I. Abstract: Investment decision in a listed stock depends not only on technical analysis but also on fundamental analysis.

The technical analysis determines the performance of stock means whether undervalued or overvalued status based on history data using financial techniques and fundamental analysis determines the actual financial performances. This study is on the performance of Islami Bank Bangladesh Limited (IBBL) in both technical and financial that has found the stock listed in Dhaka Stock Exchange (DSE) overvalued in technical analysis and sound financial performance on fundamental analysis. II. Introduction: There are two parts of this study to determine the market performance as well as the financial performance of IBBL. The first part is the technical analysis which includes the calculation of the beta of IBBL stock listed in DSE based on six (06) months daily closing price of IBBL stock and six (06) months DSE General Index of same period from January to June 2012 to determine the performance whether the stock is undervalued or overvalued using CAPM. All relevant calculation have been done using Microsofts Excel (Appendix-I) to conduct this technical analysis. The second part is the brief fundamental analysis based on some common performance measurements of banking industry. III. Objective of the study: The objectives are 1. to determine the beta of IBBL stock using CAPM listed in DSE. 2. to determine the performance (whether undervalued or overvalued) of IBBL stock in DSE. 3. to analyze briefly the financial performance of IBBL stock based on published Annual Report. IV. Methodology: Geometric Mean has been used for all return calculations. Statistical tools using Microsofts Excel as well as manual calculation have been used to calculate all arithmetic calculations. The study has done based on secondary data which are DSE General Index and Daily Closing Price of stock of IBBL from January to June 2012 collected from DSE. The 90 days T-bill rate taken from Bangladesh Bank has been considered as risk free rate. The fundamental analysis has done based on published Annual Report on 2011. V. Limitations: The efficiency of capital market in Bangladesh (DSE & CSE) is very weak. So, no technical analysis is applicable in this market. Also, there are several financial models to analyze the performance of stock in technical analysis. So, performance analysis only based on CAPM is not sufficient to take investment decision. The fundamental analysis based only on some indicators is not sufficient to measure the performance of a bank. There are several risk factors, operational efficiency and many other factors are needed to consider. This analysis could not avoid the above constrains due to time and resource limitations. 1

Part-I 1. Determination of beta of IBBL in relation to the DSE General Index of Dhaka Stock Exchange and performance of IBBL: 1.1 Determination of beta of IBBL: The Beta () of a stock or portfolio is a number describing the volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices, such as the DSE General Index. An asset has a Beta of zero if its returns change independently of changes in the market's returns. A positive beta means that the asset's returns generally follow the market's returns, in the sense that they both tend to be above their respective averages together, or both tend to be below their respective averages together. A negative beta means that the asset's returns generally move opposite the market's returns: one will tend to be above its average when the other is below its average. It measures the part of the asset's statistical variance that cannot be removed by the diversification provided by the portfolio of many risky assets, because of the correlation of its returns with the returns of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index. Beta of the stock Islami Bank Bangladesh Limited is calculated below: Formula: IBBL= ( DSE General & IBBL, * IBBL * m)/ m2 Here, DSE General & IBBL = 0.4275 IBBL = 0.2658 DSE General = 0.2697 So, IBBL= (.4275*.2658*.2697)/ .2697^2=.4214

Note: The calculation of DSE General & IBBL, IBBL and DSE General have been shown in Appendix-I.

1.2 Performance of IBBL based on technical analysis: The capital asset pricing model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The model takes into account the asset's sensitivity to nondiversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta () in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset. The required rate of Return of IBBL and comparison with estimated rate of return:
Krf = (90 & 180 days Tbill rate)
0.113

Stock
IBBL

K(DSE General) =Annual HPY using GM

(0.0013)

IBBL
0.4214

Expected Return = K(IBBL)

0.064845

E(IBBL) = Annual HPY using GM

(0.0024) (0.0013)

E(IBBL)x -K(IBBL)

(0.0673)

Performance IBBL (Under or Over Valued) Over Valued

The above calculation shows that the negative actual return expected return.064845. 1.3 Evaluation of beta and performance:

significantly varies with

This technical analysis shows that beta is not the appropriate measure to calculate risk and evaluate performance of stock listed in Dhaka Stock Exchange (DSE). The inefficiency of the market is the main reason for this variability specially stock market crush from December 2010. The other reason is unsystematic risk or firms specific risk, limitations of single factor model CAPM as technical analysis process, political and other instability, and manipulation in market. In addition, a technique that previously worked might miss subsequent market turns. This possibility leads most technical to follow several trading rules and to seek a consensus of all of them to predict the future market pattern.

