form.
 Verify and approve: I used to go second manager, authorized officer for the signature
to verify and approve in the different documents, cheques, application form and
different slips.
Functions of the department

General Banking

General Banking is the main point of all the banking operation. General Banking department
do all the primary activities which are important for banking operation. It is the department
which provides day to day services to the customers. The general banking service includes:

1. Customer Service: This section is one of the most important sections in the banking
activities. It is the root of the banker customer relationship. This department deals all
the customer needs which are given below:
 Account Opening
 Account Closing
 Issuance of Cheque Book
 Issuance of Demand Deposit
 Issuance of Payment Order
 Account to account fund transfer
 Operation of clearing house

2. Cash Department: Cash section is the most vital and sensitive part of the branch.
This section deals with all kind of transaction in cash. All cash receipts and payments
are made through this department. It receives deposits from the depositors in the form
of cash and it makes payment against its printed valid cheque after verifying the
cheque with customer signature, date, and amount and account number. Cash section
also maintains different register book such as vault register, cash receipt/payment
register and cash balance book.

3. Accounts Department: In the accounts department, general accounting section

incorporates with all the cost of everyday’s activities and salary. This section
maintains all the financial statement and unadjusted/balanced trial adjust. It does the
registration of voucher and posting of those vouchers in the account. And investment
accounting section resolve all the problems of irregular investment Accounts.
Investment /Loan and Credit Division

 Client selection of loan disbursement

 Proposal sent to head office for approval of loan
 Loan disbursement after Sanction of loan
 Recovery of loan

International Division: Foreign trade is one of the leading business activities of the bank
conducted by the international division. This division has been trying their best to establish
Corresponding Banking Relationship with world reputed bank and to grab corporate clients to
improve Import and Export business by delivering their best and skilled services. They also
are giving their efforts in establishing remittance arrangements with the world renowned
companies to bring the wage earners remittance from the Bangladeshi people in abroad.

Audit Division: This division operates by the head office and responsible for the audit and
inspection of the bank.

Human Resources Division: This division is situated at the head office. This division
operates recruitment & selection, training, posting, promotion process for the employees and
responsible for salary of employees.

Financial Administration Division: This division deals with keeping all the books and
accounts of the bank safe and securely.

Establishment and Common Services Division: This division does the other activities like
engineering works, development works for the bank.
Chapter-3
Internship outcome / Issue Analysis / Empirical Analysis

Industry Analysis of Banking Sector

According to figures from government and other sources, the growth of the banking sector in
Bangladesh have declined by 1.22 percentage points in the outgoing fiscal year 2018-2018
because of increasing number of non-performing loans. According to Bangladesh Economic
Review 2018, banking sector registered a lower 8.51 per cent growth in the fiscal year 2018
from 9.95 per cent in the previous fiscal and growth of the financial sector has declined to
7.90 per cent in the outgoing fiscal from 9.12 per cent in the last fiscal year. Meanwhile, non
performing loans in the country’s banking sector stood at Tk 88,589 crore as of March this
year with an increase of 19.22 per cent or Tk 14,286 crore during January-March quarter of
FY18.

Former Bangladesh Bank governor Salehuddin Ahmed told New Age that the banking sector
failed to recover from its disastrous position in the outgoing financial year with unsolved
problems, no improvement in governance and continued high rate of corruption and writing-
off of bad loans.

Debapriya Bhattacharya, Centre for Policy Dialogue distinguished fellow, said at a press
conference, “Now I think the banking sector has turned into an orphan and its protectors are
abusing it.” The central bank cut the bank’s cash reserve requirement rate by one percentage
point and set at 5.5 percent. The central bank also lowered repo rate, which is the rate at
which banks take loans from the central bank, to 6 percent from 6.75 percent. Because of
lowered CRR, poor performing private banks got the opportunity to continue their business as
usual practices. It also encourages the banks to lend money aggressively which may results
non-performing loans. (Centre for Policy Dialogue, 2016)

Banking law states that a bank cannot lend more than 25% loan of the bank’s paid-up
capital to a single client. But banks were continuously doing that. According to a
Bangladesh Bank (BB) report, in 2018, ...’s paid-up capital was Tk 2,979 crore and the
bank lend TK13,377 crore as loan. The bank has given of 365% more than the paid-up
capital. At the same time, Sonali Bank disbursed loans up to a total of 546% more than
its paid-up capital and Rupali Bank gave 555% more than the paid -up
capital. Agrani Bank had paid-up capital worth Tk 3,053 crore and it gave loan of Tk
7,957 crore that is 199% more than the paid-up capital. In this way 55 banks gave loan
of Tk 3.5 lakhs crore against their total paid-up capital of Tk90,131 crore which is
233% more than the total paid-up capital.

