Impact of Covid'19 on the Risk of Islamic and Conventional banking in Pakistan

Abstract

This study examines the impact of the COVID-19 pandemic on the risk profiles of Islamic and conventional banks in Pakistan. It explores how these two banking models responded to pandemicinduced challenges such as credit risk, liquidity risk, and operational disruptions. Using a comparative analysis framework, the research highlights the structural differences between the two systems, including risk-sharing principles in Islamic banking and interest-based mechanisms in conventional banking. Findings reveal that Islamic banks, with their asset-backed and risk-sharing structures, displayed greater resilience in mitigating credit and operational risks, while conventional banks faced increased vulnerabilities due to their reliance on interest-sensitive instruments. The study provides insights into the effectiveness of risk management practices during crises and offers recommendations for improving banking resilience in the face of future economic shocks. This research contributes to a deeper understanding of financial stability within dual banking systems in emerging markets like Pakistan.