Part-II 2. Fundamental Analysis on Islami Bank Bangladesh Limited. 2.1 Company Overview: 2.1.1 Establishment and Overview: Islami Bank Bangladesh Limited was incorporated as the first Shariah based interest-free Bank in South-East Asia on the 13th March 1983 as a Public Limited Company. The first branch of the Bank i.e. Local Office at Motijheel in Dhaka started functioning informally on 30th March 1983. It was formally inaugurated on 12th August 1983. The Bank was established with Tk.80.00 million as paid up capital in 1983 which has been increased to Tk.10,007.71 million as on 31.12.2011. Islami Bank Tower the own 18-storied modern building is the Corporate Headquarter of the bank is located at 40, Dilkusha Commercial Area, Dhaka. 2.1.2 Special Features of IBBL: IBBL achieved stable growth and continuous progress to become one of the leading Private Banks of the country. The distinguished features of we are: All activities are conducted on interest-free system according to Islamic shariah. Investment is made through different modes as per Islamic Shariah. Investment-income is shared with Mudaraba depositors according to pre agreed ratio, ensuring a reasonably fair rate of return on their deposits. Aims to introduce welfare-oriented banking systems to establish equity and justice in the field of all economic operations. Extend socio-economic and financial services to individuals of all economic strata with strong commitment for rural upliftment. Plays a vital role in human resources development and employment-generation particularly among the unemployed youths. Portfolio of Investment and investment policy has been specially tailored to achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and in the less developed areas of the national economy. Ensures Shariah compliance through regular and effective guidance of independent and highly esteemed Shariah Supervisory Committee consisting of 12 members. IBBL has some special Investment schemes for different segment of the people to meet their specific needs. It follows system of strong motivation amongst all the stakeholders to induce themselves to contribute their best for their own wellbeing as well as the wellbeing of the soceity itself. IBBL is very much involved with CSR activities and every year contributes a handsome amount for that.

2.1.3 Network of IBBL: IBBL opened 15 new Branches during the year 2011 raising total number of Branches to 266 from 251 of the previous year. The Bank plans to gradually open more branches covering important commercial places both in urban and rural areas. For effective control, close supervision and proper monitoring of the total operations of the branches as well as to assist them in the development of business 12 Zonal officies are working all over the country. Now more than 175,000 ATM cardholders of the bank can use IBBLs own 100 ATMs & 1035 ATMs of others across the country. Out of total 266 Branches (including 30 SME/Agriculture Branches), 82.33%, i.e., 219 are Urban Branches and 17.67%, i.e., 47 are Rural Branches. IBBL has the highest number rural branches among the first generation Private Banks.
b r nh s o Nme N mBo Ba cfsm u b r u fe a c ehr o r f rn e
30 0 20 5 20 0 10 5 10 0 5 0

20 t 2 1 07 o 01

20 07 16 8

6 8 1

20 08 26 0

6 0 2

20 09 21 3

1 3 2

21 00 21 5

1 5 2

21 01 26 6

Nme o Ba c e u b r f r nh s

2.1.4 Branch Cluster Management: Our 262 Branches are managed and supervised by the Zonal Offices. There are 12 (twelve) Zonal Heads to run those branches smoothly and efficiently. The remaining 4 (four) branches are known as corporate branch and those are presently looked after by Head Office. 2.1.5 Subsidiary Companies: 2.1.5.1 Islami Bank Securities Limited: Islami Bank Securities Limited (IBSL) was incorporated in March 22, 2010 as a Public Limited Company under Companies Act, 1994 with the objectives to carry out business of Stock Broker & Dealer in the capital market. The Board of IBSL approved its products for providing Investment facilities to the prospective customers to invest in secondary market having the option to operate under Investment facility and Non Investment facility accounts. IBSL has diversified products with different category of investment ceiling and other value added services for the prospective customers. It also provides different depository services to its BO account holders as a full DP (Depository Participant) of CDBL. They can also avail the services through Members discretionary and Investors discretionary. The NRBs can also avail services through NITA Account maintained with AD Branches of IBBL. IBSL organizes Investors Awareness Program on regular basis.