Capital to risk weighted assets ratio (CRAR), is a measurement of bank strength and stability,
has been affected too. According to The Economist's Intelligence Unit BD, the CRA ratio of
private banks was 12.2% whereas of the nine foreign banks was a healthy 23.9%. On the
other hand, the CRA ratio of the six state-owned commercial banks was only 5.9% and of the
specialized state-owned banks was an astonishing -35.23%.

Banks operate with old and outdated banking procedures, inefficient banking services, lack of
coordination between proper manpower planning and bank schemes, lack of market research
for customer psychology analysis and lack of long term planning (Ali 2005). The banking
sector is making a lot unusually high default loans. The main reasons of these loans are
“corruption” and “inefficiency” (Khondker Ibrahim Khaled, Deputy Governor, BB).

According to noted economist Dr Debapriya Bhattacharya, a few years back the private banks
that were given licenses on political consideration, had failed to perform completely and
allegations of money laundering. A BB official said that, the central bank could not
completely monitor these banks as they were owned by politically influential people. Some of
these banks having been linked to loan scams, aggressive lending and violations of banking
regulations which are a serious threat to the banking sector.

The banking sector is being in difficult phase day by day because they are continuously
violating the banking rules and regulations. The non-performing loan has been made its place
in the banking practices permanently which is destroying the competitive nature of financial
system
Ratio Analysis

Ratio analysis is a quantitative method of gaining insight into a company's liquidity,

operational efficiency, and profitability by comparing information contained in its financial
statements. Ratio analysis is a cornerstone of fundamental analysis.

Ratio analysis help identify problem areas and bring the attention of the management to such
areas. Some of the information is lost in the complex accounting statements, and ratios will
help pinpoint such problems. It also allows the company to conduct comparisons with other
firms, industry standards, intra-firm comparisons etc. Which helps the organization better
understand its fiscal position in the economy.

Five Years Ratios of AIBL

2014 2015 2016 2017 2018

Return on Assets 1.03% 0.99% 1.14% 0.98% 1.08%

Return on Equity 12.77% 12.68% 15.52% 14.88% 15.40%

Debt Ratio 91% 92% 92% 93% 93%

Loan to Deposit 85.29% 92.59% 95.49% 95.66% 96.48%

Ratio
Cost to Income Ratio 35.34% 37.79% 37.17% 43.21% 45.68%

NPL Ratio 4.94% 4.93% 4.75% 4.27% 4.52%

Net Interest Margin 3.08% 2.98% 2.94% 2.77% 2.85%

EPS (TK) 2.24 2.34 3.06 3.09 3.26

Capital Adequacy 13.53% 15.30% 14.41% 12.28% 13.35%

Ratio

Table 1: Five Years Ratios of Al- Arafah Islami Bank Ltd.

Return on Assets
The return on assets ratio refers to how much of my total assets are being used to generate
income or earnings. It is found out by comparing net income to the total assets.

 Return on Assets = Net Income / Total Assets

From the graph above, it can be seen that the Return on Assets ratio of AIBL has decreased at
a steady constant rate from 2014 to 2015 because of less net income compare to total assets.
However, the Return on Asset of AIBL has increased in 2016 which indicates that the assets
were being used efficiently. But in 2018, the bank again generated low ROA from previous
year.
Return on Equity
The return on equity is a profitability ratio that measures the ability of a firm to generate
income from its stockholder’s investments in the company. Therefore it measures by how
much the stockholder’s investments in a company are significant in determining the net profit
or income.

 Return on Equity = Net Income/ Total Equity

The return on equity has been decreasing from 2014 to 2015 due to low shareholder’s equity.
This shows that the bank is not efficiently using its’ shareholders investment to generate
profits. However, there was a slight upward to 15.52% in 2016 which was later increased in
2018.

Debt Ratio
The debt ratio is a solvency ratio that a firm’s total liabilities as a percentage of its total
assets. The ratio shows ability of bank to pay off its obligation with its assets. A lower debt
ratio is always favorable than a higher ratio.

