COMPARATIVE STUDY OF THE PERFORMANCE OF ISLAMIC AND CONVENTIONAL BANKS

Abstract

Purpose: The main aim of this research is to have a comparative analysis of the banking sector classified into Islamic banking and commercial banking. Both of the banks are performing well in the market in terms of customer service, fluffing the requirements of capital, financing needs, general banking but, most important aspect is to compare them with respect to their indicators so as to determine performance accordingly. This research aimed at exploring these indicators which serves as the basic performance for a bank. Methodology: The research implements a quantitative research methodology which follows a deductive approach where data collection is carried out through secondary source i.e., from the bank financial statements. The Sample size of this research includes top commercial banks whereas, the industry’s top 3 Islamic banks. The sample period for data collection is for 5 years (2014 to 2018). For the purpose of analysis: the research undermines some statistical tests, which are descriptive tests (commercial and Islamic banks), Sample T -for commercial and Islamic banking and in the end Pearson Correlation test for commercial and Islamic banking Findings: The findings from the comparative analysis provides a clear indication that, the commercial bank is bigger in size and volume therefore, can engage more customers and have financing avenues than the Islamic banks. However, Islamic bank only offers Shariah base financing whereas, their profitability indicators are aggressively increasing as compared to commercial banks. The commercial bank in the last five years have faced some challenges in UBL and HBL and on Islamic side bank but, the year to year growth of Islamic banks has significantly been higher as compared to commercial banks which is 17.36%. whereas, the commercial banks show a dip of2.9% on an average as compared to their previous year growth. The CAR ratio of Commercial bank is good as compared to the Islamic banks but, the Islamic bank are progressing in the CAR ratio based on their size, volume and market establishment. On the other, ROA of the Islamic banks is under depression because again the losses experienced by Banks Islamic in 2015 while, the Commercial bank ROA in comparison to the Islamic banks and their size is considerably doing good. The NPL ratio of commercial banks indicates that, they need to manage the NPL ratio which is becomes a major concern for them as compared to the Islamic banks where the NPL ratio is quite under control. The Islamic banks yearly growth is 17.3% whereas, commercial banks on an average has a growth of 9 to 10%.Islamic banks therefore, have been a tough competition for the commercial banks in the next 2 years.