6 2

2.1.5.2 Islami Bank Capital Management Limited: Islami Bank Capital Management Limited established in April 2010 under the Companies Act 1994 as a Public Limited Company with Authorized Capital of Tk.1000.00 million & Paid-Up Capital of Tk.300.00 million. The Company has been established as per Bangladesh Bank Letter No. BRPD(R-1)717/2010-47 dated 07 February 2010. The registered Office of the company is situated at 63, Dilkusha C/A in Dhaka, Bangladesh. The main objectives of the company are to carry the business of Merchant Banking in all its aspects including underwriting and/or Management of issue, Public offer of Shares, Stocks, Debentures, Bonds etc., sale purchase of Securities or transfer thereof, Fund Management of clients, Managing Portfolio Investment of any person or Company by making profitable Investment in various avenues. The Company is yet to start up its general operations. 2.1.5.3 IBBL Exchange Singapore Pte. Ltd: IBBL incorporated another subsidiary company of the bank named IBBL Exchange Singapore Pte. Ltd. in Singapore for money-remittance, changing, transmitting and do all matters and things incidental thereto under the Companies Act, CAP.50 of the Republic of Singapore. 2.1.6 Off-Shore Banking Units: Bangladesh Bank approved operation of Off-Shore Banking Units (OBU) of Islami Bank Bangladesh Limited located at Head Office Complex Branch-Dhaka, Uttara Branch- Dhaka and Agrabad Branch- Chittagong. Operations through Off-Shore Banking Units (OBU) commenced on January 4, 2011. 2.1.7 National Affiliations: IBBL has become member of the Dhaka Stock Exchange Limited in the year 2006. License for Depository Partnership (DP) from the Securities and Exchange Commission (SEC) and Central Depository Bangladesh Ltd. (CDBL) was obtained earlier. Function of Brokerage House and full DP service were started 01 January 2008 with the permission of Bangladesh Bank. The membership has been transferred to Islami Bank Securities Ltd., a subsidiary company of IBBL in the year 2010 as per requirement of Bangladesh Bank and Securities & Exchange Commission.

2.1.8 Membership in National Bodies: IBBL is a member of the following institutions: a) Bangladesh Institute of Bank Management (BIBM) b) The Institute of Bankers, Bangladesh (IBB) c) Bangladesh Association of Banks(BAB) d) Bangladesh Foreign Exchange Dealers Association (BAFEDA) e) Central Shariah Board for Islamic Banks in Bangladesh (CSBIBB) f) Islamic Banks Consultative Forum (IBCF) g) Dhaka Chamber of Commerce & Industry (DCCI) The Bank participated in share capital of Central Depository of Bangladesh Limited (CDBL), which has been established for electronic book entry system to record, transfer the securities, and change the ownership of securities without any physical movement of certificates. The Bank also participated in the share capital of Karmasangthan Bank (Employment Bank), a bank established without Govt. initiative for creating employment opportunities for the unemployed youths. 2.1.9 International Affiliations IBBL is a member of the under noted foreign Organizations: a) Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain and has become member of its Board of Trustees. b) Islamic Financial Services Board (IFSB), Kuala Lumpur, Malaysia. c) International Chamber of Commerce- Bangladesh (ICC-Bangladesh), 2.1.10 IBBLs Equity Investment: IBBL has the equity investment in the follwing institutions: a) Central Depository Bangladesh Limited (CDBL) b) Karmasangsthan Bank (Employment Bank) c) Bangladesh Shipping Corporation (BSC) d) Bangladesh Aroma Tea Ltd. e) Financial Institutions and Investors Portfolio Management Company Limited

2.1.11 Financial Highlights of IBBL Amount in Million Taka Sl. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Particulars Paid-up Capital Total Capital (Equity) Capital Surplus/ (deficit) Total Assets (Excluding contra) Total Deposits Total Investments (excluding Investment in Shares/ Securities) Total Contingent Liabilities and Commitments Investment Deposit Ratio Percentage of Classified Investment against Total General Investments Profit after Tax & Provision Amount of Classified Investment during current year Provision kept against Classified Investments Provision Surplus/ (deficit) Cost of Fund Profit Earning Assets Non-Profit Earning Assets Return on Investments Return on Assets Income from Investments Earnings per Share (Taka) Net Income per Share (Taka) Price Earning Ratio (Times) Net Asset Value (NAV) Net Asset Value (NAV) Per Share Net Operating Cash Flow Per Share (NOCFPS) Dividend Yield Per Share Dividend Pay out Ratio Per Share 2011 10,007.71 33,716.73 7,960.24 389,192.12 341,853.67 305,840.56 113,420.93 89.47% 2.71% 4,841.45 3,636.69 3054.00 8.86% 295,962.73 93,229.39 10.87% 1.35% 32,308.90 4.84 4.84 11.27 27,800.21 27.78 16.38 5.77% 66.15% 2010 7,413.12 28,400.03 5,287.58 330,586.12 291,934.60 263,225.13 113,098.67 90.17% 1.77% 4,463.47 (407.77) 1,840.00 8.65% 256,354.66 74,231.46 10.08% 1.47% 25,224.42 4.46 4.46 13.29 23,494.26 23.48 3.33 4.38% 58.13%

2.2 General Review of Performance: The Bank through its 266 branches (including 30 SME/Agriculture Branches) successfully mobilized Tk.341,854 million Deposit from 60,04,731 Depositors and deployed Tk.322,773 million as general Investment into 6,07,661 accounts up to 31st December 2011. In the year 2011, total income of the Bank was Tk. 38,401 million showing 27.00% growth in 2011 as against 18.60% growth in 2010 and total Expenditure was Tk. 25,669 million showing 25.00% increase in 2011 as against 35.88% increase in 2010 resulting in pre-tax profit of Tk.10,347 million showing 22% growth in 2011 as against 29.72% growth in 2010. The Board of Directors of the Bank has recommended 32% Dividend to the shareholders for the year 2011.