 Debt Ratio= Total Liabilities/ Total Assets

From the graph above, the debt ratio has been increasing pace from 2014 to 2017 duo to
almost same amount of total assets and total liabilities. However, it decreased in 2019. The
debt ratio of 50% is considered to be less risky. Here, the debt ratio is 90% which is around
100 that means AIBL’s total assets equal its total liabilities. The bank needs to sell its assets
to pay its liabilities.

Loan to Deposit Ratio

The loan to deposit ratio is a ratio between a bank’s total loans and total deposits. It is used
for estimating a bank’s liquidity by dividing total loans by total deposits and the ratio is
expressed as a percentage. The ratio is used to assess the bank liquidity. The low ratio is more
favorable for the bank. If the ratio is too low, it means the bank is having too much deposit
and is not generating any income from deposit amount. If the ratio is too high, it means that
bank may not have enough liquidity to pay its obligations or its any requirements.

 Loan To Deposit = Total Loans/ Total Deposits

From the graph, it can be say that the bank has been at good place in 2014 and 2014 because
the favorable ratio of loan to deposit is 80% to 90%. But rest of the years the ratio has been
more than 90% which is not good for a bank. Due to higher interest rate the bank has invested
more money, reducing the deposit amount. Last 3 years the bank has been at liquidity risk in
which bank has not enough cash on hand for future fund requirements.

Cost to Income Ratio

The cost-to-income ratio is a key financial measure that uses for valuing banks. The ratio
shows a company’s costs compare to its income. The ratio is calculated as divide the
operating costs by operating income. The ratio gives investors a clear view of how efficiently
the firm is running its business. The lower ratio indicates the bank is being more profitable.

 Cost To Income = Operating Cost/ Operating Income

The graph shows that the cost to income ratio was favorable for the bank in 2014 and 2016
compare to other years. The cost was reasonable compare to its income in 2014 and 2016 as
the ratio was lower than other years. In 2018, the ratio was the highest ratio for the AIBL. It
means that the costs of AIBL were rising at a higher rate than income in 2018.

Non- Performing Loan Ratio

A nonperforming loan is a loan on which the debtor has not made the scheduled payments
for a period of at least 90 days for commercial banking loans and 180 days for consumer
loans. This type of loans is generally considered as bad debt because the chances of the loan
amount getting paid back are minimal. The lower ratio is better for banks.

 Non - performing Loan: Non performing Loan/ Total Loans

The graph shows that the NPL ratio was 2.97% in 2014 which was very good for the AIBL as
the amount of nonperforming loan was lower compare to the total loans in 2014. From 2014
to 2017 the ratio was decreasing from 4.94% to 4.27%. The ratio was not more than 5% and
it was decreasing which indicates the bank has been gave loan to a trustable source and
managed to decrease their nonperforming loan amount. However, the ratio increased in 2018.

Net Interest Margin

The ratio is a profitability ratio that measures whether a firm is making an effective
investment decisions or investing its resources efficiently by comparing the income,
expenses, and debt of these investments. Banks typically use this ratio to analyze their
investment decisions and track the profitability of their lending operations. A positive figure
is favorable for banks. A negative figure indicates that firm has not been made an effective
investment decision.

 Net Interest Margin: Net Interest (Investment) Income /Total Assets

From the graph above it can be said that the ratio of net interest margin was positive figure
which is good for AIBL. But the ratio was getting decrease from year 2014 to 2017 and it was
not good for banks. It means the bank could not able to make an effective investment decision
and could not make enough interest income from its investment. However, the ratio increased
in 2018.

Earnings per Share

The ratio measures the amount of net income earned per share of stock outstanding. It is also
a calculation that shows how profitable a company is on a shareholder basis. Earnings per
share are calculated by subtracting preferred dividends from net income and dividing by the
weighted average common shares outstanding. The higher earnings per share are always
better than a lower ratio because this means the company is more profitable.
The graph shows that the bank was not operating as a profitable bank in 2014 and 2015 on
basis of shareholder. From 2014 the EPS rate has been decreased due to low net income
compare to its outstanding shares. But from 2016 the rate has been increasing which indicates
the bank has been managed to increase its net income in related to its shares.
Capital Adequacy Ratio
The Capital Adequacy Ratio (CAR), also known as capital to risk-weighted assets ratio,
measures a bank's financial strength by using its capital and assets. The Capital Adequacy
Ratio is used to protect depositors and promote the stability and efficiency of financial
systems around the world. The capital adequacy ratios ensure the efficiency and stability of a
nation’s financial system by lowering the risk of banks becoming insolvent. Generally, a
bank with a high capital adequacy ratio is considered safe and likely to meet its financial
obligations. The capital adequacy ratio is calculated by dividing a bank's capital by its risk-
weighted assets.

