Internship Report (Ripa)

INTERNSHIP REPORT
On
“Influence of Bank Specific Factors on
Profitability of Banks:
A Case Study on Shahjalal Islami Bank Limited”
Submitted to
Ferdous Jahan
Assistant Professor
Department of Finance & Banking
Comilla University.
Submitted by
Ripa Akter
Roll No: 1317018
Registration No: BBA F & B-14-550018
Session: 2013-14
Comilla University.
Date of Submission: 21 January, 2019

“Influence of Bank Specific Factors on
Profitability of Banks:
A Case Study on Shahjalal Islami Bank Limited”
Table of Contents
Chapter Topics Page

Number Number
Letter of Transmittal
Declaration
Certificate of Supervisor
Acknowledgement
Executive Summary
Chapter-01: Introduction 01-05
1.1 Background of the Report 01
1.2 Significance of the Report 01
1.3 Scope of the Study 02
01 1.4 Objectives of the Report 02
1.5 Methodology 02-05
1.6 Limitations 05
Chapter-02: Company Profile-Shahjalal Islami Bank Limited 06-16
2.1 Overview of Shahjalal Islami Bank Limited 06
2.2 Corporate Profile 07
2.3 Vision of SJIBL 08
2.4 Mission of SJIBL 08
2.5 Objectives of SJIBL 08-09
2.6 Strategy of SJIBL 09-10
2.7 Motto of SJIBL 10
2.8 Organogram of Shahjalal Islami Bank 10
2.9 Principal Activities of SJIBL 11
02
2.10 Strategic Plan for Future Growth 11
2.11 Nature of Business 11-12
2.12 Shariah Supervisory Council of the Bank 12
2.13 General Banking Activities 12-13
2.14 Products & Services of SJIBL 14-15
2.15 Social Welfare Activities 16
2.16 Credit Rating 16
Chapter-03: Theoretical Aspects 17-22
3.1 Bank Specific Factors 17
3.2 Financial Performance 17
3.3 Effect of Bank Specific Factors on Financial 18
03 Performance
3.4 Dependent Variable: (Profitability Ratio) 18-19
3.5 Independent Variables: (Bank-Specific Factors) 19-21
3.6 Conceptual Framework 21-22
Chapter-04: Analysis 23-41
4.1 Introduction 23
4.2 Ratio Analysis 23-31
4.3 Results from the Analysis of Data 31
04 4.3.1 Descriptive Statistics 31-33
4.3.2 Correlation analysis 33-36
4.3.3 Test of Multicollinearity 36
4.3.4 Regression analysis 37-41
Chapter-05: Findings, Conclusion & Recommendation 42-44
5.1 Major Findings 42
05 5.2 Conclusion 43
5.3 Recommendations 44
References 45-46
Appendix
List of Tables
Table Table Name Page

Number Number
Chapter-01: Introduction
Table-01 Description of the variables 03
Chapter-02: Company profile- Shahjalal Islami Bank Limited
Table-02 Credit Rating of Shahjalal Islami Bank Limited 16
Chapter-04: Analysis
Table-03 Year Wise Results (%) 23
Table- 04 Statistical description of the factors affecting bank profitability 32
Table-05 The ratio between CAR and profitability 33
Table -06 The ratio between LIQ and profitability 34
Table-07 The ratio between NPI and profitability 34
Table -08 The ratio between OPE and profitability 35
Table -09 The ratio between FR and profitability 35
Table -10 The ratio between management efficiency and profitability 36
Table-11 Variable inflator factor (VIF) and tolerance level 36
Table-12 Model Summary 37
Table-13 Results of the ANOVA Regression 39
Table-14 Evaluation of each independent variable in the equation 40
List of Figures
Figure Figure Name Page

Number Number
Chapter-03: Theoretical Aspects
Figure-01 Conceptualization model 22
Chapter-04: Analysis
Figure-02 Last five years Return on Equity at a glance 24
Figure-03 Last five years growth of assets at a glance 25
Figure-04 Last five years capital adequacy ratio at a glance 26
Figure-05 Last five years liquidity ratio at a glance 27
Figure-06 Last five years non performing investment ratio at a glance 28
Figure-07 Last five years operating expense ratio at a glance 29
Figure-08 Last five years total liabilities to total assets ratio at a glance 30
Figure-09 Last five years total investment to total deposit ratio at a glance 31
Elaboration of Abbreviation
Abbrebiation Elaboration
SJIBL Shahjalal Islami Bank Limited
GDP Gross Domestic Product
ROA Return on Assets
ROE Return on Equity
CAR Capital Adequacy Ratio
NPI Nonperforming Investment
ITD Investment Deposit Ratio
ATM Automated Teller Machine
SME Small and Medium Enterprise
A/C Account
MSND Mudaraba Short Notice Deposit Accounts
MTD Mudaraba Term Deposit
CRAB Credit Rating Agency of Bangladesh
VIF Variable Inflator Factor
BBA Bachelor of Business Administration
Letter of Transmittal
January 21, 2019
To
Ferdous Jahan
Assistant Professor
Comilla University.
Subject: Submission of internship report on “Influence of Bank Specific Factors on

Profitability of Banks: A Case Study on Shahjalal Islami Bank Limited”.
Dear Madam,
This is my pleasure to submit this internship report on “Influence of Bank Specific Factors
on Profitability of Banks: A Case Study on Shahjalal Islami Bank Limited”. I would like
to thank you for your supportive suggestions and helping me to carry on this study. I feel
immense interest at the preparation of the report. I have got the opportunity to know the
relationship between bank specific factors and profitability and the impact of bank specific
factors on profitability of Shahjalal Islami Bank Limited.
It will be my pleasure to appear at your call for any further explanation.
Sincerely
…………………
Ripa Akter
Roll No:1317018
Session: 2013-14
Comilla University.
Declaration
I, Ripa Akter, Hereby declare that the report of internship program titled “Influence of
Bank Specific Factors on Profitability of Banks: A Case Study on Shahjalal Islami Bank
Limited” is uniquely prepared by me after the completion of three months work at
Brahmanbaria Branch of Shahjalal Islami Bank Limited.
I also conform that, the report is only prepared for my academic requirement not for other
purpose and not submitted this report in any other place before. It might be with the interest
of opposite party of the corporation. I also assure that, this report was not submitted to any
other private or public universities.
Ripa Akter
Roll No: 1317018
Session: 2013-14
Comilla University.
Certificate of Supervisor
This is to certify that Ripa Akter is a student of BBA, ID No. 1317018; successfully
completed her “Internship program” and prepared internship report entitled “Influence of
Bank Specific Factors on Profitability of Banks: A Case Study on Shahjalal Islami Bank
Limited” under my supervision for the partial fulfillment for the award of BBA degree.
She has done her job according to my supervision and guidance. She has tried her best to do
this successfully. I think this program will help her in the future to build up her finer career.
I wish her success and prosperity.
…………………………………...
Ferdous Jahan
Assistant Professor
Comilla University.
Acknowledgement
My heartiest gratitude and respect to my supervisor, Ferdous Jahan, Department of Finance

& Banking, Comiila University, for her continuous guidance, important advice, and
invaluable support during the preparation of this report.
Without the co operation of supervisor it would be quite difficult to explain and analysis such
a critical issue. Regular guidance and inspiration inspired me to go ahead. Bank specific
factors and profitability is a depth issue for a bank. So relationship between two variables is
necessary for determining the policy of the bank and its implementation. So in this study this
has been tried to find out the relationship between bank specific factors and profitability of
Shahjalal Islami Bank Limited where honorable supervisor suggested how to complete this
study by using various statistical tools. At the same time some other expert person also
helped me very much.
Finally I want to express again my gratitude to all of the person and my supervisor.
Executive Summary
Shahjalal Islami Bank Limited is a private bank in Bangladesh that came in banking sector
with a big promise. This Bank is growing and expands its service area day by day as a result
of goal, best performance, of the organization. This organization believes in the best. As a
result, they get the best performance, professional skills, as well as, they determine to reach
the goal and motivate the employee in each level of these organizations. The Shahjalal Islami
Bank Limited is one of the best Islamic shairah based commercial bank in the banking sector
of Bangladesh. Although Shahjalal Islami Bank Limited was incorporated as a public
st
limited company as on 1 day of April 2001 under the Companies Act. 1994 but the bank
started its commercial operation on May 10, 2001. The Shahjalal Islami Bank Limited is
currently operating nationwide with 122 Branches.
The report is prepared on “Influence of Bank Specific Factors on Profitability of Banks- A