2.2.1 Performance in various business areas: 2.2.1.1 Deposit: Without multidimensional and diversified products, any financial institution especially a Bank can hardly prosper and compete with other banks effectively. With this idea, IBBL has so far introduced 18 deposit products. Historical trend of the deposit mobilization shows a clear direction of doubling its deposit base in every 5 (five) years of its operations during the last decades. 2.2.1.1.1 Mobilization of Deposits: The year 2011 was another successful year of mobilization of Deposit. Total Deposit stood at TK.3,41,853 million as on 31st December 2011 as against Tk.291,935 million of the preceding year registering a growth of Tk.49,416 million, i.e. 17% growth as compared to the percentage of growth of Deposit in 2010 was 20%.

T n o D p s :2 0 t 2 1 re d f e o it 0 7 o 0 1

( o Am untin Millio Ta ) n ka

20 07

16 2 6 ,3 5

20 08

22 1 0 ,1 5

20 09

24 9 4 ,2 2

21 00

21 3 9 ,9 5

21 01

31 5 4 ,2 4

2.2.1.1.2 Bank of over 6 Millions Depositors: Total number of Depositors of IBBL increased to 60,05,231 as on 31st December 2011 from 49,39,502 of the preceding year, registering a number of 10,65,729 new Account Opening in the year-2011 which is an increase of 12.37% as against increase of 11.04% as on 31.12.2010.
The amount of total Deposit under various Deposit Products and Deposits and Deposit mix in 2011 and 2010 is given in the following table
Sl. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Types of Deposit
M udarba Savings M udarba Special Savings (pension) M udarba Term Current & Contingency M udaraba Savings B ond M udaraba Monthly Profit Deposit M udaraba SND Bills Payable M udaraba Hajj M udaraba Muhor Savings M udaraba Waqf Cash Deposit M udaraba NRB Savings Bond M udaraba Foreign Currency Deposit Foreign Currency Deposit FC Deposit E RQ FC held against B/ B L/ C FC held against Cash L/ C FDD / FTT Payable Non-Resident FC of E xchange House/ Banks FC Security Deposit FC Deposit against Foreign Bank Guarantee Other F C Deposit

Deposit in Million Taka 2011 132,052 65,492 65,167 34,091 16,831 12,373 5,634 2,863 1,043 272 261 346 863 332 503 2,465 134 370 605 71 33 52 341,853 2010 111,144 56,277 51,156 30,467 16,483 10,182 3,986 2,981 888 222 204 26 2,892 183 397 3,016 18 602 673 63 28 47 291,935

Growth % 18.81% 16.37% 27.39% 9.79% 2.11% 21.52% 41.34% -3.96% 17.45% 22.52% 27.94% 1230.77% -70.16% 81.42% 26.70% -18.27% 644.44% -38.54% -10.10% 12.70% 17.86% 10.64% 17.10% 2011

Mix 2010 38.07% 19.28% 17.52% 10.44% 5.65% 3.49% 1.37% 1.02% 0.30% 0.08% 0.07% 0.01% 0.99% 0.06% 0.14% 1.03% 0.01% 0.21% 0.23% 0.02% 0.01% 0.02%

38.63% 19.16% 19.06% 9.97% 4.92% 3.62% 1.65% 0.84% 0.31% 0.08% 0.08% 0.10% 0.25% 0.10% 0.15% 0.72% 0.04% 0.11% 0.18% 0.02% 0.01% 0.02%

Total Deposit

100.00% 100.00%

Deposit Mix a on 31.12.2011 s

Mudarba Savings Deposit Mudarba Special Savings Deposit Mudarba TermDeposit C urrent & C ontingency Mudaraba Savings Bond

3 .5 9 5% 1 .5 % 9 2 1 .6 % 9 1

Mudaraba Monthly Profit Deposit Mudaraba SND Bills Payable

10

2.2.2 General Investments: The general Investment of the Bank increased to Tk.305,841 million as on 31.12.2011 from Tk.263,225 million as on 31.12.2010 showing an increase of Tk.42,616 million, i.e. 16% growth as against 9.00% growth of investment of the Banking Sector. The salient feature of the banks investment operation is that it extends microfinance facilities to its Rural Development Scheme clients starting with Tk.10,000/- to Tk.0.3 million without colleterals and continue to accomodates clients under Micro & SME sectors to corporate clients under industrial sectors and Imort-Export business with highest ceilling of Tk.3,000 million under its single exposure limit which is the highest limit for any Bank in the country with a view to mitigate the basic necessities of human life in the sectors of Food, Cloth, Shelter, Medicare and Education. A view of investment growth of IBBL over the last five years is given below:

