Liquidity and Profitability Analysis of First Security Islami Bank Ltd

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When money became an accepted medium of exchange, the need arose to keep the money safe. In addition, some people needed to borrow money. These needs led to the development of banks. The earliest banking records, dated around 2000 B.C., indicate that Babylon had a highly developed banking system. Babylonian banks were not unlike the banks of today, except that you might say they had a monopoly. Many years later, in the sixth century B.C., the first private bank emerged.

Like today's bank, it accepted for deposit money on which it paid interest. It also lent money to persons who needed the money for worthwhile purposes and who repaid the borrowed funds with interest. By the fourth century B.C., Greece was the dominant nation in the world. Private and city-state-owned banks existed in the outlying lands of the Greek Empire, but only privately owned banks were allowed in Greece. Government to a great extent regulated those banks; however, Rome then became the dominant empire. Under early Roman law, banks could only be privately owned, but law regulated them.

With the fall of the Roman Empire, banking became essentially illegal until the third century A.D. By the fourteenth century, when trade routes were being developed, privately owned banks were once again allowed. And by the fifteenth century, banks were needed to advance the huge sums of money required to send out ships to bring back valuable commodities such as spices, silk and gold. At this time in history, banking was big business.


1.2 Banking Scenario in Bangladesh

The banking in Bangladesh has passed three decades through different policy environments and comprises central bank at the apex, nationalized commercial banks (NCBs), private commercial banks (PCBs), foreign commercial banks (FCBs) and specialized financial institutions. In the decade of seventies, in an atmosphere of fully regulated banking, the nationalized commercial banks played the active role in inter mediation and allocation of credit along with the specialized financial institutions.

The decade of the eighties witnessed the active operation of both the NCBs and PCBs (local and foreign) in the banking sector. Before liberation of Bangladesh in 1971, the total banking system was private owned, urban-based and profit oriented. But after the liberation, the Government of Bangladesh nationalized all the banks operating in Bangladesh in 1972, except a few foreign banks branches. It was due to the economic policy of Pakistan Government that we were having a privatized banking structure, till the independence of Bangladesh in 1971.

Therefore, under such a situation, Bangladesh Government had no other alternative but to take up the control and nationalize the enterprises including the banks. Following nationalization, the government also recognized the existing commercial banks into six (6) distinct new banks in the following manner in terms of the Bangladesh Banks (Nationalization) Order, 1972:

Existed Banks

Reorganized Bank

ð  The National Bank of Pakistan

ð  The Bank of Bahawalpur Ltd.

Sonali Bank

ð  The Habib Bank Ltd.

ð  The Commerce Bank Ltd.

Agrani Bank

ð  The United Bank Ltd.

ð  The Union Bank Ltd.

Janata Bank

ð  The Standard Bank Ltd.

ð  The Australasia Bank Ltd.

Rupali Bank

ð  The Eastern Mercantile Bank Ltd.

Pubali Bank

ð  The Eastern Banking Corporation Ltd.

Uttaras Bank






























§ Khan, Mohammad Khalid, “Banking System in Bangladesh: 1972-1982”

The Bangladesh Times, March 20, 1982


1.3 Reorganization of Commercial Banks of Bangladesh in 1972

è First Generation Banks (Established 1982-1988)

ü  National Bank Limited,

ü  The City Bank Limited,

ü  United Commercial bank Limited,

ü  AB Bank Limited,

ü  IFIC Bank Limited,

ü  Islami Bank Bangladesh Limited,

ü  Oriental (Al-Baraka) Bank Bangladesh Limited. At present it is ICB Islamic Bank Limited.


è Second Generation Banks (Established 1992-1996)

ü  Eastern Bank Limited,


2.1 Introduction:


First Security Islami Bank Limited (FSIBL) was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business. The Bank carries banking activities through its Fifty Three (58) branches in the country. The commercial banking activities of the bank encompass a wide range of services including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collections and issuing guarantees, acceptances and letter of credit.

It was commenced its operation as a conventional banks but from 1st January’ 2009 it was converted from interest based bank to an Interest free bank. The company philosophy “Symbol of Security”; the bank has been operating with talented and brilliant personnel, equipment with modern technology so as to make it most efficient to meet the challenges of demands.




21st century. During this short span of time the Bank successful in positioning itself as progressive and dynamic financial institution in the country. The sponsor and director of the bank are a successful and prominent business group in our business community.




To be the unique modern Islami Bank in Bangladesh and to make significant contribution to the national economy and enhance customer’s trust and wealth, quality investment, employee’s value and rapid growth in shareholder’s equity.