Case Study on Shahjalal Islami Bank Limited”. The general objective of preparing this
report is to show the influence of bank specific factors on the profitability of Shahjalal Islami
Bank Limited. There are some specific objectives also including identification of the
relationship between bank specific factors and profitability. The report is based on secondary
data only. Data have been collected for ten years from the income statement and balance
sheet of the bank as well as other articles related to the topic. Some limitations those I have
faced in preparing this report have been described in the report. My study covers the
historical background of Shahjalal Islami Bank limited. It tells about its objectives, mission &
vision as well as the various products and services of SJIBL.
To fulfill the objectives of this report ROE has been taken as the dependent variable and bank
specific factors (capital adequacy, liquidity, nonperforming investment, operating expense
and management efficiency) have been taken as independent variables. Ratio analysis has
been used to show the trend of the last five years. It is can be said that the ROE of this bank
declined in the last year although the volume of total assets increased. On the other hand, the
NPI shows a declining trend which is a good indicator for a bank and the financial risk is
increasing day by day. Correlation analysis, regression analysis have been used to test the
null hypothesis. For each independent variable correlation analysis has been shown
separately. Liquidity and management efficiency have positive correlation with ROE. On the
other hand, capital adequacy, nonperforming loan, operating expense and financial risk have
negative correlation with ROE. VIF and tolerance level is used to test multicollinearity. It is
seen that there is no multicollinearity problem. From the regression analysis it is clear that the
significance level is around 0.05, so the regression model is statistically significant. The null
hypothesis is rejected and the alternative hypothesis is accepted that is there is a relationship
between bank specific factors and profitability of SJIBL. Form the regression coefficient
table it is clear that liquidity and management efficiency affect ROE positively and capital
adequacy, nonperforming loan, operating expense and financial risk affect ROE negatively. It
is also clear from the value of beta coefficient indicating the impact of independent variables
on dependent variables that the highest impact on bank profitability based on the amount of
beta coefficient has: financial risk followed by non performing investment, capital adequacy,
operating expense and then two other variables (liquidity and management efficiency). At
last, efforts have been made to put some suggestions that will be helpful for increasing the
profitability of SJIBL.
Chapter -01
Introduction
1.1 Background of the Report
The development of banking sector is an indispensable way for a flourishing economy of a

country which is developing in nature. The elevation of banks and the progression of the
national economy are positively related in Bangladesh. The profitability of commercial banks
is a response to some internal factors within the banks and some external factors. In fact, the
main dominators of banking performance are the bank-specific factors. Generally, the
banking business involves mobilization of funds from surplus units to the deficit units in the
economy of a country. As bank is a financial intermediary, the main purpose of the bank is to
earn profit. The bank‟s profitability depends on its ability to generate revenue in excess of
costs, withstanding negative shocks. Bank profitability is usually expressed as a function of
internal and external factors. The internal or bank specific variables which mostly determine
bank profitability includes bank size, liquidity, debt equity ratio, non performing investment
etc. The external factors include gross domestic product (GDP), inflation rate, economic
growth etc.
As a mandatory requirement of the Bachelor of Business Administration (BBA) program, I

was assigned to do my internship in Shahjalal Islami Bank Limited (SJIBL) for a period of
three months. From practical knowledge, it has been possible to get idea regarding banking
operations. This report, “Influence of Bank Specific Factors on Profitability of Banks- A
Case Study on Shahjalal Islami Bank Limited”, has been prepared to fulfill the partial
requirement of BBA program as a mean of Internship Program. While preparing this report, it
was not a difficult task to have in depth knowledge regarding this topic.
In this study the bank specific factors such as capital adequacy, liquidity, nonperforming
investment, operating expense and management efficiency are the point of concentration
those have effect on the profitability of Shahjalal Islami Bank Limited.
1.2 Significance of the Report

.As the main motive of the bank is to earn profit for its survival and growth, each and every
bank need to give attention regarding increasing the profitability of bank. This study has been
conducted to show the influence of bank specific factors on profitability of Shahjalal Islami
Bank Limited. In this report attempts have been made to show how bank specific factors can
influence the profitability by using various statistical tools. This study will be helpful for the
policymakers who need to have depth knowledge about how to increase the bank
profitability. Policymakers will be able to use the findings in order to undertake policy for the
bank. This study will also be useful for researchers. Researcher can use this report in order to
get idea. This study will also be helpful for further research.
1.3 Scope of the Study

The scope of the organizational part covers the organizational structure, background,
products and services Shahjalal Islami Bank Limited as a whole and the main part covers the
influence of bank specific factors on profitability. This report helps us to understand how
bank profitability and bank specific factors are correlated. It also helps us to understand how
a bank should be operated by focusing on various factors for raising its profitability. Only
bank specific factors have been used while ignoring macroeconomic factors. To be able to
show the relationship, data have been collected for 10 years and analyzed.
1.4 Objectives of the Report
1.4.1 General Objective

The general objective of this study is to analyze “The influence of bank specific factors on
the profitability of Shahjalal Islami Bank Limited”.
There are some specific objectives also.
1.4.2 Specific objectives
 To explore the relationship between bank specific factors (capital adequacy, liquidity,
nonperforming investment, operating expense, financial risk and management
efficiency) and profitability.
 To identify the bank specific factors those have more impact on profitability.
 To suggest some policy measures for increasing the profitability of the bank that will
be helpful for its survival and growth.
1.5 Methodology
1.5.1 Research Design
This study aims to establish a relationship between bank specific factors and profitability of
Shahjalal Islami Bank Limited through an empirical research. The data used in this study are
complied from income statements and balance sheets from the annual report of each year of
the bank. The sample has been tested through, ratio analysis descriptive statistics, correlation
analysis and regression analysis.
1.5.2 Research Instrument

In this study, ratio analysis has been used to show the trend of the variables. Descriptive
statistics has been used to compare the means of profitability ratio and bank specific
variables. The influence of bank specific factors on profitability of Shahjalal Islami Bank
Limited has been shown by using Pearson Correlation Coefficient analysis and represented
through correlation matrix. The hypotheses have been tested by applying linear regression
using IBM SPSS Statistics 23. The profitability ratio is the dependent variable and bank
specific variables are the independent variables. The variables to analyze the influence of
bank specific factors on profitability using regression analysis are as follows;
Variables Symbols Measure

Dependent Variables
Return on Equity ROE
Independent Variables
Capital adequacy ratio CAR
Liquidity ratio LIQ
Non performing investment NPI

ratio
Operational expense ratio OPE
Financial risk FR
Management efficiency
Table-01: Description of the variables.

1.5.3 Sources of Data
The data collection method of study consists of secondary sources. The details of these
sources are given below:
Sources of Secondary data
 Annual Reports of the bank (2008-2017).

 Different text book.
 Various reports related to study.
 Web base support from the internet.
1.5.4 General Model of the Study

The general model attempts to measure the relationship between the dependent variable (bank
profitability) and the independent variables (bank specific). The general model is estimated
by the following equation:
Profitability (ROE) =ƒ (CAR, LIQ, NPI, OPE, FR, MGTE), Where profitability is a function
of all these six variables.
The specific models established to express the dependent variable taken for the study is as
follows,
ROE=
Where,
Represents the intercept.
, , , , Represents the coefficients of regression relations.
Represents error term.
1.5.5 Research Hypothesis

In this study, one hypothesis is built to examine the relationship between independent
variable and dependent variable. According to Uma Sekaran, the hypothesis can be defined as
a logically conjectured relationship between two or more variables expressed in the form of a
testable statement. There are two types of hypotheses. The first type is null hypothesis (Ho)
and the other hypothesis is known as alternative hypothesis (Ha). Null hypothesis is a
proposition that states a definitive, exact relationship between two variables. In general, the
null statement is expressed as no (significant) relationship between two variables or no
(significant) difference between two groups. The hypothesis will come out such as follows:
The hypothesis to be tested in this study is as follows,

There exists no relationship between bank specific factors and profitability.
There exists relationship between bank specific factors and profitability.
1.5.6 Data Collection Procedure and Instruments
For “The Influence of Bank Specific Factors on Profitability of Shahjalal Islami Bank
Limited” I mainly used secondary data. Besides this I also collect some information by
taking expert opinion.
1.5.7 Data Analysis Tools and Techniques

To analyze and present the numerical data and values associated with this study I have used
IBM SPSS Statistics 23. Ratio analysis has been used to show the trend by using line chart.
Both descriptive and empirical results including correlation, regression have been used.
1.6 Limitations
Some of the limitations which I have faced in preparing the report are as follows,
1. To complete the study, time was limited by three months. It was really very short time
to know details about an organization like Shahjalal Islami Bank Limited.
2. Lack of experiences has acted as constraints in the way of thorough exploration on the
topic.
3. Difficulty in collecting information as they are not available.
4. During my internship program, I was placed in general banking department. As a
result, it was not possible to know about the operations of other departments of the
bank. So, lack of practical knowledge also acts as a barrier.
5. The data are collected from secondary sources; hence the reliability of data is
questionable.
Chapter -02
Company Profile: Shahjalal Islami Bank Limited
2.1 Overview of Shahjalal Islami Bank Limited
The “Shahjalal Islami Bank Limited”, a Shariah Based Commercial Bank in Bangladesh
st
was incorporated as a public limited company as on 1 day of April 2001 under the
Companies Act. 1994. The Bank started its commercial operation on May 10, 2001. The
Bank has made a significant progress within a very short period of its existence and occupied
an enviable position among its competitors after achieving remarkable success in all areas of
business operation. The authorized capital of the Bank is Tk. 10,000 million and Paid up
capital of the Bank stood at Tk. 7714 million as on 31 December 2017.
With a view to materialize the dream of the people of Bangladesh for doing their banking
transactions in line with what is prescribed by Islam, a group of highly successful
entrepreneurs conceived an idea of floating a commercial bank styled as “Shahjalal Islami
Bank Limited” which is named after the name of the renowned saint Hajrat Shahjalal (R)
who dedicated his life for the cause of peace in this world and hereafter and for the service of
humanity. The sponsors are reputed personalities in the field of trade & commerce, industry
and finance.
The Bank is being managed by a group of highly experienced professionals with diversified
experience in finance and banking. The Management of the bank constantly looks after
customers‟ satisfaction and believes that a satisfied customer is a great Ambassador. The
Bank has already achieved tremendous progress within only fifteen years. The bank has
already ranked as one of the quality service providers & is known for its reputation. It offers
the full range of banking services for personal and corporate customers, covering all
segments of society within the framework of Banking Company Act and rules and
regulations laid down by our central bank.
All activities of the Bank including its products and services are mainly for different
economic groups of Bangladesh at home & abroad. Bangladeshi expatriates living abroad in
different countries form a strong economic group who contribute greatly towards the
economic development of the country.
2.2 Corporate Profile
Name of the Shahjalal Islami Bank Limited

