FINANCIAL PERFORMANCE ANALYSIS OF ISLAMIC AND CONVENTIONAL BANKS OF PAKISTAN: A COMPARITIVE STUDY

Abstract

Purpose: The motive of this research study is to analyze the performance (i.e. Financial) of traditional/conventional banks and Islamic banks ofPakistan. The impact ofcapital adequacy ratio, liquidity, asset quality, size and operational efficiency is studied on return on asset and return on equity. Methodology & Design: Data from financial statements of respective banks is used from 2010- 2019. For analysis, correlation method, regression as well as descriptive statistics analysis is used. Findings: Operational efficiency and size has a positive and significant impact on the ROA and ROE of both type of banks. Capital Adequacy ratio has a positive significant impact on the ROA of conventional banks. Asset Quality had a negative but significant impact only on the ROE of Islamic Banks. Liquidity had a positive and significant impact on the ROA of conventional and ROE ofIslamic banks. Islamic banks perform better in the area ofoperational efficiency, liquidity and asset quality. While conventional banks had better return on asset and equity. Capital adequacy of both type of banks was similar. Limitations: The time frame to conduct this research was limited. Furthermore, some ofthe large banks of Pakistan were not part of sample, so that the sample could be similar. Only data of 10 years is studied. Recommendation: The policy makers ofthe respective banking system can improve their grey areas. Banks need to maintain only the required level of CAR not in excess, liquid assets has to be at optimal level, investment in income generating ventures should be done, non-performing loans has to be reduced by managing credit risk and banks need to increase their size of assets