Trend of Investment from 2007 to 2011

354,000
(Amount in Million Taka)

304,000 254,000

303,633 263,225 214,616

204,000 154,000 104,000

144,921

180,054

2007 144,921 24,519 20%

2008 180,054 35,133 24%

2009 214,616 34,562 19%

2010 263,225 48,609 23%

2,011 303,633 40,407 15%

Achievement Growth Amt Growth %

2.2.2.1 Sector-Wise Investments Sector-wise distribution of investment of IBBL as on 31st December 2011 vis--vis the corresponding period of last year is given below: In Million Taka 2011 2010 S % to l. Sector % to Total Total N Amount Amount Investment Investmen o. t 1 Industrial 150,788 49.30% 113,979 43.30% 2 Commercial 97,815 31.98% 46,142 17.53% 3 Real Estate 16,962 5.55% 11,336 4.31% Agriculture (including 4 investment in Fertilizer and 21,354 14,252 5.41% Agriculture Implements) 6.98% 5 Transport 6,464 2.11% 4,583 1.74% 6 SME 12,458 4.07% 72,933 27.71% Total 305,841 100.00% 263,225 100.00% 11

2.2.2.2 Mode wise Investments: 2011 Mode Amount Bai-murabaha HPSM Bai Muajjal Bill Purchased Negotiation Quard Bai- Salam Mudaraba Musharaka Total 175,511 89,090 13,186 & 9,302 5614 3528 59 9571 305,841

% to Total Investment 57.39% 29.12% 4.31% 3.04% 1.84% 1.15% 0.02% 3.13% 100%

2010 Amount 146135 80093 12393 5141 2095 3624 1500 12244 263225

% to Total Investment 55.52% 30.42% 4.71% 1.95% 0.80% 1.38% 0.57% 4.65% 100%

2.2.2.3 Non Performing Investments: Non Performing Loans and Advances of the State owned Commercial Banks, Specialized Banks, Private Commercial Banks and Foreign Commercial Banks as on 30.09.2011 were 14.17%, 21.64%, 3.64% and 3.47% respectively and average of all Banks was 7.17%. IBBLs position was far better than national non performing Loans and Advances position. Classified Investment as on 31.12.2011 was 2.50% of total Investment. Investment Rescheduled without profit but not classified as on 31.12.2011 was 3.77% of total Investment. Investment overdue but not classified as on 31.12.2011 was 1.08% of total Investment. Written off Investment as on 31.12.2011 was 0.84% of total Investment.

12

2.2.3 Foreign Exchange Business: IBBL is playing a very important role in the Foreign Exchange Business of the Country. Total Foreign Exchange Business handled during the year 2011 was Tk.716,058 million. The comparative figures are given below: (Amount in Million Taka) 2011 2010 % of growth in 2011 over % of Total Amount % of total Particulars Amount 2010 Import 301,207 42.06% 246,281 40.42% 22.30% Export 178,244 24.89% 148,421 24.36% 20.09% Remittance 236,607 33.04% 214,628 35.22% 10.24% Total 716,058 100.00% 609,330 100.00% 17.52% Total Foreign Exchange business handled by the Bank demonstrated a growth of 17.52% in 2011 compared to 32% growth of 2010. There were 43 Authorized Dealer (A.D) branches, i.e. branches having licenses to handle Import, Export and Remittance business in 2011. 2.2.3.1 Import: During the year 2011 bank opened 47,191 import Letters of Credit for Tk.301,207 million as against 46,736 Letters of Credit for Tk. 246,281 million in 2010 showing 22% growth in amount. Major items of import consist of the following:
350000

Import Trend of IBBL for 10 (Ten) Years

300000 250000 200000 150000 100000 50000 0 -50000 Growth (%) Volume(Million Tk.)