From the graph above it can be said that the bank was safe and secure to meet its financial
obligations in 2015 as the CAR ratio was more compare to other years. From 2014 the ratio
was increasing but from 2015 the ratio was going downward which was not safe for the bank.
Because of less capital compare to the risk weighted assets, the ratio was going downward
from 2015. The bank should invest more capital compare to its risk assets.
Main competitor

For the comparison, I have selected one more second generation bank to do ratio analysis and
to compare with Al Arafah Islami Bank Ltd. I have selected Social Islami Bank Limited. This
bank is also a leading Islami bank of Bangladesh. Apart of Al-Arafah Islami Bank, Social
Islami Bank is also one of the largest Islami Bank of Bangladesh. In terms of both
performance and size of customers.

Five Years Ratios of Social Islami Bank Limited

2014 2015 2016 2017 2018

Return on Assets 1.24% 1.15% 1.01% 0.53% 0.78%

Return on Equity 15.68% 16.00% 16.16% 10.27% 13.22%

Debt Ratio 92% 93% 94% 95% 96%

Loan to Deposit 88.26% 90.30% 93.89% 93.95% 96.42%

Ratio
Cost to Income 40.93% 41.21% 40.83% 43.18% 42.05%
Ratio
NPL Ratio 4.57% 3.84% 4.44% 8.20% 6.32%

Net Interest 3.21% 3.46% 3.22% 2.87% 3.06%

Margin
EPS (TK) 2.71 2.95 3.10 1.97 2.54

Capital Adequacy 11.36% 12.33% 11.55% 11.57% 12.56%

Ratio

Table 2: Five Years Ratios of Social Islami Bank Ltd.

Return on Assets

Return on Assets: From the graph above it can be said that AIBL was generating a flexible
ROA last five years and SIBL was generating constantly downward ROA which was not
good for SIBL. The performance of AIBL was better than SIBL in terms of return on assets
all throughout the year from 2014 to 2018 as illustrated in the graph. The highest significant
difference between the return on assets between the two banks is .43% during 2018. SIBL
could not generate income by using its assets. Therefore, it can be concluded that AIBL is
using its assets much more efficiently.

Return on Equity
Return on Equity: In the graphical representation above it shows that SIBL was in a good
form comparing to AIBL. Due to the high profitability and net income of SIBL, they are able
to use investments to generate greater profits and hence it kept increasing to 16.16%. But in
2018 the rate has decreased to 10.27% from 16.16%. The return on equity of AIBL kept
decreasing from 2014 to 2015. In 2016 the rate has increased and in 2018 it has gone
decreased again. I t can be said that due to low rate of investment and net income, AIBL
could not have a good return on equity performance.
Debt Ratio

Debt Ratio: From the graph it can be said that both banks are was not in a good state last 5
years as their debt ratios were close to 1. It means their total liabilities equal their total assets.
A lower debt ratio usually implies a more stable business with the potential. A debt ratio of .5
is often considered to be less risky. SIBL’s ratio was upward pace last 5 years and AIBL was
in a constant pace of .92 from 2014 to 2015 then it has gone upward pace. SIBL might have
been increasing their deposit which is the reason why their total liabilities were increasing as
well as debt ratio. It can be concluded that AIBL was in a little bit good form compared to
SIBL.
Loan to Deposit Ratio

Loan to deposit ratio: From the graph above it can be said that the loan to deposit ratio of
both banks was not in a good trend. In 2014 and 2014 the ratio of AIBL was in range of 80%
to 90%. From 2015 the ratio has been increasing which was more than 90%. The bank might
have got profitable investment. It indicates that the bank invests almost all the money they
bring as deposits and the bank will not have enough cash on hand for future fund
requirements. On the other hand, the ratio of SIBL has been increasing last 5 years which will
not good for SIBL in future. But the ratio was lower than AIBL. So it can be said SIBL was
in a better stage compare to AIBL. If the ratio of both banks has increases like this, both
banks will face liquidity problem in future.