Company
Legal Form A public limited company incorporated in Bangladesh on 1st April 2001
under the companies Act 1994 and listed in Dhaka Stock Exchange
Limited and Chittagong Stock Exchange Limited.
Commencement of 10th May 2001
Business
Head Office Shahjalal Islami Bank Tower Plot No: 4, CWN(C) Gulshan Avenue,
Dhaka-1212.
Telephone No. 88-02-9845457
Fax No. 88-02-9847607
Website www.sjiblbd.com
SWIFT SJBL BD DH
E-mail sjiblho@sjiblbd.com
Chairman Mr. Akkas Uddin Mollah
Managing Director Mr. Muhammed Shahidul Islam
No. of Branches 122
No. of ATM Booth 84
No. of SME At present Bank has no SME center
Centers
Off-Shore banking 01
Unit
No. of Employees 2,156
Stock Summary:
Authorized Capital Tk. 10,000 million
Paid up Capital Tk. 7,714 million
Face Value per Tk. 10
Share
2.3 Vision of SJIBL
To be the unique modern Islami Bank in Bangladesh and to make significant contribution to
the national economy and enhance customers' trust & wealth, quality investment, employees'
value and rapid growth in shareholders' equity.
2.4 Mission of SJIBL

 To provide quality services to customers.
 To set high standards of integrity.

 To make quality investment.
 To ensure sustainable growth in business.
 To ensure maximization of Shareholders' wealth.
 To extend our customers innovative services acquiring state-of-the-art technology

blended with Islamic principles.
 To ensure human resource development to meet the challenges of the time.
2.5 Objectives of SJIBL
From time immemorial Banks principally did the functions of moneylenders or "Mohajans"
but the functions and scope of modern banking are now a days, very wide and different. They
accept deposits and lend money like their ancestors, nevertheless, their role as catalytic agent
of economic development encompassing wide range of services is very important. Business
commerce and industries in modern times cannot go without banks. There are people
interested to abide by the injunctions of religions in all sphere of life including economic
activities. Human being is value oriented and social science is not value-neutral.
Shahjalal Islami Bank believes in moral and material development simultaneously.
"Interest" or "Usury" has not been appreciated and accepted by "the Tawrat" of Prophet
Moses, "the Bible" of Prophet Jesus and "the Quran" of Hazrat Muhammad (sm). Efforts are
there to do banking without interest. Shahjalal Islami Bank Limited avoids "interest" in all its
transactions and provides all available modern banking services to its clients and wants to
contribute in both moral and material development of human being. No sustainable material
well-being is possible without spiritual development of mankind. Only material well-being
should not be the objective of development. Socio-economic justice and brotherhood can be
implemented well in a God-fearing society.
The other objectives of Shahjalal Islami Bank include the followings:

 To conduct interest-free and welfare oriented banking business based on Islamic
Shariah.
 To implement and materialize the economic and financial principles of Islam in
the banking arena.
 To contribute in sustainable economic growth.
 To help in poverty alleviation and employment generations.
 To remain one of the best banks in Bangladesh in terms of profitability and assets
quality.
 To earn and maintain a 'Strong' CAMEL Rating.
 To introduce fully automated systems through integration of information
technology.
 To ensure an adequate rate of return on investment.
 To maintain adequate liquidity to meet maturing obligations and commitments.
 To play a vital role in human development and employment generation.
 To develop and retain a quality work force through an effective Human Resources
Management System.
 To ensure optimum utilization of all available resources.
 To pursue an effective system of management by ensuring compliance to ethical
norms, transparency and accountability at all levels.
2.6 Strategy of SJIBL

 To strive for customer‟s best satisfaction & earn their confidence.
 To manage & operate the Bank in the most effective manner.
 To identify customer‟s needs & monitor their perception towards meeting those
requirements.
 To review & updates policies, procedures & practices to enhance the ability to extend
better services to the customers.
 To train & develop all employees & provide them adequate resources so that the
customers‟ needs are reasonably addressed.
 To promote organizational efficiency by communicating company plans, polices &

procedures openly to the employees in a timely fashion.
 To cultivate a congenial working environment.
 To diversify portfolio both the retail & wholesale markets.
2.7 Motto of SJIBL

Committed to Cordial Service.
2.8 Organogram of Shahjalal Islami Bank
Chairman
Sharia Council Board of director Sponsor
Audit Committee Managing Director Executive Committee
Deputy Managing Director Executive Vice President Deputy Managing Director
Senior Vice President Senior Vice President

Senior Vice President
Vice President
Assistant Vice President
Executive Officer
Senior Officer
Trainee Senior Officer
Trainee Officer
2.9 Principal Activities of SJIBL
The principal activities of the Bank is to provide all kinds of commercial banking products
and services to the customers including deposits taking, cash withdrawal, extending
investments to corporate organization, retail and small & medium enterprises, trade
financing, project finance, working capital finance, lease and hire purchase financing,
issuance of Debit Card. Its vision is to be the best private commercial bank in Bangladesh in
terms of efficiency, capital adequacy, asset quality, sound management and profitability.
2.10 Strategic Plan for Future Growth
The Banking industry experienced intensification of competitive pressure as the national and
international banks operating in Bangladesh strongly pursued the banking and financing
needs of the Corporate, Retail, SME sector customers through diversification of products and
services and extending automated banking service with ATM, Debit card facilities and
Internet Banking. Besides, rates of profit became very competitive for deposit and lending;
Customers are demanding higher rate of return against their deposits, on the other hand
asking the banks to reduce their lending rates.
Considering the overall scenario, SJIBL continues to focus on its delivery channel,
technology, Human Resource and its brands along with branch network, Business promotion,
Corporate Social Responsibility and product diversification.
Strategies are means to achieve goals. Aligned with the vision and mission statements of
SJIBL, 14 strategies have been identified to address the development and changes we need. It
is envisaged that this strategic plan will cascade effectively the vision-mission into concrete
action on priority basis and transform SJIBL into a dynamic, effective, and forward looking
modern Islamic bank in Bangladesh.
2.11 Nature of Business
The Bank is carrying out commercial, corporate, investment and retail banking related
services to its customers through its twenty-six branches following the provisions of the bank
Company Act 1991 as follows:
 Corporate Finance.
 Green Banking.
 Correspondence Banking.
 Foreign Exchange.
 Guarantees.
 Syndicated Finance.
 Other Related Business.
2.12 Shariah Supervisory Council of the Bank
As per Article 30 of the Articles of Association of the Bank, Shariah Council for the Bank
has been constituted. The Shariah council of the Bank consists of prominent Ulema, Bankers
and Economists to advice and guide on the implementation of Islamic Shariah in business
activities. The Council enjoys a special status in the structure of the Bank and playing a vital
role to make the bank as Shariah compliant.
2.13 General Banking Activities
Account opening
One cannot be a customer of the bank without opening an account. Account opening is an
agreement between the customer and the bank. The form of account opening acts as a
contract evidence. So account opening is one of the most important activities of a bank. The
rules and regulations for opening of an account can vary according to types of accounts.
Types of Accounts:
A.AL-Wadiah Current Deposit
For private, individuals, merchants, traders, importers and exporters mill and factory overset
this type of account is advantageous. The minimum deposit of Tk.5000 for opening of a
current account is required with reference.
The benefits of current account are as follows-

 Statement of account on monthly basis/any time.
 Statement by fax on demand
 Any number of transactions a day.
B. Mudaraba Savings Deposit
There is restriction on withdrawals. Frequent withdrawal is prohibited. The saving account is

primarily for small-scale savers. The main objective of this A/C is promotion of saving
money.
Highlights of the Account

 7 days notice is required for withdrawal of large amount.
 Frequent withdrawal is not encouraged.
 Minimum amount of Tk.2000.00 is required as initial deposit.
 Normally withdrawal is not allowed more than two times in a week.
 Overdrawn is not allowed.
C. Mudaraba Short Notice Deposit Accounts (MSND)
The deposits held in these accounts shall be payable on short notice period but the notice
must not be less than 7 days. The deposits may be accepted for the period and rates of profit
are fixed by Head Office from time to time.
 Profit shall be paid only for each day held, but profit on notice period will be
forfeited; if withdrawn without notice.
 Profit on MSND account shall be applied on half yearly basis (i.e. June & December
each year)
D. Mudaraba Term Deposit Accounts (MTD)
Mudaraba Term Deposit Account shall be opened for a fixed period varying from 90 days,
180 days, 360 days or above and are payable at a fixed date of maturity. Mudaraba Term
Deposit Accounts can be opened with a minimum deposit of Tk.2,000.
Profit on Mudaraba Term Deposit Account shall be at rates fixed by Head office from time to
time depending on their period of maturity. Deposit of Longer duration naturally earns higher
return at higher weightage. Profit on Mudaraba Term Deposit Account shall be payable at
maturity of the deposits. The customers will have the option of withdrawing profit
accumulated at maturity or on half yearly basis or may leave the profit with the principal.
2.14 Products & Services of SJIBL
Shahjalal Islami Bank Limited accepts deposits on the basis of Mudaraba in the following
types of accounts, and pays profit, like that of dividend in these accounts.
Customers‟ deposit their fund in the following types of Accounts:
1. Mudaraba Monthly Income Scheme.