2002 30 33788

2003 37 46237

2004 29 59804

2005 25 74525

2006 30 96870

2007 42

2008 23

2009 -4

2010 53

2011 22

137086 168329 161230 246281 301207

13

2.2.3.2 Export: During the year 2011 bank handled 45,433 Export Bills for Tk.178,244 million as against 46,699 Export Bills for Tk.148,421 million in 2010 showing 20.09% growth in amount. Major export financed items are the following:
200000 180000

Export Trend of IBBL for 10 (Ten) Years

160000 140000 120000 100000 80000 60000 40000 20000 0 Growth (%) Volume(Million Tk.) 2002 4 16673 2003 30 21738 2004 34 29151 2005 24 36169 2006 41 51133 2007 30 66690 2008 41 2009 13 2010 39 2011 20

93920 106424 148421 178244

2.2.3.3 Foreign Remittance The total remittance business of the Bank during the year stood at Tk. 236,607 million which was Tk. 21,978 million higher than the total remittance of Tk. 214, 629 million received in 2010 with a growth rate of 10.24% in 2011 retaining us a market share of 20.09% in the countrys remittance. We are the leader in the country in respect of Foreign Remittance due to proper marketing and carring customer service. We have now Remittance arrangement with 105 (one hundred and five) Exchange Houses/ Banks of different countries of the World. IBBL has become a member of Bangladesh Electronic Funds Transfer Network (BEFTN) for routing 3rd bank remittance of expatriate smoothly and safely routing also 70% transaction of NRB Remittance, alone by IBBL in BEFTN. IBBL introduced Remittance Card for the expatriate and their beneficiaries by which they can send their remittance without having bank account. The cardholder can draw money from ATM booth 24 hours and from bank counter within banking hours. IBBL has also introduced Web Portal system, under which the expatriate account holder can see the balance of his account and also can transfer fund from his account to other account maintained with IBBL.

14

IBBL established an independent Customer Service Department with expertise and efficient officials, at Foreign Remittance Services Division to solve any problem related to foreign remittance. To encourage Bangladeshi expatriates for sending their hard earnings through Banking channel and also to assist them for opening account, Bank has deputed 19 officials in Kingdom of Saudi Arabia, UAE, Bahrain, Qatar, Oman and Singapore. Growth of Remmittance handled by IBBL since 2006 is as under:

15

2.2.4 Market Disclosure under Pillar III of Basel-II: The purpose of Market Discipline in Basel-II is to establish more transparent and more disciplined financial market so that stakeholders can assess the position of a Bank regarding holding of assets and to identify the risks relating to the assets and capital adequacy to meet probable loss of assets. For the said purpose, this Disclosures on Risk Based Capital (Basel II) is made as per Bangladesh Banks Guideline. 2.2.4.1 Capital Structure: Qualitative Disclosures a) Summary information on the terms and conditions of the main features of all capital instruments, especially in the case of capital instruments eligible for inclusion in Tier 1 or Tier 2.

As per the guidelines of Bangladesh Bank, Tier-1 Capital of IBBL consists of (i) Fully Paid-up Capital, (ii) Statutory Reserve, (iii) General Reserve (iv) Retained Earnings (v) Dividend Equalization account and (vi) Minority Interest in Subsidiaries. Tier-2 Capital consists of applicable amount of (i) General Provision (against Un-classied Investments, Off-Balance Sheet exposure & Off-Shore Banking Units) (ii) 50% of Assets Revaluation Reserves, (iii) 50% Revaluation Reserve of Securities and (iv) Subordinated debt (Mudaraba Perpetual Bond) (up to max. 30% of eligible Tier-I capital).

Quantitative Disclosures
b) The Amount of Tier 1 Capital, with separate discloser of : Particulars Solo A i ii iii iv v vi vii viii ix Tier-I (Core Capital) Fully paid-up Capital Statutory Reserve Non-repayable Share Premium account General Reserve Retained Earnings Minority interest in Subsidiaries Non-cumulative irredeemable preference shares Dividend equalization account Other (if any item approved by Bangladesh Bank) 23,401.24 10,007.71 10,004.42 2.00 152.70 3,202.41 32.00 10,007.71 10,004.42 2.00 152.70 3,015.97 0.10 32.00 23,214.90 Taka in million Consolidated

Sub- Total A (i to ix) B i ii C D Total amount of Tier 2 and Tier 3 capital Amount of Tier 2 capital Amount of Tier-3 (Eligible for market risk only) Other deductions from capital Total Eligible Capital (A+B-C)

10,315.49 10,315.49 33,716.73

10,315.49 10,315.49 33,530.39

Sub- Total B

2.2.4.2

Capital Adequacy: 16

Qualitative Disclosures a) A summary discussion of the banks approach to assess the adequacy of its capital to support current and future activities.

The Bank has adopted Standardized Approach (SA) for computation of capital charge for investment risk and market risk, and Basic Indicator Approach (BIA) for operational risk. Assessment of capital adequacy is carried out in conjunction with the capital adequacy reporting to the Bangladesh Bank. The Bank has maintained capital adequacy ratio at 13.13% & 13.09% on the basis of Consolidated and Solo respectively as against the minimum regulatory requirement of 10%. Tier-I capital adequacy ratio under Consolidated basis is 9.09% which Solo basis is 9.09% as against the minimum regulatory requirement of 5%. The Banks policy is to manage and maintain strong Capital Adequacy Ratio with high rating grade of investment clients. The Bank maintains adequate capital that is sufficient to absorb all material risks associated with the Bank. The Bank also ensures that the levels of capital comply with regulatory requirements and satisfy the external rating agencies and other all stakeholders including depositors.