Cost to Income Ratio

Cost to Income Ratio: From the graphical representation it can be said that AIBL was in a
better position compare to SIBL last 5 years. It means AIBL was controlling their cost in
order to generate income. In 2018 the ratio of AIBL has gone increased at 43.21% which
indicates that the operating cost has increased in 2018. On the other hand, SIBL was
generating flexible income related to their operating cost as the ratio was decreasing and
increasing pace. But from the graph it can be concluded that AIBL was doing better than
SIBL to keep their cost to income ratio lower.

NPL Ratio

NPL ratio: In the graph it shows that AIBL was performing better in granting loans to
customers. The amount of non- performing loans was lower related to total loans than SIBL.
The ratio has increased from 2.97% in 2014 to 4.94% in 2014 and it has been decreased at
constant pace from 2014 to 2018. The ratio of SIBL was 5.35% in 2014 which was higher
than AIBL. Then it has decreased to 3.84% in 2015 and it has again increased to 8.20% in
last year. It indicates that SIBL was not doing good to choose profitable customers last year.
Net Interest Margin

Net Interest Margin: A standard net interest margin rate is between 2.5 to 2.8. Both AIBL and
SIBL’s rate is a a slight higher than the standard rate.
From the graph it can be said that both banks were in critical situation in terms of net interest
margin ratio which it comes from their investment. Both banks were in decreasing pace. Both
banks have positive figure and it is good for banks but they were in a downward position.
Last 5 years the ratio of SIBL was higher than AIBL. It indicates that SIBL was able to make
an effective investment decision compare to AIBL. On the other hand AIBL could not make
an effective investment decision and could not make enough interest income from its
investment compare to SIBL. However both banks are now unfavorable stage as their ratio is
above the standard ratio.

Earnings Per Share

Earnings per share: In the graph it shows that both banks have very low amount earnings for
per share. The higher ratio is favorable for a bank. It indicates that bank is profitable.
However the rate of AIBL was not in a good form. The rate has been decreased in 2014 due
to low net income compare to its outstanding shares. From 2015 the ratio has increased and in
2018 AIBL has higher EPS ratio than SIBL. The EPS ratio of SIBL was in an increasing
position but in 2018 it has decreased to 1.97 TK. It means SIBL has generated very low net
income in 2018 related to its shares.

Capital Adequacy Ratio

Capital Adequacy Ratio: In the graph it shows that AIBL was safe and secure in 2015 to meet
its financial obligations as the CAR ratio was more compare to other years. From 2014 the
ratio was increasing but from 2015 the ratio was going downward which was not safe for the
bank. Because of less capital compare to the risk weighted assets, the ratio was going
downward from 2015. On the other hand the CAR ratio of SIBL was lower than AIBL last 5
years. The bank was not in a stable stage for generating high CAR ratio. It was increasing and
decreasing position and their capital was lower related to the risk weighted assets. So it can
be concluded that AIBL was doing better than SIBL in terms of CAR ratio.

Problems identified in the Workplace

During my internship period at AIBL, Uttara model town branch, I have learned a lot about
workplace. The entire bank employee was so nice to me and I have learned a lot from them
about different aspect of banking activities. Still I have also identified some issue in AIBL
throughout my observation.

The main problem that I have identified is in customer-banker relationship. The bank
employee sometimes become very rough with customers. Customer also come to the bank
with their complaint about bank’s services. Another problem is the bank employees are give
more priority to the known customer than new customer. If someone is a new account holder,
the person will get services after old account holder. They treat their old customer in a
different way. Another problem is lack of maintenance of equipment. Sometimes they have
faced problem with their computer, CPU, printer or Air-conditioner etc. They also face
problem with their internet connection. I also identified that there is no well facilities for
women employees. They don’t have separate prayer room and wash room for women
employees.

Recommendation
Based on the above my analysis Al- Arafah Islami Bank Ltd. was doing average performance
compare to Social Islami Bank Ltd. last 5 years. AIBL have showed better performance in
terms of return on equity, debt ratio, cost to income ratio, non-performing loan ratio, and cost
adequacy ratio. AIBL was able to meets its financial obligations. However, the bank was in a
bad shape in terms of return on assets, loan to deposit ratio and earnings per share. The bank
was not utilizing their assets in an effective way to generate income

1) The bank should focus more on return on assets.