2. Mudaraba Special Term Deposit.
3. Mudaraba Millionaire Scheme.
4. Mudaraba Double /Triple Benefit Scheme.
5. Mudaraba Monthly Deposit Scheme.
6. Mudaraba Haji Scheme.
7. Mudaraba Cash waqf Deposit Scheme.
8. SJIBL School Banking.
9. Mudaraba Money Spining.
10. Mudaraba Savings Payroll Account.
11. . Mudaraba Foreign Currency Deposit.
Investment products, Corporate (Mode)
 Murabaha
 Bai-Muazzal
 Hire Purchase under Shirkatul Meelk
 Ijara
 Bai-Salam
 Quard-e-Hasana
 Investment against LC
 Investment against Scheme/Deposit
Investment Products (Retail)
 Household Durable Scheme

 Housing Investment Program
 Car Investment Scheme
 Investment for Self-employment
 Investment Scheme for Executives
 Investment Scheme for Doctors
 Investment Scheme for Marriage
 Investment Scheme for Overseas Employment
 Investment Scheme for Education
Investment Products (SME)
 Small Business Investment Program

 Small Entrepreneur Investment Program
 Medium Entrepreneur Investment Program
 Rural Investment Program
 Women Entrepreneur Investment Scheme
SJIBL Card
 VISA Debit Card

 VISA Prepaid Card (Local)
 VISA Prepaid Card (International)
 VISA Prepaid Card (Dual)
 VISA Souvenir Card (Gift Card – Local)
Computer services
Shahjalal Islami Bank Limited introduced a few schemes, which are very popular:
1. Online services
2. Automated Accounting
3. Integrated System
4. Signature Verification
5. Any Branch Banking
6. ATM Services
7. SMS Push Pull Services
2.15 Social Welfare Activities
With a view to providing financial assistance to the poor and needy people of the society and
also for the welfare of the community, to this perspective, bank has established "Shahjalal
Islami bank Foundation" with the objective to provide health-care, relief & rehabilitation,
education, humanitarian of winter clothes during the winter etc. Shahjalal Islami Bank
Foundation has a planning to establish the following projects and programs:
 Shahjalal Islami Bank International School and College.
 Shahjalal Islami Bank Hospital.
The foundation has also drawn up programs to look after the education, health & Medical
requirements of the people of rural areas where the bank has launched Rural Investment
Programs (RIP) with vision 2040. The foundation already introduced a program to reward
poor student who passes SSC and HSC exam. Students who are not financially sound, the
foundation gives financial assistance to them. The Bank has started it from 2006. Under this
project III poor and meritorious students are awarded by monthly scholarship and lump sump
money at yearly basis. This will motivate student to do better in future. The Bank appreciates
the good things in the society.
2.16 Credit Rating
Table-02: Credit Rating of Shahjalal Islami Bank Limited
Long Term Short Term
Surveillance Rating-2017 AA2 ST-2
Outlook Stable
Date of Rating-2017 28 May, 2018

Credit Rating Agency of Bangladesh Limited (CRAB) has affirmed the Long Term Rating of
Shahjalal Islami Bank Limited at 'AA2' (pronounced Double A Two) and Short Term Rating
at 'ST-2'. CRAB performed the rating surveillance based on audited financial statements up to
31 December 2017 and other relevant information.
Chapter- 03
Theoretical Aspects
3.1 Bank Specific Factors
Bank specific variables are internal factors which influence the performance of banks
internally and they can be controlled. Every bank has its own internal factor that affects the
financial performance differently. Bank specific factors include capital adequacy, asset
quality, liquidity, operational cost efficiency, management efficiency, nonperforming
investment, debt equity ratio etc.
Capital adequacy shows the level of capital required by the banks to enable them withstand
the risks such as credit, market and operational risks they are exposed to in order to absorb
the potential loses and protect the bank's debtors. Asset quality indicates the ability of banks
to utilize its assets and make profits. By minimizing the operational cost, the profitability of
banks can be increased. Nonperforming investment shows the level of investment that the
banks are not able to collect from the customers. There are also some other factors affecting
the profitability of the bank. Statistically bank specific factors significantly affect the
financial performance of commercial banks in Bangladesh.
3.2 Financial Performance

Financial performance is a subjective measure of how well a firm can use assets from its
primary mode of business and generate revenues. This term is also used as a general measure
of a firm's overall financial health over a given period of time, and can be used to compare
similar firms across the same industry or to compare industries or sectors in aggregation.
Ngugi (2013) defined financial performance analysis as the process of identifying the
financial strengths and weaknesses of the firm by properly establishing the relationship
between the items of balance sheet and profit and loss account
A commonly used measure of bank performance is the level of bank profits. Bank
profitability can be measured by the return on a bank‟s assets (ROA), a ratio of a bank‟s
profits to its total assets. The income statements of commercial banks report profits before
and after taxes. Another good measure on bank performance is the ratio of bank‟s profits to
equity (ROE) rather than total assets since banks with higher equity ratio should also have a
higher return on assets Bank profitability can be analyzed using three main indicators: Return
on equity, Return on Asset and the indicator of financial leverage. In this study, financial
performance will be measured using return on equity.
3.3 Effect of Bank Specific Factors on Financial Performance
Internal factors or bank specific factors are controllable by the management of a company. If
well managed they contribute positively to the financial performance of the company. One of
the biggest factors that management focuses on is operational cost management as well as
income diversification. This is to ensure that firms get maximum returns at the lowest
possible costs. The operational cost efficiency of management is measured as the ratio of
operating expenses to total asset. This is expected to be negatively associated with
profitability. Management quality in this regard, determines the level of operating expenses
and in turn affects profitability. Capital adequacy is one of the internal factors that affect
financial performance. The adequacy of capital is judged on the basis of capital adequacy
ratio (CAR). Capital adequacy ratio shows the internal strength of the bank to withstand
losses during crisis. Capital adequacy ratio is directly proportional to the resilience of the
bank to crisis situations. It also has a direct effect on the profitability of banks by determining
its expansion to risky but profitable ventures or areas.
Liquidity is also a bank specific factor that affects performance. A moderate amount of
liquidity may propel entrepreneurial performance, but that an abundance of liquidity may do
more harm than good. Nonperforming investment is another bank specific factor which has
negative effect on profitability. Banks should follow proper loan disbursement policy before
granting any loan. Profitability of banks can be increased if operating expenses can be
minimized. Hence, operating expenses has negative relationship with bank profitability. The
efficiency of management in utilizing the bank‟s deposits is also an important factor
influencing bank profitability. Both financial risk and leverage have negative effect on
profitability of banks. Because the more the financial cost, the less will be the profit volume
of banks. The size of the bank also has significant impact on bank‟s profitability. The larger
the size, the higher will be the profitability of banks.
3.4 Dependent Variable: (Profitability Ratio)

Every bank is most concerned with its profitability. Profitability ratios show a bank‟s overall
efficiency and performance. One of the most frequently used tools of financial ratio analysis
is profitability ratios which are used to determine the bank‟s bottom line. Profitability
measures are important to managers and owners alike.
Return on Equity (ROE) has been taken as a measure of profitability in this report. Most of
the studies claim that this variable can well explain the profitability of a banking
organization. The explanation of the variable is given below.
3.4.1 Return on Equity (ROE)

Return on equity is the percentage of return of its shareholder equity. It measures the bank‟s
profitability generated from the shareholders money that they invested. Return on equity
(ROE) is calculated net income divided by common shareholder equity. A ROE of 10 percent
means that the common stockholders have earned Tk.10 for every Tk100 invested in the
company. The higher the ROE, the more efficient management is in utilizing its equity base
and better return is to investors. The calculation for the ROE ratio is,
3.5 Independent Variables: (Bank-Specific Factors)

