PERFORMANCE COMPARISON OF ISLAMIC AND CONVENTIONAL BANKS - EMPERICAL EVIDENCE FROM PAKISTAN

Abstract

Purpose The main purpose ofthis study is to examine the differences between conventional banks and Islamic banks operating in Pakistan. The differences are measured on profitability, efficiency, and assets quality and liquidity measures. Methodology & Design The study uses 11 different ratios under the variable of profitability, efficiency, assets quality and liquidity. The sample of six banks, which includes three conventional and three Islamic banks operating in Pakistan. The sample size range from 2016 to 2018 (three years) with annual frequency. The study uses two stage analysis, in first stage descriptive statistics are estimated to identify difference in variables and t-test analysis are performed to check significance ofthe differences. Findings The descriptive statistics summarized that conventional banks are more profitable and have better asset quality than that of Islamic banks. While on the efficiency front, conventional banks are more efficient in terms of OpexRev and OpexAst ratios whereas, Islamic banks are more efficient on LDR and NIM metric. On the other hand, liquidity variables state that Islamic banks are more than conventional banks. These differences were further measured with independent t-test for significance of differences, which confirms that the differences between profitability, asset quality and liquidity of conventional banks with Islamic banks statistically significant. However, differences between efficiency of conventional banks with Islamic banks are statistically significant. are not Limitations of limited in terms of breath and width. More banks should be added which The sample size spread over multiple periods with quarterly results The study should incorporate macroeconomic indicators to identify the indicators which influence the profitability, efficiency, quality and liquidity of conventional and Islamic banks.