2) The bank should utilize its asset more effectively and efficiently to generate more income.
3) The bank should try to increase their Return on Assets (ROA) by reducing their expenses
and by increasing their assets (loans/investment).
4) The bank also should decrease their loans related to deposits. They were giving almost
98% amount loans to the investments. It indicates that the bank invests almost all the money
they bring as deposits and the bank will not have enough cash on hand for future fund
requirements.
5) AIBL should control their debt ratio as it was close to 1 which is not good for the bank.
6) The bank should give proper training to their employee before transferring them to any
new division. AIBL should always monitor the performance of its competitors.
Chapter-4
Conclusion

The purpose of the report was to analyze the general banking activities and ratio analysis of
Al- Arafah Islami Bank Limited. There is huge area to analysis about Al- Arafah Islami Bank
Ltd. and its general banking system. Al-Arafah Islami Bank is now functioning efficiently,
smoothly and satisfactorily despite facing various internal and external threats.

To be an intern and get employed in a leading bank like Al Arafah Islami Bank Ltd was one
of my dreams when I was an undergraduate level student. I am so happy that, I could
complete the last phase of my undergraduate life working in such a well reputed bank. For a
young blood like me working with the corporate team of Al Arafah Islami Bank was a great
experience. The office and people there were great like home. We used to have fun, work
lately with high encouragement because we felt like we are working not only for the
customers but also for the nation and its people. It was a great journey working with so many
clients of Al-Arafah which concludes that, it has been a great learning opportunity for me.
This has been a great learning experience for my career. I had got the chance to get practical
knowledge from Al-Arafah Islami Bank Ltd. I had learned step by step processes of
remittance activities. I got to know the advantages, disadvantages and opportunities of
working in a bank. Most importantly, the experience that I had got from internship program
will help me in near future to implement my experience into different working environment.
References

Home page (2018, April 19). al-arafahbank Retrieved on 10/07/19 from from www.al-
arafahbank.com: https://www.al-arafahbank.com/Financial-Statement.php

Mustafizur Rahman (2018, April 18). Banking sector now an orphan: CPD. Retrieved from
https://www.thedailystar.net/business/bangladesh-banking-sector-now-orphan-cpd-
1564003

al-arafahbank (2019, March 10) Retrieved on 10/07/19 from https://www.al- arafahbank.com/index.php

Jamal, E. O. (2018, February 20) https://www.thedailystar.net/supplements/building- modern-

economy/banking-sector-and-its-impact-on-bangladesh-economy-1536568 Retrieved on
10/07/19 from https://www.thedailystar.net/supplements/building-modern-
economy/banking- sector-and-its-impact-on-bangladesh-economy-1536568

Maldives Islamic Bank. (2018, November 4) Difference between Conventional and Islamic
banking. Retrieved on 10/07/19 from http://www.mib.com.mv/blog/guide-to- islamic-
banking/difference-between-conventional-and-islamic-banking

Roy, N. ( 2018, April 28). Dhaka Tribune. Retrieved on 10/07/19 from

www.dhakatribune.com: https://www.dhakatribune.com/business/2018/04/28/banking-
sector-risk-due-aggressive-lending

Social Islami Bank Ltd (2018, October 11) Retrieved on 10/07/19 from
https://www.siblbd.com/home

Al- Arafah Islami Bank Ltd Annual Report (2014-2018)

Social Islami Bank Ltd Annual Report (2014-2018)