Total six variables have been selected for this study. They include capital adequacy, liquidity,
nonperforming investment, operating expense, financial risk and management efficiency.
Studies suggest that these variables have significant impacts on the profitability of a banking
institution. All the variables are bank specific factors that can be controlled by the
management. A brief description of the factors is as follows;
3.5.1 Capital Adequacy Ratio (CAR)

Capital adequacy is a measure of a bank's net worth. It indicates the amount of fund that is
available to safeguard against adverse development. The relation between ROE & CAR is
unpredictable. While some research suggests that the relationship is negative other research
suggests a positive relationship. This shows that how much participation of equity in total
assets. Increase in capital ratio refers to the amount of own funds available to support a
bank‟s business and therefore bank capital act as safety net in the case of adverse
development. Higher bank‟s capital ratio can take the advantage of higher profitability. The
formula used to calculate CAR is,
3.5.2 Liquidity
There is a trade-off between liquidity and profitability. Liquid assets work as a safeguard
against the deposits which might require on demand payment. So greater liquidity means
lesser risk but it also reduces the funds available for lending. So, higher liquidity indicates
lower profitability. Hence, a negative relationship exists between these two. A bank should
maintain adequate liquidity otherwise it may be exposed to liquidity risk. The calculation of
this ratio is,
3.5.3 Non-performing Investment Ratio
Non-Performing Investment ratio measures investment in default. The profitability of banks

is negatively related to the amount of Non-Performing Investment. The greater the amount of
classified investment as a percentage of total investment, the lower the profitability of banks.
Every bank follows some criteria in taking the investment decision. As the main obstacle of
the bank is the occurrence of nonperforming investment, adequate collateral must be ensured
from the borrowers. The formula used to calculate this ratio is as follows,
3.5.4 Operating Expense Ratio
In this study, total operating expenses divided by total assets is used as proxy for measuring
the operating efficiency. Efficient management leads to a lowering of operating expense
which in turns increases the profitability of firm. An inverse relationship is expected between
ROE & operating expense ratio. So, for increasing the profitability of the bank, the volume of
operating expenses must be minimized. The calculation of operating expense ratio is as
follows,
3.5.5 Financial Risk
The total liabilities to total asset ratio is a leverage ratio that measures the amount of total
assets that are financed by creditors instead of investors. In other words, it shows what
percentage of assets is funded by borrowing compared with the percentage of resources that
are funded by the investors. This ratio is used to show the financial risk a bank is exposed to.
Basically, it illustrates how a company has grown and acquired its assets over time.
Companies can generate investor interest to obtain capital, produce profits to acquire its own
assets, or take on debt. Obviously, the first two are preferable in most cases.
This is an important measurement because it shows how leveraged the company by looking at
how much of company‟s resources are owned by the shareholders in the form of equity and
creditors in the form of debt. Both investors and creditors use this figure to make decisions
about the company. This ratio can be calculated by using the following formula,
3.5.6 Management Efficiency

Investment deposit ratio is used to measure the efficiency of management. It is calculated by
dividing the total investment by total deposits and is generally expressed in percentage terms.
It is also used as a measure of liquidity. If the ratio is too high, it means that the bank may not
have not have enough liquidity to cover any unforeseen fund requirements. Conversely, if the
ratio is too low, the bank may not earn as much as it could be. The formula for calculating
this ratio is given below;
3.6 Conceptual Framework

Based on the literature review discussed in the report, an analysis has been conducted to draw
a relationship between bank specific factors and profitability of SJIBL. The dependent
variable in the study is the Return on Equity (ROE) and the independent variables are the
bank specific factors derived for this study i,e Capital Adequacy Ratio (CAR), Liquidity
Ratio (LIQ), Nonperforming Investment Ratio (NPI), Operating Expense Ratio (OPE),
Financial Risk (FR) and Management Efficiency (MGTE).
Capital Financial Risk
Adequacy High
Liquidity
Bank Specific Return on

Profitability
Non performing Variables Equity
Investment
Operating Low
Management
Expense
Efficiency
Figure-01: Conceptualization model

Chapter -04
Analysis
4.1 Introduction
This chapter is a presentation of results obtained from the data collected; both descriptive and
empirical statistics have been employed specifically using Pearson correlation, regression
analysis and ANOVA to establish the significance /fitness of the model and also to establish
the link between bank specific factors and the profitability of SJIBL. The ratio analysis is
used for showing the trend of the variables.
4.2 Ratio Analysis
Ratio analysis involves methods of calculating and interpreting financial ratios to analyze and
monitor the firm‟s performance. In order to show the trend of the variables, ratio analysis has
been used in this study. The trend of the last five years of the ratios has been shown in the
following table.
Table-03: Year Wise Results (%)
Years ROE Growth of CAR LIQ NPI OPE MGTE

Assets
2013 12 -3.2 12.6 10.7 6.5 1.8 88.8
2014 6 -1.4 13.6 12.7 7.9 2.1 85.3
2015 11 8.8 13.5 7.8 6.5 2 88.6
2016 12 21.3 11.5 7.2 4.8 1.8 98.9
2017 9 24.3 12.1 6.8 4 1.7 109.1
4.2.1 Return on Equity (ROE)
The return on equity is measured as the ratio of net profit after tax to total shareholder‟s
equity. The high ratios indicate the better return to the investments of the shareholders. It
provides a better estimate than ROA because it shows the actual return earned from
shareholder‟s invested funds. The ROE ratio of last five years is shown in the following
graph.
Figure-02: Last five years Return on Equity at a glance
ROE(%)
14%
12% 12%
12% 11%
10% 9%
8% 6%
6%
4%
2%
0%
2013 2014 2015 2016 2017
Source: Annual reports SJIBL (2013-2017)
The ROE Ratio of Shahjalal Islamic bank was 12 percent in 2013 but in 2014, it was declined
to 6 percent. It was increased till 2016. In 2016, it was slightly increased from 2015. The
ROE ratio of the bank was 9 percent in the year 2017. This means that the external source of
fund of the bank requires higher cost and it decreases profitability.
4.2.2 Growth Rate of Total Assets
Total asset is an important determinant of the profitability of the bank. The positive
relationship between total assets and profitability indicates that the bank has been able to
achieve economies of scale. A negative relationship between these two indicates
diseconomies of scale. The growth rate of total assets of last five years is shown in the
following graph.
Figure-03: Last five years growth of assets at a glance
Growth Rate of Total Assets(%)

30
24.3
25 21.3
20
15
8.8
10
5
-1.4
0 -3.2
2013 2014 2015 2016 2017
-5
Source: Annual reports of SJIBL (2013-2017)
As the growth rate of total assets was negative till 2014, we can say that in those two years
the volume of total assets was in a decreasing trend. After the year 2014 the total assets of the
bank increased and it continues till 2017. In 2017, the growth rate was 24.3 percent which
indicates that the bank has been able to increase its volume of assets.
4.2.3 Capital Adequacy Ratio (CAR)
Capital adequacy is a measure of a bank's net worth. It indicates the amount of fund that is
available to safeguard against adverse development. Increase in capital ratio refers to the
amount of own funds available to support a bank‟s business. Hence, bank capital act as safety
net in the case of adverse development. Higher bank‟s capital ratio can take the advantage of
higher profitability. The CAR of last five years is shown in the following graph.
Figure-04: Last five years capital adequacy ratio at a glance
CAR(%)
14 13.6 13.5
13.5
13 12.6
12.5 12.1
12 11.5
11.5
11
10.5
10
2013 2014 2015 2016 2017
The CAR of the bank was 12.6 percent in 2013. It increased in the year 2014 which was the
highest compared to all other years. The volume of capital was lower in the year 2016.in year
2017; the CAR was 12.1 percent which indicates that the bank has increased its capital that
will act as a safeguard for facing unfavorable situations.
4.2.4 Liquidity
There is an inverse relationship between liquidity and profitability. Liquid assets work as a
safeguard against the deposits which might require on demand payment. So, greater liquidity
means lesser risk but it also reduces the funds available for lending. So, higher liquidity
indicates lower profitability. The liquidity trend of last five years is shown in the following
graph.
Figure-05: Last five years liquidity ratio at a glance
Liquidity(%)
14 12.7
12 10.7
10
7.8
8 7.2 6.8
6
4
2
0
2013 2014 2015 2016 2017
As liquidity is inversely related to the bank profitability, a bank manager should take right
decision regarding utilization of the fund. In the above graph, we see that the liquidity was
higher in year 2014. As the liquidity was higher, the profitability of the bank was lower in
year 2014 as indicated by ROE ratio. The bank has decreased its liquidity from the year 2015.
It shows a decreasing trend till 2017.
4.2.5 Non-performing Investment Ratio
Non-Performing Investment ratio measures investment in default. The profitability of banks

is negatively related to the amount of Non-Performing Investment. The greater the amount of
nonperforming investment as a percentage of total investment, the lower the profitability of
banks. The NPI ratio of last five years is shown in the following graph.
Figure-06: Last five years non performing investment ratio at a glance
NPI(%)
9 7.9
8
7 6.5 6.5
6
4.8
5 4
4
3
2
1
0
2013 2014 2015 2016 2017
The NPI ratio of the bank was 7.9 percent in year 2014 which was the highest compared to
other years. The bank has been able to decrease its classified investment as proved by the
lower NPI ratio of the bank in year 2016 and 2017.
4.2.6 Operating Expense Ratio
The ratio of total operating expenses to total assets is used as proxy for measuring the
operating efficiency. Efficient management leads to a lowering of operating expanse which in
turns increases the profitability of firm. An inverse relationship is expected between ROE &
operating expense ratio. The trend of last five years is shown in the following graph.
Figure-07: Last five years operating expense ratio at a glance
Operating Expense Ratio(%)

