Does the financial performance of Islamic banks outperform that of conventional banks in Pakistan?
Keywords:
Islamic banking, Conventional banking, Profitability, PakistanAbstract
Purpose: This article investigates the differences in the financial performance of full-fledged Islamic and conventional banks operating in Pakistan. This study also examines the impact of some inter-bank financial factors on the performance of both full-fledged Islamic and conventional banks.
Design and Methodology: Annual financial data of 7 banks including (4 full-fledged Islamic and 3 conventional) were extracted from the state bank of Pakistan from 2006 to 2019. To investigate the performance differences between Islamic and conventional banks this study adopts Ordinary Least Square methods.
Findings: Results of the study show that ROA for both types of banks is not indifferent to each other. However, the ROE of Islamic banks outperforms conventional banks in Pakistan. The results of the inter-bank factors indicate that LDR has a significant and negative impact on the performance of conventional banks, whereas positive in the case of Islamic banks. The result of the number of employees and branches suggests that opening new branches and recruiting new employees will positively affect the performance of Islamic banks in Pakistan.
Implications: These results are beneficial for policymakers of both full-fledged Islamic and conventional banks and the investors of the country.
Keywords: Islamic banking, Conventional banking, Profitability, Pakistan
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