Appendix- A
Al-Arafah Islami Bank

Years 2014 2015 2016 2017 2018

Net Income 2,120,063,335 2,220,110,906 3,040,205,881 3,076,677,937 2,052,315,743

Total Assets 206,548,713,972 224,463,561,909 267,334,651,873 314,596,972,623 170,935,600,596
Total Liabilities 189,950,591,177 206,957,028,425 247,748,390,970 293,920,340,391 156,457,541,133
Total Equity 16,598,122,794 17,506,533,484 19,586,260,902 20,676,632,231 14,478,059,464
Net Interest Income 6,358,804,256 6,689,484,141 7,854,982,258 8,719,437,759 4,936,138,404
Total Loan 141,302,079,792 156,466,148,154 189,169,392,445 232,614,228,723 121,298,985,439
Deposits & Others 167,064,179,104 170,222,555,821 200,054,197,685 245,642,230,752 141,704,640,623
Bills Payable 1,396,165,765 1,239,833,780 1,947,821,349 2,479,779,449 953,220,429
Net Deposit 165,668,013,339 168,982,722,041 198,106,376,336 243,162,451,303 140,751,420,194
Operating Income 8,813,758,417 9,216,779,547 10,751,438,749 11,804,195,960 6,763,222,000
Operating Cost 3,115,128,399 3,483,025,364 3,996,274,966 5,101,141,554 2,548,353,439
Tier 1 Capital 15,620,574,546 16,514,943,545 18,608,190,925 19,615,806,006 13,500,511,216
Tier 2 Capital 1,732,056,124 4,828,030,650 5,095,978,474 5,488,968,650 1,511,748,389
Risk Weighted Asset 128,214,775,000 139,454,128,182 164,461,897,100 204,447,535,050 111,064,700,000
Non Performing Loan 6,982,600,000 7,713,670,000 8,994,980,000 9,921,510,000.00 3,598,830,000
No. of Shares 946,958,503 946,958,503 994,306,428 994,306,428.00 834,324,671
Return on Assets 1.03% 0.99% 1.14% 0.98% 1.20%
Return on Equity 12.77% 12.68% 15.52% 14.88% 14.18%
Debt Ratio 0.92 0.92 0.93 0.93 0.92
Loan to Deposit Ratio 85.29% 92.59% 95.49% 95.66% 86.18%
Cost to Income Ratio 35.34% 37.79% 37.17% 43.21% 37.68%
NPL Ratio 4.94% 4.93% 4.75% 4.27% 2.97%
Net Interest Margin 3.08% 2.98% 2.94% 2.77% 2.89%
EPS (TK) 2.24 2.34 3.06 3.09 2.46
Capital Adequacy Ratio 13.53% 15.30% 14.41% 12.28% 13.52%
Appendix - B
Social Islami Bank

Years 2014 2015 2016 2017 2018

Net Income 1,903,724,926 2,072,593,400 2,292,186,993 1,455,249,695 1,220,201,438

Total Assets 153,737,467,324 180,112,108,864 227,704,178,572 276,348,954,946 126,616,564,745
Total Liabilities 141,594,083,930 167,161,786,885 213,516,381,945 262,182,505,906 115,533,136,400
Total Equity 12,143,383,394 12,950,321,979 14,187,796,627 14,166,449,040 11,083,428,345
Net Interest Income 4,936,065,194 6,233,157,320 7,339,036,457 7,935,654,356 3,922,553,308
Total Loan 107,899,959,311 134,116,849,903 174,196,133,374 210,045,509,085 85,922,331,926
Deposits & Others 124,535,009,515 149,773,617,225 190,564,515,334 228,798,900,181 102,104,479,583
Bills Payable 2,277,639,901 1,251,915,364 5,031 ,314,320 5,233,509,848 1,316,909,958
Net Deposit 122,257,369,614 148,521,701,861 185,533,201,014 223,565,390,333 100,787,569,625
Operating Income 6,710,875,950 8,249,896,171 9,629,998,973 10,852,441,355 5,502,611,802
Operating Cost 2,746,601,272 3,400,075,166 3,931,915,088 4,686,229,835 2,578,061,801
Tier 1 Capital 11,087,703,667 11,920,776,286 13,183,731,618 13,187,230,000 10,000,943,243
Tier 2 Capital 1,990,558,818 4,995,308,016 6,011,312,821 8,537,850,000 1,622,574,437
Risk Weighted Asset 115,119,505,000 137,155,240,000 166,172,670,000 187,743,995,000 99,834,160,000
Non Performing Loan 4,927,570,000 5,149,580,000 7,738,200,000 17,227,100,000 4,593,330,000
No. of Shares 703,141,564 703,141,564 738,298,642 738,298,642 703,141,564
Return on Assets 1.24% 1.15% 1.01% 0.53% 0.96%
Return on Equity 15.68% 16.00% 16.16% 10.27% 11.01%
Debt Ratio 0.92 0.93 0.94 0.95 0.91
Loan to Deposit Ratio 88.26% 90.30% 93.89% 93.95% 85.25%
Cost to Income Ratio 40.93% 41.21% 40.83% 43.18% 46.85%
NPL Ratio 4.57% 3.84% 4.44% 8.20% 5.35%
Net Interest Margin 3.21% 3.46% 3.22% 2.87% 3.10%
EPS (TK) 2.71 2.95 3.10 1.97 1.74
Capital Adequacy Ratio 11.36% 12.33% 11.55% 11.57% 11.64%