Financial and efficiency analysis of the Islamic Bank of Thailand

Abstract

The aim of this study is to give an in-depth analysis, using both financial ratios and Data Envelopment Analysis (DEA) of the first Islamic bank in Thailand, i.e. Islamic Bank of Thailand (Act, B.E.2545). The study evaluates performance of the Islamic bank in profitability, liquidity, risk and efficiency, corporate governance effects from the opening of the bank until 2009. The first question is arising from the fact that the bank started to earn positive profit after 5 years of existence. Was it because the time needed from the beginning or it has something to do with the changes in the management decision making? If yes, would it be beneficial for the bank to move in the same direction or there is any other more efficient way to move forward in the future. Also a question arise from the fact, Thailand has a Muslim population around 6-8 millions, which is a relatively big number. How the Islamic Bank of Thailand could possible increase her market share? The study include eighteen financial ratios such as Return on Asset (ROA), Return on Equity (ROE), Loan to Deposit ratio (LAR), Debt to Equity ratio (DER), Asset Utilization (AU), and Income Expense ratio (IER) are used to measure banking performances, both in Islamic and conventional banking sectors. Moreover, the use of the Data Envelopment Analysis is the frontier technique of efficiency analysis either in conventional or Islamic banks. Performance evaluation is a method of measuring a company’s achievement based on the targets set earlier. It is a part of control measures that can help a company to improve its future performance while identifying the deficiencies of its operation through the financial year. This study compares each ratio from the beginning of the existence of the bank on a yearly basis, compare the results, attempt to find the reasons if there is a change from year to year, and explain those reasons. Moreover, evidences found and presented that the early years of unprofitability was a result of the early development of the bank and not because of a bad management. Hence, the research provides further information and evidences about the relative effectiveness of the Islamic Bank of Thailand during the 2008 global financial crisis.