Conversion of Conventional Banking into lslami Banking: A Study on EXIM Bank and First Security lslami Bank

Abstract

Islamic banking is not a new concept in recent years. Now, it is well recognized and rapid growth phenomenon in the banking sector of Bangladesh. It is a banking business whose foremost duty is to establish interest free banking transactions and it is functioning in ways which reflect Islamic principles in real life. However, the emergence of Islamic banking represents a radical departure from traditional banking. The present study, therefore, aims at analyzing to compare the financial performance between conventional banking period and Islamic banking period. For this rationale, two banks converted from conventional banking into Islamic banking are selected. The study period is classified into two groups. One is for EXIM Bank where the study period was 2000-2009. And another is for First Security lslami Bank where the study period was 2004-2013. The study followed the method of documentary analysis. Depending on the nature of the study, data were collected from both primary and secondary sources. Different statistical and mathematical tools are used in the study for exploring at the relationships between the concerned variables. The discussion of comparative growth trend analysis of conventional banking period and Islamic banking period suggest that, the growth of all the indicators of financial performance are mostly higher in Islamic banking period in comparison to conventional banking period. However, the performance also appears better in conventional banking period in some cases. For the ratio analysis, four financial ratios are conducted such as profitability, liquidity, business development, and efficiency and productivity. Through this study, it is observed in the case of profitability that the EXIM Bank is profitable during conventional banking period, but the FSIBL is a profitable one in Islamic banking period. In case of liquidity ratio analysis it is observed that, both of the banks are more liquid in Islamic banking period in comparison to conventional banking period. The data of business development indicate higher asset growth, deposit and investment growth during Islamic banking period for both of the banks. Four times growth is observed in all the variables during Islamic banking period. Though the EXIM Bank is more profitable in conventional banking period and more liquid in Islamic banking period, the tools of efficiency and productivity indicate no absolute result which may be compared. And from the critical analysis of efficiency and productivity of First Security lslami Bank, it is clear that, the bank is more efficient and productive in Islamic banking period in comparison to conventional banking period. Finally, it may be concluded that, conversion of conventional banking into Islamic banking proves the positive image of Islamic banking. But the image depends on the shariah compliance of the banks. It is worth mentioning that, the base of the converted Islamic banks is mainly conventional dominant. Only conversion cannot formulate a bank complete structure of lslamisation. It is equally expected that the relevant authorities should be aware of the shariah compliance in all sorts of transactions.