COMPARISON OF FINANCIAL PERFORMANCE BETWEEN ISLAMIC BANKS & CONVENTIONAL BANKS OPERATING IN PAKISTAN

Abstract

Purpose The purpose of this paper is to compare the financial performance of Islamic banks against conventional banks in Pakistan. Financial ratios include profitability, capital adequacy, liquidity, efficiency and asset quality. Methodology & Design A total of 8 banks (four conventional and four Islamic) were considered over the period of 2006-2017. To determine whether these differences are significant, independent t-tests were carried out on each variable. Findings It is found that the all variable like profitability, liquidity, efficiency and asset quality shows significant performance in conventional bank rather than the Islamic bank. While capital adequacy showed significant performance in Islamic bank rather than the conventional bank. Originality/value This paper looks at the ccomparison between Islamic and conventional banking systems in Pakistan. Contrasting results were found from the independent t-tests, which makes it an interesting study that should be pursued further. Limitations The sample size oflimited in terms of breath and width. More banks should be added which spread over multiple periods with quarterly results. Recommendation The study should incorporate macroeconomic indicators to identify the indicators which influence the profitability, efficiency, quality and liquidity ofconventional and Islamic banks.