§  be the most caring and customer friendly and service oriented bank.

  create a technology based most efficient banking environment for its


§  To ensure ethics and transparency in all levels.

  ensure sustainable growth and establish full value of the honorable

Shareholders and

  all, to add effective contribution to the national economy.




· To strive our customers best satisfaction & win their confidence.

· To manage & operate the bank in the most effective manner.

· To identify customers’ needs & monitor their perception towards meeting those requirements.

To review & updated policies, procedures & practices to enhance the ability to extend better customer services.

· To train & develop all employees & provide them adequate resources so that the customers’ needs reasonably addressed.

· To promote organizational efficiency by communicating company plans policies & procedures openly to the employees in a timely fashion.

· To ensure a congenial working environment.

To diversify portfolio in both retail & wholesale markets.




Branch Networks and Inter Division and Branch Coordination , At present, the bank has 58 branches of which 24 branches are in Dhaka Division, 19 branches are in Chittagong Division, 07 branches are in Sylhet Division, 04 branches are in Rajshahi Division, 03 branches are in Khulna Division and 01 branch is in Barishal Division. All the 58 branches are computerized under distributed server environment. Another few branches are planning to open within December 2010. FSIBL has already started their on-line, SMS and ATM banking facilities for their clients.




An Islamic Bank is a financial institution that operates with the objectives to implement and materialize the economic and financial principles of Islam in the banking arena. The objective of Islamic bank is not only to earn profit, but also to do good and welfare to the people. Islam upholds the concept that money, income and property belong to Allah and this wealth is to be used for the good of the society. Islamic bank operate on Islamic principles of profit and loss sharing, strictly avoiding interest which is the rote of exploitation and is responsible for large-scale inflation and unemployment. An Islamic bank is committed to do away with disparity and establish justice in the economy,  trade, commerce and industry; build socio-economic infrastructure and create employment opportunities. The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as follow:


1. Offer Financial Services

2. Baking for development

3. Optimum Allocation of Resources

4. Equitable distribution of Resources





Measures to Improve Banker-Customer Relationship in an Islamic Bank:


a) Abolition of Interest from transaction

b) Assurance of Distributive Justice

c) Supply of Venture Capital

d) Elimination of Banking Fraud

e) Application of Zakat

f) Rendering Improved Customer Service

g) Legal Reformation

Charity Functions



Corporate Culture


FSIBL Bank is one of the most disciplined Banks with a distinctive corporate culture. In this bank, it believes in shared meaning, shared understanding and shared sense making. The people of bank can see and understand events, activities, objects and situation in a distinctive way. They mould their manners and etiquette, character individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to them.



Management Hierarchy





































Human Resources Development


FSIBL has a separate Human Resources Division (HRD) to manage the employee policies and practices. As on FYE 2007, Total 421 executives & officers of the bank have been working for smooth banking operations. Bank follows a standardized human resources policy. HRD of the Bank follow a transparent and free & fair system to ensure the standard recruitment, training & development of human resources of the bank. The bank has defined HR policies including recruitment, training & development, promotion, leave, transfer and disciplinary action policy. Usually internal recruitment procedures are considered to fill up the mid and top management positions, while entry-level positions are filled with regularly through competitive recruitment exams. They follow transparent, well-defined and strict rules for appointment of officers and staff in the Bank's service.


Information Technology Division


FSIBL has an Information Technology Division at the head office to provide IT support to all its branches. The Bank has well documented guideline on information and communication technology (ICT). From the very beginning FSIBL was using computerized banking software “PcBank/M” for all the branches. Recently the Bank has replaced Pc Bank/M software with PcBank2000 to provide online banking facilities to its clients. FSIBL is now providing online banking facilities with distributed system. The Bank also has SMS banking service. FSBL has a plan to introduce centralized system for online banking.