2.5
2.1 2
2 1.8 1.8 1.7
1.5
0.5
0
2013 2014 2015 2016 2017
The operating expense ratio was 1.8 percent in 2013 which was increased to 2.1 percent in
year 2014. The bank has been able to decrease its operating expense ratio as shown by the
lower operating expense ratio till the year 2017. This is a positive sign for the bank.
4.2.7 Total Liabilities to Total Assets Ratio
The total liabilities to total asset ratio is a leverage ratio that measures the amount of total
assets that are financed by creditors instead of investors. In other words, it shows what
percentage of assets is funded by borrowing compared with the percentage of resources that
are funded by the investors. Analysts, investors, and creditors use this measurement to
evaluate the overall risk of a company. Companies with a higher figure are considered more
risky to invest in and loan to because they are more leveraged. This means that a company
with a higher measurement will have to pay out a greater percentage of its profits in principle
and interest payments than a company of the same size with a lower ratio. Thus, lower is
always better. The trend of last five years is shown in the following graph.
Figure-08: Last five years total liabilities to total assets ratio at a glance
Total Liabilities to Total Assets Ratio(%)

94 93.6
93.5
93
92.5
92.3
92
91.5
91.5 91.1
91
90.8
90.5
90
89.5
89
2013 2014 2015 2016 2017
In year 2013, total liabilities to total assets ratio was 91.5 percent which indicates that 91.5
percent of the bank‟ assets is funded by the creditors. As higher liabilities increase the bank‟s
financial cost, it reduces profitability of the bank. The bank has not been able to decrease it
liabilities. Rather the total liabilities to total assets ratio was in an increasing trend till 2017.
4.2.8 Total Investment to Total Deposit Ratio
Investment deposit ratio is a commonly used statistics for assessing a bank‟s management
efficiency by dividing bank‟s total investment by its total deposits. This number, also known
as the ITD ratio. It is also used as a measure of liquidity of the bank. The higher this ratio, the
better the management‟s efficiency in utilizing its deposits. But a bank should consider its
liquidity position also. Because a lower level of liquidity may create liquidity risk for the
bank. The trend of the last five years is given below,
Figure-09: Last five years total investment to total deposit ratio at a glance
Total Investment to Total Deposit

Ratio(%)
120 109.1
98.9
100 88.8 85.3 88.6
80
60
40
20
0
2013 2014 2015 2016 2017
In year 2013, total investment to total deposit ratio was 88.8 percent which indicates that 88.8
percent of the bank‟s total deposits have been invested. Although in year 2014 the bank‟s
total investment was lower compared to 2013, from the year 2015 it shows an increasing
trend and it remains till 2017. In year 2017, total investment of the bank was higher compared
to total deposits of the bank. This happens due to the investment made of other funds of the
bank along with deposits.
4.3 Results from the Analysis of Data
The profitability of Shahjalal Islami bank has a long-term relationship with NPIs Ratio,
capital adequacy ratio, operating expense ratio, management efficiency and financial risk,
because all these variables affected the profitability. If any one of these variables will have a
destructive impact of profitability, due to mismanagement of the assets and liabilities, this
will disturb the overall performance of the bank. These variables are bank specific and the
banks can control them with their effective strategies and efficient resource utilization.
4.3.1 Descriptive Statistics
The descriptive statistics illustrates the minimum, maximum, mean, range and Standard
deviation. Range shows the difference between highest and lowest number. Minimum
represents lowest value and Maximum represents highest value. Mean is found by dividing
number of observations to average value of all the observations. Standard deviation measures
the amount of risk involved. Here for all factors standard deviation is low which is a good
indicator that there is less risk involved.
Table- 04: Statistical description of the factors affecting bank profitability
Descriptive Statistics
Std.
N Range Minimum Maximum Mean Deviation
ROE 10 .2432 .0639 .3071 .158910 .0758101
CAR 10 .0391 .1008 .1398 .126129 .0131703
LIQ 10 .0589 .0683 .1271 .096093 .0187127
NPI 10 .0743 .0043 .0787 .037598 .0256088
OPE 10 .0095 .0116 .0212 .016669 .0029023
FR 10 .0282 .9077 .9359 .920017 .0092296
MGTE 10 .2388 .8525 1.0914 .947778 .0670741
Valid N
10
(listwise)
The descriptive statistics of the variables are given in the above table. For each variable
shows mean, range, standard deviation, minimum and maximum of Shahjalal Islami Bank
Limited. On an average, the bank has ROE is about to 15.89 percent. ROE do not vary
greatly across the years as the standard deviation is low. The minimum value of ROE is about
to 6.39 percent and 30.71 percent respectively. The size of the bank is determined by the
natural logarithm of total assets. The mean of the size is 5.31 and minimum and maximum
values are 4.64 and 5.32 respectively and standard deviation is 0.20. The average value of
CAR is 12.61 percent and minimum and maximum values are 10.08 percent and 13.98
percent respectively and standard deviation is 1.39 percent. The average value of liquidity is
9.60 percent and minimum and maximum values are 6.83 percent and 12.71 percent
respectively and standard deviation is 1.87 percent. The average value of non performing
investment is 3.76 percent and minimum and maximum values are .043 percent and 7.87
percent respectively and standard deviation is 2.56 percent. The mean value of operating
expense ratio is 1.66 percent and minimum and maximum values are 1.16 percent and 2.12
percent respectively and standard deviation is 0.29 percent. The last one is financial risk
which shows the average value of 92 percent and minimum and maximum values are 90.77
percent and 93.59 percent respectively and standard deviation is 0.92 percent. The mean of
the management efficiency is 94.77 percent and minimum and maximum values are 85.25
and 109.14 percent respectively and standard deviation is 6.71 percent.
4.3.2 Correlation analysis

Empirical results will be used to test the hypothesis that we raised; initially the relationship
will be found by correlation - person coefficient where the dependent variable ROE will be
set on ratio with independent variables CAR, LIQ, NPI, OPE, FR and MGTE defined in the
model.
The results on table no. 5, displaying bank profitability compared to CAR, it is shown that
the coefficient of significance p = 0.333 is greater than 0.050, which means that the
relationship between them is not statistically significant. From the table we see that r = -0.342
which means that there is a weak negative correlation between CAR and profitability. This
negative relationship indicates that if the CAR increases then the profitability i,e ROE of the
bank will decrease.
Table-05: The ratio between CAR and profitability
ROE CAR
ROE Pearson Correlation 1 -.342
Sig. (2-tailed) .333
N 10 10
CAR Pearson Correlation -.342 1
N 10 10
Correlation is not significant at the 0.05 level (2-tailed).
Table no.6 shows the relationship between LIQ and profitability. From the result it can be
understood that the coefficient of significance p = .626 is greater than 0.050, which means
that the relationship is not statistically significant. While the Pearson coefficient tells us the
solidity of the connection between them, from the table we see that r = .177 which means that
there is a weak positive correlation between LIQ and profitability. This positive relationship
indicates that if the LIQ increases then the profitability i,e ROE of the bank will also increase.
Table -06: The ratio between LIQ and profitability
ROE LIQ
ROE Pearson Correlation 1 .177
N 10 10
LIQ Pearson Correlation .177 1
N 10 10
Correlation is not significant at the 0.05 level (2-tailed).
Table no. 7 shows the relationship between NPI and profitability. From the result it can be
understood that the coefficient of significance p = .006 is less than 0.050, which means that
the relationship is statistically significant. While the Pearson coefficient indicates that the
connection between them, from the table we see that r = -.793 which means that there is a
strong negative correlation between NPI and profitability. This negative relationship indicates
that if the NPI increases then the profitability i,e ROE of the bank will decrease.
Table-07: The ratio between NPI and profitability
ROE NPI
ROE Pearson Correlation 1 -.793*
N 10 10
NPI Pearson Correlation -.793* 1
N 10 10
*. Correlation is significant at the 0.05 level (2-tailed).
Table no.8 shows the link between OPE and bank profitability. The results prove that the
relationship between them is statistically significant as p = .052 which is near to 0.050. The
Pearson correlation coefficient of r= -.628 indicates that there is a moderate negative
correlation between OPE and ROE. This negative relationship proves that if the OPE
increases then the profitability of the bank will decrease.
Table -08: The ratio between OPE and profitability
ROE OPE
N 10 10
OPE Pearson Correlation -.628 1
N 10 10
*. Correlation is significant at the 0.05 level (2-tailed).
Based on Table no.9 it is clear that the relationship between them is not statistically
significant as p = .790 which is greater than 0.050. The Pearson correlation coefficient of r =
-.097 indicates that there is a weak negative correlation between FR and ROE. This negative
relationship proves that if the FR increases then the profitability of the bank will decrease.
Table -09: The ratio between FR and profitability
ROE FR
N 10 10
FR Pearson Correlation -.097 1
N 10 10
*. Correlation is not significant at the 0.05 level (2-tailed).
Based on the results on table no. 10, displaying bank profitability compared to management
efficiency, it is shown that the coefficient of significance p = 0.701 is greater than 0.050,
which means that the relationship between them is not statistically significant. While the
Pearson coefficient tells us the solidity of the connection between them, from the table we see
that r = .139 which means that there is a weak positive correlation between management
efficiency and profitability. This positive relationship indicates that if management efficiency
increases then the profitability i,e ROE of the bank will also increase.
Table -10: The ratio between management efficiency and profitability
ROE MGTE
ROE Pearson Correlation 1 .139
N 10 10
MGTE Pearson Correlation .139 1
N 10 10
*. Correlation is not significant at the 0.05 level (2-tailed).
4.3.3 Test of Multicollinearity

