Analysis of Investment Cost : The Case of Islamic Banks in Bangladesh

Abstract

This paper tries to observe the major two cost components of investment in pricing asset side products for Islamic banks operating in Bangladesh. It also considers the risk premium. The primary data has been collected through opinion survey of banks’ executives. Secondary data were collected from the audited financial statements of seven Islamic Banks for the year 2006 to 2010. The main objective of the study is to identify the competitive advantages enjoyed by the banks with most cost efficient manner in pricing their asset products. It has been observed that, the average cost of fund for pricing asset by the sample banks is 6.92% of its total cost of earning assets. In addition, with the pace of time the administrative cost for maintaining investment in earning assets is increasing sensing banks’ less efficiency in this regard. It has also been revealed from this paper that over the years, the Islamic banking industry in Bangladesh develops a very comfortable image in reducing it’s total cost successfully for the entire sample period with the exceptional case in 2008.