Quantitative Disclosures Particulars b) c) d) e) Capital requirements for Investment (Credit) Risk: Capital requirements for Market Risk Capital requirements for Operational Risk Total and Tier-1 & Tier-II Capital Ratio: Total CAR % Tier- I CAR % Tier-II CAR % 4.00 4.04% 9.09 Taka in million Solo Consolidated 23,510.47 23,297.15 1,92.21 2,053.68 25,756.36 1,92.21 2,053.68 25,543.04 13.09 13.13 % 9.09%

17

2.2.4.3 Investment (Credit) Risk: Qualitative Disclosures

a) The General Qualitative disclosed requirement with respect to credit risk, including:

As per relevant Bangladesh Bank guidelines, 1% to 5% provision is maintained against unclassified investments, 5% provision is maintained against SMA investments, 20% provision is maintained against sub-standard investments, 50% provision is maintained against doubtful investments and 100% provision is maintained against bad/loss investments after deducting value of eligible security, if any, as per Bangladesh Bank guidelines. g) Gross Non Performing Assets (NPAs). Non Performing Assets (NPAs) to outstanding Investments of Islami Bank Bangladesh Bank stood at 2.56%. i) Movement of Non Performing Assets (NPAs): Particulars Opening Balance Additions Reductions Closing Balance ii) Movement of specific provisions for NPAs: Particulars Opening Balance Provisions made during the period Write-off/Write-back of excess provisions Recovery from write-off Closing Balance Taka in million 1,840.00 1,890.65 427.31 249.34 3,054.00 Taka in million 4,655.63 3,636.69 8,292.32

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2.2.5 Statement of value added & financial highlights: 2.2.5.1 Statement of Value Addition and its Distribution This shows how IBBL generated the wealth by providing Banking services and how it was distributed among the main stakeholders of the Bank, taking into account the amount retained and re- invested for the replacement of assets and improvement of operations. The comparative value added statement of the Bank for the year 2011 and 2010 is given below: Table-1: Value added statement of IBBL (In Million Taka)
Particulars
Income from Banking Services Less: Cost of services & supplies Value added by Banking Service Non-Banking Income Provision for Investment & Off-Balance Sheet exposures Total Value Added Distribution of value addition To Government as income tax To providers of capital as dividend & reserve Shareholders dividend To employees as bonus & remunerations Zakat To expansion and growth Retained by the entity Depreciation Deferred taxation Total

2011
38,401 20,387 18,014 2,384 15,630 5,476 1,639 4,652 263 3,202 369 29 15,630

2010
30,129 15,726 14,403 1,115 13,288 3,994 1,869 4,291 221 2,595 321 (3.00) 13,288

Distribution of Value Addition 2011

Income Tax Paid to Government Salary & Allowances

2010
Income Tax Paid to Government

2 % 1% 1 2 % 2% 0 3% 5

14% 2% 20%

2% 30%

Salary & Allowances Retained Profit Zakat General Reserve & Dividend Depreciation

Retained Profit Zakat

3% 0

General Reserve & Dividend Depreciation

32%

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65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 26,488

Number of S hareholders 58,923 52,164 60,550

6,000 5,500 5,000 4,500 4,000

Payment to Govt. (Income Tax) Amount in million Taka 5,516

4,109 3,245 3,253

33,686

3,500 3,000 2,500 2,000 2,385

20,000 2007

2008

2009

2010

2011

2007

2008

2009

2010

2011

2.2.5.2 Economic value added statement: Economic Value Addition (EVA) is a financial performance method to calculate the true economic profit of the bank. It provides a measurement of a companys economic success or failure over a period of time. Such a yardstick is useful to investors who wish to place confidence with the Bank to retain their fund for better earnings as compared to other industry. A comparative Economic Value Added statement for the year 2011 and 2010 is given below: Million Taka Particulars 2011 2010 2009 Operating income 20,000 15,657 12,327 Operating expenses 7,268 6,087 4,546 Operating profit 12,732 9,570 7,781 Income tax 5,506 3,991 3,114 Net operating profit after tax 7,226 5,579 4,667 Shareholders equity 27,800 23,494 20,106 Add: Accumulated provision for Investment (inclg. 8,170 6,213 5,700 Off B/S items) Sub Total 35,970 29,707 25,806 Average Shareholders equity 32,839 27,757 22,318 Cost of equity 11.52% 11.04% 9.22% Capital charges 3,759 3,064 2,058 Economic value added 2,651 2,515 2,609 2.2.5.3 Market Value Added Statement: Market Value Added Statement (MVA) indicates the variation between the total market value and the total value of shares of a bank. A gigantic MVA means the Bank has produced huge assets for the shareholders. MVA is equivalent to the present value of all future expected economic value added. The share market value of the Bank stood at Tk. 27,801 million whereas the value of the share stood at 23,509 million, resulting a Market Value Added of Tk 26,741 million as of December 31, 2011. 20

