Comparative Analysis of Financial Performance of Islamic and Conventional Banks: Evidence from Pakistan

Abstract

This article investigates the performance of Islamic banks versus conventional counterparts in Pakistan over the period (2007-2017) using financial ratio analysis. A total of 18 banks (13 conventional and 5 Islamic) were considered. A comparative study is undertaken based on performance indicators, 12 financial ratios were estimated used to measure performances in terms of profitability, liquidity, risk and solvency, and efficiency. T-test is used in determining their significance. The results show that there are differences in performance between Islamic and conventional banks in Pakistan during study period in terms Islamic banks are less profitable, more liquid, less risky, and less efficient comparing to conventional banks. However, there was no significant difference in profitability ratios, but there was a significant difference in liquidity ratios and risk and solvency ratios between conventional and Islamic banks.

Keywords: Efficiency, solvency, risk, liquidity, Islamic Banks, Conventional Banks, Pakistan, profitability, comparative analysis