In order to check the presence of multicolinearity problem in the data set, we have gone
through VIF test. The results are shown below;
Table-11: Variable inflator factor (VIF) and tolerance level
Variables Tolerance VIF

Capital adequacy .49 2.03
Liquidity .44 2.28
Nonperforming investment .11 8.96
Operating expense .11 9.00
Financial Risk .23 4.29
Management efficiency .15 6.81
Total .26 5.56
The above table shows that the VIF for each independent variable is less than 10 (cut off
VIF) & so is the mean VIF. Moreover none of the tolerance value is less than .10 (cut off
tolerance statistic). So our model is free from the problem of multicollinearity.
4.3.4 Regression analysis
The objective of this study was to determine the influence of bank specific factors on the
profitability of Shahjalal Islami Bank Limited. To accomplish this, the study conducted a
regression analysis which gives the relationship between the independent variables used in
the study including the capital adequacy, liquidity, nonperforming investment, operating
expense, financial risk, management efficiency and the dependent variable profitability
(measured by the ROE). The data used was collected for 10 years thus giving a 10 year
period data which facilitated linear regression analysis. The regression results are presented
in tables below.
4.3.4.1 Model summary

Table 12 gives the regression model summary results. It presents the R value which is the
measure of association between the dependent and the independent variables, the R Square
which is the coefficient of determination measuring the extent at which the independent
variables influence the dependent variable as well as the Adjusted R Square which measures
the reliability of the regression results.
Table-12: Model Summary
Model R R Square Adjusted R Std. Error of
Square the Estimate
1 .972a .945 .835 .0307707
a. Predictors: (Constant), MGTE, OPE, CAR, LIQ, FR, NPI
b. Dependent Variable: ROE
Coefficient of correlation (R)

In this table, the value of R = 0.972 expresses that there is a high degree of association
between the dependent variable ROE and the independent variables CAR, LIQ, NPI, OPE,
FR and MGTE. If the independent variables change at that point, this will result in the
dependent variable changes accordingly. So it can be said that, bank specific factors have
influence on banks „profitability.
Coefficient of determination (R Square)
The term R Square is the multiple coefficient of determination interpreted as the proportion
of variability in the dependent variable that can be explained by the estimated multiple
regression equation. Hence, when multiplied by the 100, it can be interpreted as the
percentage of the variability in profitability that can be explained by the estimated regression
equation. Here R square = 0.945 (94.5 % expressed in percentage) indicates 94.5 % of the
variability in obtained ROE is explained by the independent variables CAR, LIQ, NPI, OPE,
FR and MGTE.
Adjusted R Square
From the Adjusted R-Squared it is evident that after adjusting the model for inefficiencies the
independent variables can explain 83.5% of profitability of SJIBL.
Standard Error of Estimate

Standard Error of Estimate shows how much error or variability stands between the estimated
result and actual forecasted result. Here the value is 0.0308 that show the amount of
variability of our estimated result and the actual result of the observation.
4.3.4.2 Significance level

Analysis of the variance (ANOVA) was used to make simultaneous comparisons between
means; thus, testing whether a significant relation exists between dependent and independent
variables. ANOVA indicates a significant F statistics implying that the model was fit for the
estimation.
The results presented in table 13 gives the ANOVA results which show the reliability of the
model developed in explaining the relationship between the study variables. The significance
of the model was tested at 5% level with a 2-tailed test.
Table-13: Results of the ANOVA Regression
Model Sum of df Mean F Sig.
Squares Square
1 Regression .049 6 .008 8.605 .053
Residual .003 3 .001
Total .052 9
a. Dependent Variable: ROE
b. Predictors: (Constant), MGTE, OPE, CAR, LIQ, FR, NPI
From the table 13 it is clear that, at a significance level of .05 any independent variable
having a significant level around .05 will regard as significant. In our aptitude test
significance level of 0.053 is significant. This therefore reveals that the regression model
developed is statistically significant and the variation in the results is insignificant. Therefore
the model can be relied upon to explain influence of the bank specific factors on the
At a significant level of .05 the overall model will be significant if the F ratio is larger enough
and the significance level is around .05. In our test the F ratio is 8.605 and the significance
level is .053 which is close to .05. So we can conclude that the overall relationship is
significant.
Basing on these findings the study rejects the null hypothesis that there is no relationship
between selected bank specific factors and profitability of SJIBL and accepts the alternative
hypothesis that there exists a relationship between selected bank specific factors and
4.3.4.3 Regression Coefficients
Table-14: Evaluation of each independent variable in the equation

Coefficients
Model Unstandardized Standardized t Sig. Relation
Coefficients Coefficients
B Std. Beta
Error
1 (Constant) 6.462 2.011 3.214 .049
CAR -2.416 1.109 -.420 -2.179 .118 Negative
LIQ .296 .828 .073 .357 .744 Positive
NPI -1.606 1.199 -.543 -1.340 .273 Negative
OPE -10.484 10.608 -.401 -.988 .396 Negative
FR -6.538 2.302 -.796 -2.840 .066 Negative
MGTE .236 .399 .209 .592 .595 Positive
a. Dependent Variable: ROE
Table no.14 shows statistical values for each independent variable in the model.
Based on the above data, Beta coefficient is independent variables: -.420 capital adequacy,
liquidity 0.357, -.543 non performing investment, operating expense -0.401, -.796 financial
risk and management efficiency 0.209. This shows that the highest impact on bank
profitability based on the amount of beta coefficient has: financial risk, non performing
investment, capital adequacy, operating expense and then two other variables.
In significance column of this table are presented coefficient sig, where we can see that for all
of the independent variables p> 0.05 which indicates that the contribution of these variables
on bank profitability has not a high statistical significance. This does not indicate that those
variables do not have influence on profitability. Rather we can say that those independent
variables have influenced profitability either positively or negatively.
As per the regression results above, the study model
ROE =
becomes:
ROE=
From the regression model obtained above, Constant = 6.462, shows that if all the
independent variables (capital adequacy, liquidity, nonperforming investment, operating
expense, financial risk, management efficiency) rated as zero, ROE would rate 6.462. While
holding the other factors constant a unit increase in bank‟s capital would led to 2.416
decrease in ROE. A unit change in liquidity while holding the other factors constant would
lead to an increase of 0.296 increase in ROE of the bank while a unit change in non
performing investment will led to 1.606 decrease in profitability. For a unit change in
operating expense and financial risk would lead to a decrease of profitability by 10.484 and
6.538 respectively holding other factors constant. The last one is management efficiency
which indicates that for a unit change in management efficiency would led to an increase of
0.236 in profitability of the bank.
Chapter -05
Findings, Conclusion & Recommendation
5.1 Major Findings
The banking sector of Bangladesh has undergone noteworthy financial reforms, which has
significantly transformed the sector. At present private commercial banks are dominant in
respect of market share and profitability in this sector. Profitability is always an important
criterion to measure the performance of banks. This study examined the influence of bank
specific factors on the profitability of Shahjalal Islami bank limited by using the data
obtained from the financial statements of the bank for the year 2008 to 2017.
 The profitability of the bank decreased in the last year as indicated by lower ROE. It
may be due to higher financial costs paid by the bank.
 The total assets of the bank are gradually increasing as shown by the increasing trend
of the growth of total assets.
 From the correlation analysis we can say that CAR has weak negative correlation with
ROE while liquidity has weak positive correlation. NPI is strongly negatively
correlated with profitability while financial risk has a weak negative correlation with
ROE. It is clear from the correlation analysis that OPE is moderately negatively
correlated with profitability and management efficiency has weak positive correlation
with ROE.
 It can be understood from the regression analysis that the regression model is
statistically significant as the significance level is around 0.05. It is clear that capital
adequacy affects profitability negatively and the relationship is insignificant as we
know higher capital lowers the bank profitability. Liquidity and management
efficiency affect ROE positively. We know that a bank must have adequate liquidity
in order to meet the customer‟s demand otherwise liquidity risk may arise. NPI, OPE
and FR affect profitability negatively which indicates that the lower this ratio, the
better will be bank‟s profitability although their relationship is insignificant.
 It is also clear from the value of beta coefficient indicating the impact of independent
variables on dependent variables that the highest impact on bank profitability based
on the amount of beta coefficient has: financial risk followed by non performing
investment, capital adequacy, operating expense and then two other variables
(liquidity and management efficiency).
5.2 Conclusion
This study aimed to investigate the empirical relation between bank specific factors
determining bank profitability and profitability as a dependent variable. The research was
based on annual data of SJIBL during the period of 2008 – 2017. The empirical study was
conducted based on six independent variables (capital adequacy, liquidity, nonperforming
investment, operating expense ratio, financial risk and management efficiency) and one
dependent variable (ROE) indicating the profitability of the bank. Liquidity and management
efficiency have positive correlation with profitability. This indicates that if a bank has
adequate liquid assets it will be able to raise its profitability. The profitability of the bank can
be increased by efficient management of its investment and deposits. Capital adequacy,
nonperforming investment, operating expense ratio and financial risk have negative
correlation with profitability of SJIBL which indicates that the higher the level of capital
adequacy, the lower the bank profitability will be. This similar relationship exists in case of
non performing investment, financial risk and operating expense.
From the results of linear regression analysis where the interactions of independent variables
in relation with dependent variable are presented, it can be stated that none of the independent
variables have significant impact on profitability. It is clear that financial risk, non
performing investment, capital adequacy, operating expense have highest influence on
profitability while other variables have lowest influence. The regression model is statistically
significant and null hypothesis is rejected thereby alternative hypothesis is accepted that is
there exists relationship between bank specific factors and profitability. Based on what said
above it can be concluded that the bank can increase its profits by maintaining its liquidity
position and management efficiency and at the same time managing its capital,
nonperforming investment, financial risk and operating expense. Future researches of this
nature intend to extend the study incorporating other important factors, internal and external
ones, which influence bank profitability, such as: interest rates, exchange rates, management
of costs, inflation rate and the rate of GDP.
5.3 Recommendations
1. The bank should try to increase its profit and for doing so necessary measures must be
taken.
2. Non performing investment must be kept lower as it decreases bank profitability
indicated by negative correlation.
3. The volume of operating expense should be reduced as it decreases profitability.
4. Financial risk need to be managed correctly because it affects ROE negatively..
5. The bank should not keep higher amount of capital as higher capital decreases bank
profitability.
6. As liquidity is positively related to profitability, the bank should ensure that it has
maintained its liquidity position.
7. Management efficiency need to be improved as it affects profitability of SJIBL
positively.
References
Book
 Gitman, Lawrence, J (2013-14), “Principle of Managerial Finance”, 12th edition,