Calculation of Market Value Added is given below: Particulars Market Value Book Value Market Value Added Number of Shares 1000,771,000 1000,771,000 1000,771,000 Value per Share Amount (Tk.) (Million Taka) 54.50 54,542.02 27.78 27,801.42 26.72 26,740.60

N.B. Mentioned here that denomination of IBBL share has been changed from Tk.100/- to Tk.10/each with a market lot of 100 shares w.e.f. 04.12.2011.

2.2.5.4 Market Share Information of IBBL: Market Share of Deposit, Investment, Import, Export and Remittance of IBBL in Banking sector are shown below: Million Taka Serial Particulars Market Share of IBBL in the Banking Sector (%) No. 2011 2010 1 Deposit 7.59% 7.86% 2 General Investment 8.16% 9.17% 3 Import 12.00% 10.62% 4 Export 11.00% 11.94% 5 Remittance 26.07% 27.66%

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2.2.5.5 Market Price Information: Month-wise Highest, Lowest, Average share price of IBBL in the Stock Exchanges during the year 2011: Month January February March April May June July August September October November December DSE Highest rate Lowest rate 83.80 63.00 71.45 55.00 67.60 56.10 64.95 44.30 48.00 44.80 51.80 46.00 56.90 51.30 55.80 51.70 55.70 51.83 56.48 49.30 55.90 51.10 55.30 50.50 Average rate 73.40 63.23 61.85 54.63 46.40 48.90 54.10 53.75 53.77 52.89 53.50 52.90 CSE Highest rate 83.98 71.50 67.80 64.70 48.00 51.50 56.50 57.00 56.00 54.80 55.80 55.10 Lowest rate 61.20 54.80 56.60 44.80 44.75 45.60 51.00 50.00 48.00 46.80 49.20 50.00 Average rate 72.59 63.15 62.20 54.75 46.38 48.55 53.75 53.50 52.00 50.80 52.50 52.55

Market Price at DSE: January to December 2011

9 0 8 0 7 0 6 0 5 0 4 0 3 0 2 0 1 0 0 H hs r t iget a e Lw tr t oe a s e

Ja b

Fb e

M a r

Ar p

M a y

Ju n

Ju l

Ag u

Sp e

O c t

Nv o

Dc e

Market Price at CSE: January to December 2011

1000 900 800 700 600 500 400 300 200 100 0
Se pt em be r

Highest rate Lowest rate

No ve m be r

Fe br ua ry

D ec em be r

Ju ne

Ja nu ar y

Ap ril

Ju ly

O ct ob er

M ar ch

M ay

Au gu st

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I. Conclusion: The efficiency of stock markets in Bangladesh is very week. So, any technical analysis like CAPM model will not represent actual performance of the stock. This study shows the actual return negative (-0.0024) but expected return positive (+0.064845) which represents the inefficacy of beta of the stock though expected return positive is supported by the fundamental analysis. This opposite direction in return is due to the inefficient market which results stock market manipulation subsequently stock market crush. Also, the single factor model CAPM is not the accurate measure of performance of stock. The other reasons are unsystematic risk or firms specific risk. A technique that previously worked might miss subsequent market turns. The fundamental analysis shows the consistent performance of the company. The growth rates which are above industry average in all aspect are significant in all indicators. The capital structure, capital adequacy ratio and others performance indicators of banking company are kept as per BSAEL and Bangladesh Bank continuously. This is the only bank which is rated as AA+ in rating. So, strength for long term is also high. All these represent strong financial performance of the bank. II. Recommendation: The regulators should take and implement proper step so that capital market can be efficient. Sustainable money and capital market performance must be ensured so that financial tools and models can be applied. Multi factor model should be used instead of single factor model. Both the technical and fundamental analysis should be used to measure performance, forecast the future and take investment decision.

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References: 1. Dhaka Stock Exchange Library (DSE). 2. www.bangladesh-bank.org (Home Monetary policy & operations bill/bond auctions) 3. Annual Report 2012 of Islami Bank Bangladesh Limited. Treasury

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Glossary: 1. 2. 3. 4. 5. IBBL: Islami Bank Bangladesh Limited. DSE: Dhaka Stock Exchange CSE: Chittagonj Stock Exchange SEC: Security and Exchange Commission. CAPM: Capital Asset Pricing Model

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