•  Bai-Muajjal (Deferred Installment / Lump Sum Sale)

•  Ijara (Leasing)

•  Musharaka (Joint-Venture Profit-Sharing)

•  Mudaraba (Trustee Profit-Sharing)

•  Bai-Salam (Advance Sale and Purchase)  

•  Hire-Purchase

•  Direct Investments

•  Post Import Investment

•  Purchase and Negotiation of Export Bills

•  Inland Bills Purchased

•  Murabaha Import Bills

•  Bai-Muajjal Import Bills

•  Pre Shipment Investment

•  Quard-ul-Hasan (Benevolent Investment)


  1. Letter of Guarantee



  1. Letter of Credit (L/C) / Back to Back Letter of Credit (L/C)


  1. Specialized Schemes




Titas Gas


Pally Biddut Shumitty


3.4 Types of account


Following types of account are generally opened by the FSIBL Bank:


1. Savings Account (SB A/C)

2. Current Deposit Account (CD A/C)

3. Fixed Deposit Receipt Account (FDR A/C)

4. Short Term Deposit (STD A/C)

5. Mudarabah Monthly Saving Scheme

6. FSIBL Bank Special Savings Scheme


Savings Bank Account (SB A/C)

* Interest rate 6 % p.a.

* Initial minimum amount Tk. 1,000

* Two withdrawals permitted per week but no interest will be paid on rest amount for that month.

* The depositor withdrawals money from bank up to 25% of his/her accounts without permission but more than 25% withdrawals; required pre-notice before 7 days of withdrawals.

* If the depositor close his/her accounts; bank will deduct Tk.100 from his/her accounts.


Current Deposit Account (CD A/C)

* No interest is given and charge for incidental charges.

* Initial minimum deposit is Tk. 5,000

* Running and active account which can be operated any number of times during a working day

* No restriction on the number and the amount of withdrawal

* It is a demand liabilities of a banker

* Objective of CD A/C is to save big customer as big business, joint stock companies, public authorities etc. from the risk of handling cash themselves




Short Term Deposit (STD A/C)

* Interest Rate 6 % p.a.

* Payable on a Short Notice

* Minimum deposit for

* Individual Tk 2,00,000/-

* Corporate Tk 10,00,000/-

* The banks not maintain cash reserves against these deposits.



Fixed Term Deposit (FDR A/C)

* Deposit for a fixed period specified in advance.

* The banks not maintain cash reserves against this deposit.

* The banks offers higher rates of interest on FDR

* Minimum deposit is Tk 10,000/-

* Category of Deposits and interest rates:

3 months FDR @11.50%

6 months FDR @ 11.75%

12  months FDR @ 12.00% 





FSIBL Bank Special Saving Scheme

* Like “Deposit Pension Scheme"

* Monthly Installment of Tk 500/- to Tk 5000/-.

* Duration of the scheme is 5 or 10 years

* No withdrawal shall usually be allowed before maturity date

* If account is needed to be closed before maturity, interest at prevailing rate on saving A/C shall be paid along with the principal

* No interest shall be paid if the A/C is closed before 6 months

* Maximum up to 80% loan on deposit may allowed to the A/C holder



The depositors will be paid a specified as per the following table:


Monthly installment (Taka)


5 years (Taka)

10 years(Taka)




































3.5 Remittance Facilities 

Customers of a Bank need to transfer his fund or money to anywhere within the country they can do it through the remittance section of the Bank. Remittance section of general Banking deals with only local remittances. Bank normally deals with four types of local remittances. These are:

1.   Demand Draft (DD)

2.   Telegraphic Transfer (TT)

3.   Pay Order (PO)

4.   Mail Transfer (MT)

1. Demand Draft

o This is an order to pay money, drawn by one office of a Bank upon another office of the same Bank for a sum of money in any place.

o Which is outside of the clearinghouse area of issuing branch?

o It is a negotiable instrument.

o It can be crossed or not.


2. Pay Order (PO)

o It is like cash but not exactly cash.

o It is an instrument, which is issued from a certain branch of a Bank and must be enchased from the same branch.

o Unlike cheque, there is no possibility of dishonoring pay order because before issuing pay order Bank takes out money of the pay order in advance.

o It is not a negotiable instrument because it cannot be endorsed or crossed.



3.7 Clearing and Bills Section

Local offices branch of FSIBL Bank receives different types of instruments, such as cheque, PO, DD etc. from its customers for collection. It also pays on behalf of its customers for those instruments that come to it through clearinghouse. When instruments of FSIBL Bank are sent for collection or received for payment through clearing house it is called Inter Bank Clearance or IBC. These are treated in a little different manner than instruments of other Banks.When the cheques are presented to a Bank by the other Banks for collection of fund and to credit that into the party’s account, the instrument must be cleared though Bangladesh Bank clearing house. A receiving officer, receiver check by a deposit slips over the counter.


  Inward Clearing


When instruments are sent to the Bank via clearinghouse, it entered into the clearing register. The officer checks the instruments thoroughly before it is sent to the computer section for posting. If any kind of error is found in any instrument it is dishonored and sent back with appropriate reason for doing so. Instruments are also dishonored or insufficiency of fund. The information is then sent back to the clearinghouse for taking appropriate action. 

§  The instruments drawn on FSIBL Bank are received from other Banks in the clearinghouse.

§  The amount and numbers of instrument received are entered in the house from the main schedule of respective Banks.

§  The instruments with schedules are arranged branch wise.

§  The instrument sent to branches concerned for clearance.

§  The instruments are sent to the respective departments and the schedules are filled.


  Outward Clearing


After filling the deposit in slip bearer of the instrument deposits the instrument to the respected officer. Upon receiving the instrument the respected officer checks the essential features of the instrument and whether the deposit in slip is filled accordingly or not. Then s/he crosses the instrument with a seal containing Banks and branch’s name, signs the deposit in slip and provides the customer with counter foil of the slip. Then both the instrument and slip is sealed with ‘CLEARING’ seal and date seal contain the date of clearing. An endorsement seal is also sealed on the back of the instrument and the officer endorses it on behalf of FSIBL Bank Motijheel Main Branch.

It is then given entry in the clearing out register mentioning the name of the Bank and branch of it, amount of money in deposit in slip, amount of money in the instrument, number of the instrument and date of it. Then the officer separates the instrument from the deposit in slip. Deposit in slip is kept in the Bank and the instrument is sent for clearing.


  Short Collection (SC)


FSIBL Bank has many branches, which are not member of clearinghouse. When instruments of these branches come to the branch for collection, different procedures are followed known as short collection. When an instrument arrives for short collection following procedures are applied:

§  The instrument is crossed with crossing seal.

§  Sealed with SC seal on its face.

§  Endorsed by the officer and ‘the account will be credited on realization’ is written on the back of it by the officer.

§  The instrument is then sent to the drawer branch.


  Inward Bills for Collection


§  All clearing cheques are not received on the counter. Some cheques are received from other source for collection. These cheques are received.

§  From other branch of FSIBL Bank. These are settled by sending Inter Bank Credit Advice (IBCA).

§  From another Bank outside the clearinghouse. These are settled by debiting depositor’s account and sending DD, TT, MT in favor of the sender Bank

§  These cheques are called IBA (Inter Bank Advice)



Closing Charge Tk.100/- Tk.100/- Tk.100/- Tk.100/- Tk.100/- Tk.100/- Tk.100/-

Tk 1.50 for Tk 1000   + 15% on total DD amount


Telegraphic Transfer is also an easy method to remit money between from one bank to another bank in a country. It is most rapid method to transfer money.


FSIBL charges commission, VAT & telex charge on the amount of telegraphic transfer:-  

Tk 1.50 for Tk 1000 + 15%vat on total + Tk 50 amount of TT  

Know Your Customers (KYC)


To prevent money laundering, to grow relation with customer and to know financial status of customer etc, following information are needed:

Name of Account:

§  Father’s Name

§  Mother’s Name

§  Spouse Name

Date of Birth


Voter ID Card No. And Particulars of Passport

Occupation and it’s nature


§  Business

§  Present

§  Permanent

Telephone No. (Office and Residence)

E-mail address

Director information (if required)

  Nominee information

  Mandating information

  Particulars of introducer


  Transaction Profile

  Total Debit Balance for a certain period

  Total Credit Balance for certain period

  Total No. of Transaction


  SBS Statement Related Code Option

  Source of income

All information regarding KYC, output will deliver from 1(one) menu and output for the specific information from the above for a certain period of time as per requirements.


Quick Assets Refers to Cash, Short-term investments, Net receivables etc.


Activity Ratio


Activity ratios are employed to evaluate the efficiency with which the firm managers and utilizes its assets. This ratio indicates the speed with which assets are being converted or turned over into sales thus activity ratio involve a relationship between sales and assets


Assets Turnover Ratio


Assets are used to generate sales. A firm can compute net asset turnover by dividing sales by average total assets. So assets turnover will be: 

Assets Turnover = Net Sales


4.4.1 Profit Margin on Sales

Profitability ratio in relation to sales is the profit margin or gross margin. It is calculate in the following way:

Profit margin on sales = Net Income


4.4.3 Return on Common Stockholders’ Equity

Another widely used profitability ratio is return on common stockholders equity. It measures profitability from the common stockholders viewpoint. This ratio shows how many dollars of net income the company earned for each dollar invested by the owners. We compute it by dividing net income by average common stockholders equity.


Rate of return on common Stockholders equity =     Net Income

 Average common stockholders equity


4.4.4 Earnings per Share (EPS)

Earnings per Share (EPS) are a measure of the net income earned on each share of common stock. It is computed by dividing net income by the number of weighted average common shares outstanding during the year. A measure of net income earned on a per share basis provides a useful perspective for determining profitability. Earnings per share is computed by



  1. TT

1503207600 / 1754290529

















So Acid test ratio is




(Net Income/Average Assets)













Fig: Return on Investment

Return on Common Stockholders Equity: (Net Income/Average common stockholders equity)
















Fig: Return on Common Stock Holders Equity


Earning Per Share (EPS): (Net income/ Weighted average common shares outstanding)







For my practical observation, I understood the following as the strength, weakness, opportunity and threat of First Security Islami Bank Limited (FSIBL): 




ð FSIBL has a bulk of qualified, experienced and dedicated human resources

ð Profit margin ratio has been increasing from period to period.

ð It has excellent reputation in the market

ð Not engaged in unfair business practices

ð Concentrated market

ð The bank has many attractive deposit schemes

ð Well furnished and air conditioned bank

ð Efficient management practice in the bank

ð FSIBL has the reputation of being the provider of good quality services to its potential customers

ð HRD has tried hard to avoid communication barriers & structural bureaucracies




ð  Liquidity position is not satisfactory

ð  Acid-test ratio is not satisfactory

ð  Deposit is lower than advance

ð  Officers have limited experience and not enough training facilities

ð  Long term credit is not sufficient

ð  Small market shares in banking business

ð  FSIBL has more and high fees and charges compared to its rivals




ð Current assets can be enhanced by utilizing enhanced profit

ð Can increase the credit scheme

ð Can increase the advertising of the bank

ð Private Banks become more reliable to the local public

ð To keep these customers by reducing its current fees and charges

ð Investment is a national socio economic activity. And activity in the national economy controls the bank




ð There are many competitors in the market. Competitors have more deposit

ð Ruling government is not conducive in the viewpoint of the bank. Government imposes taxes and VAT on profit and pressures to reduce interest rate

ð The investment in the secondary market by foreign is relatively low 

ð Current liabilities must be reduced

ð Liquidity is not satisfactory



Findings of this Study


FSIBL started its journey based upon the basic concept of better customer relationship. During my internship program and by the time of when the report was being prepared and from my personal experience, I have found some banking activities, which I think, must bring some changes. 


Paid-up Capital





Total Capital Fund



Capital Surplus/(deficit)



Total Assets



Total Deposits



Total Investments



Total Contingent Liabilities and Commitments



Investment Deposit Ratio (in %)



Percentage of Classified Loans against total Loans and Advances (in



Profit before tax & provision



Amount of Classified Investments during the year



Provision kept against Classified Investments



Provision Surplus/(deficit)



Cost of Fund



Profit Earning Assets



Non-profit Earning Assets



Return on Investment in Shares & securities (ROI) (in %)



Return on Assets (ROA)(in %)



Income from Investment in Shares and Securities



Earning Per Share (Tk.)



Net Income Per Share (Tk)



Price Earning Ratio (Times)





Here is the Graphical Representation of the Financial Highlights.

Financial Highlights




































Source: Financial information 2008 to 2009(


Credit Rating Agency of Bangladesh (CRAB) has given BBB 3 (pronounced triple B three) rating in Long Term and “ST-4” rating in Short Term to First Security Islami Bank Limited.


Commercial Banks rated ‘BBB' have adequate capacity to meet their financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead the Banks into a weakened capacity to meet their financial commitments. BBB rated banks are subject to moderate credit risk. Such banks are considered medium-grade and as such may possess certain speculative characteristics. At the same time, banks rated “ST-4” in short term are considered to have below average capacity for timely repayment of obligations. Such capacity is highly susceptible to adverse changes in business, economic, or financial conditions than for obligations in higher categories.





* FSIBL Branches, Available from /profiles

* (Accessed 13/08/2010, 08-09 p.m.).

* First Security Islami Bank. Annual Report, 2009

* Statement of Affairs, Donia Branch, First Security Islami Bank Ltd

* Foreign Exchange Operation Manual, Part-1 of First Security Islami Bank Ltd.

* Md. Samaduzzaman (Dolon),Principal Officer, First Security Islami Bank Ltd

* The Bangladesh Times, March 20, 1982

* Md. Abu Hanif Heron , ID# BBA 028-08368 (BBA), Batch: 28th (Stamford University Bangladesh)