Pearson Education Pte. Ltd, Singapore.
Annual Reports
 Shahjalal Islami Bank Annual Report 2008
Articles
 Ashraf Muhammad *, Haider Zeeshan, Sarwar Muhammad (2017), “Bank Specific
and Macroeconomic Determinants Impact on Banks Profitability: Evidence from
Asian Countries”, International Journal of Sciences: Basic and Applied Research
(IJSBAR) Volume 33, No 3,
 Islam at al (2017), “Determinants of Profitability of Commercial Banks in
Bangladesh” International Journal of Banking and Financial Law Vol. 1.
 Mahmud Khaled, Mallik Avijit, Imtiaz Farhan Md. , Tabassum Nazia Dr.(2016), “The
Bank-Specific Factors Affecting the Profitability of Commercial Banks in
Bangladesh: A Panel Data Analysis”, International Journal of Managerial Studies and
Research (IJMSR) Volume 4.
 Mumbe King‟ooJacqueline (2015),The effect of selected internal factors on the
financial performance of commercial banks listed in Nairobi Securities Exchange.
 Siddiqua et al (2017), “Impact of Internal Factors on the Profitability of Banks: A
Case of Commercial Banks in Bangladesh”, Asian Business Review, Volume 7.
 Rudhani Leonora, Ahmeti Skender, Rudhani Taulant (2016), “The Impact of Internal
Factors on Bank Profitability in Kosovo” ACTA UNIVERSITATIS DANUBIUS Vol
no. 1
Websites
 www.accountingcoach.com
 Corporatefinanceinstitute.com
 www.assignmentpoint.com
 www.investopedia.com
 www.sjiblbd.com
Appendix-01: Data Required for Calculation of Ratios
Years Net Total Total Total Risk Cash & Total Total Total Total Non-
Profit Assets Sarehol Capital Weighte Cash Investme Deposit Liabili Oper perfor
After ders d Assets Equivale nt ties ating ming
Tax Equity nts Expe Invest
nse ment
2008 818 44110 3605 4069 29464 3938 32919 34280 40504 513 143
2009 1071 58921 4676 5430 38833 6213 43958 47459 53954 876 413
2010 2072 78800 6748 7747 76882 8357 61440 62965 72052 1322 1173
2011 1168 107229 7917 9183 80527 10939 80592 83350 99912 1633 1523
2012 1730 132823 9646 11055 89811 14120 96185 102177 123177 1822 2842
2013 1305 128554 10951 11140 88702 13733 85707 96481 117603 2338 5543
2014 747 126758 11698 12773 93820 16115 84062 98601 115060 2683 6612
2015 1290 137870 12254 13355 98790 10740 96835 109259 125616 2778 6261
2016 1557 167245 12857 14386 124704 11994 122998 124410 154388 2999 5782
2017 1196 207886 13318 19376 158937 14189 158668 145382 194569 3542 6301
Appendix-02: Internal Variables and Profitability Ratios

Years ROE CAR LIQ NPI OPE FR MGTE
2008 0.2269 0.1381 0.0893 0.0043 0.0116 0.9182 0.9603
2009 0.2290 0.1398 0.1054 0.0094 0.0149 0.9157 0.9262
2010 0.3071 0.1008 0.1061 0.0191 0.0168 0.9144 0.9758
2011 0.1475 0.1140 0.1020 0.0189 0.0152 0.9318 0.9669
2012 0.1793 0.1231 0.1063 0.0295 0.0137 0.9274 0.9414
2013 0.1192 0.1256 0.1068 0.0647 0.0182 0.9148 0.8883
2014 0.0639 0.1361 0.1271 0.0787 0.0212 0.9077 0.8525
2015 0.1053 0.1352 0.0779 0.0647 0.0201 0.9111 0.8863
2016 0.1211 0.1154 0.0717 0.0470 0.0179 0.9231 0.9887
2017 0.0898 0.1219 0.0683 0.0397 0.0170 0.9359 1.0914

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INTERNSHIP REPORT

Date of Submission: 21 January, 2019

Chapter Topics Page

Table Table Name Page

Figure Figure Name Page

January 21, 2019

Subject: Submission of internship report on “Influence of Bank Specific Factors on

It will be my pleasure to appear at your call for any further explanation.

I wish her success and prosperity.

My heartiest gratitude and respect to my supervisor, Ferdous Jahan, Department of Finance

The report is prepared on “Influence of Bank Specific Factors on Profitability of Banks- A

The development of banking sector is an indispensable way for a flourishing economy of a

As a mandatory requirement of the Bachelor of Business Administration (BBA) program, I

1.2 Significance of the Report

1.3 Scope of the Study

1.4 Objectives of the Report

1.4.1 General Objective

1.4.2 Specific objectives

1.5.2 Research Instrument

Variables Symbols Measure

Liquidity ratio LIQ

Non performing investment NPI

Table-01: Description of the variables.

Sources of Secondary data

 Annual Reports of the bank (2008-2017).

1.5.4 General Model of the Study

1.5.5 Research Hypothesis

The hypothesis to be tested in this study is as follows,

1.5.6 Data Collection Procedure and Instruments

1.5.7 Data Analysis Tools and Techniques

Name of the Shahjalal Islami Bank Limited

2.4 Mission of SJIBL

 To set high standards of integrity.

 To ensure sustainable growth in business.

 To ensure maximization of Shareholders' wealth.

 To extend our customers innovative services acquiring state-of-the-art technology

 To ensure human resource development to meet the challenges of the time.

2.5 Objectives of SJIBL

Shahjalal Islami Bank believes in moral and material development simultaneously.

The other objectives of Shahjalal Islami Bank include the followings:

2.6 Strategy of SJIBL

 To manage & operate the Bank in the most effective manner.

 To promote organizational efficiency by communicating company plans, polices &

 To cultivate a congenial working environment.

 To diversify portfolio both the retail & wholesale markets.

2.7 Motto of SJIBL

2.8 Organogram of Shahjalal Islami Bank

Sharia Council Board of director Sponsor

Audit Committee Managing Director Executive Committee

Deputy Managing Director Executive Vice President Deputy Managing Director

Senior Vice President Senior Vice President

Assistant Vice President

Trainee Senior Officer

2.10 Strategic Plan for Future Growth

2.11 Nature of Business

2.12 Shariah Supervisory Council of the Bank

2.13 General Banking Activities

A.AL-Wadiah Current Deposit

The benefits of current account are as follows-

There is restriction on withdrawals. Frequent withdrawal is prohibited. The saving account is

Highlights of the Account

C. Mudaraba Short Notice Deposit Accounts (MSND)

D. Mudaraba Term Deposit Accounts (MTD)

Customers‟ deposit their fund in the following types of Accounts: