A Comparative Study on Performance and Working Capital Management of Al-Arafah Islami Bank Limited and Islamic Bank Bangladesh Limited

Farhana Rob Shampa

Abstract


The objective of this paper is to critically evaluate the working capital management as practiced in the two Islamic banks in Bangladesh. To achieve this goal, the study also examines the policy and practices of cash management, evaluates the principles, procedures and techniques of CCC, debtors collection period (DCP), creditors’ payment period (CPP), GRO and loan loss reserves (LLR) are used as a working capital variables and return on equity (ROE) is used as a profitability variable. For this study the data from last five years (2008 - 2012) have been used. The key findings from the study are: cash conversion cycles are positively related with two Islamic banks profitability. Two variables like Bank creditors’ payment period and growth of the two banks have significant negative relationship with profitability; but debtors’ collection period, Credit risk, Leverage have shown different results for two banks. Leverage and credit risk have significant positive relationship with profitability of AIBL bank. The performance of AIBL bank is better in some aspects like cash conversion cycle, creditors’ payment period, credit risk and growth. On the other hand, the performance of IBBL Bank is better in some facets like debtors’ payment period and leverage. Overall results show that the working capital management of AIBL bank is better that of IBBL bank.

Aus. J. Acc. Eco. Fin. Vol 2(1), April 2016, P 57-68


Keywords


Working Capital Management; Profitability; Liquidity; AIBL; IBBL

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