A STUDY OF DIFFERENCE IN COST OF CONVENTIONAL BANKS VERSUS ISLAMIC BANKS

Abstract

Purpose In this study we are interested to know the difference between different modes of banking effects on different costs i.e. Cost of Capital, cost of employees, and cost of borrowing/deposits. Methodology The source of data is the official web site of State Bank of Pakistan under the section of financial statement analysis. Ten years data has been taken on annual basis from 2007 to 2016.Four Islamic banks and eight Conventional banks are been selected to see the difference between costs. Two-way ANOVA test has been run to see the impact of mode of banking on its three main costs. Findings The first hypothesis concerning that Cost of Capital does not found variation between Islamic and conventional banks .It may be due to the size of banks selected as sample. While other two hypotheses showed significant results in favor of assumption. It may because time value is the basis for charging interest on funds. Profit on trade of goods or charging on providing service is the basis for earning profit. Practical implications This sort of investigation will help to know that how cost the cost differentiate Islamic and conventional banking and can assist while making cost management policies to both type of banks.