Global Advanced Research Journal of Management and Business Studies (GARJMBS) ISSN: 2315-5086 December 2014 Vol. 3(12), pp 548-559

Copyright © 2014 Global Advanced Research Journals   

Original Research Articles

Study of Performance Comparison Between Islamic and Conventional Banking in Pakistan

Yousaf Latif¹, Ali Abbas², Muhammad Nadeem Akram³, Shahid Manzoor⁴, Saeed Ahmad⁵

¹Institute of  Management Sciences(IMS) Bahauddin Zakariya University, MultanE-mail: myousaf_latif@hotmail.com Tel:  +92-333-5745227

²Hailey College of Commerce, University of the Punjab Lahore, PakistanE-mail: mianali348@hotmail.com Tel:  +92-333-8974480

³Hailey College of Commerce, University of the Punjab Lahore, PakistanE-mail:   nadeemakram@live.com Tel:  +92-331-4022421

⁴Hailey College of Commerce, University of the Punjab Lahore, PakistanE-mail: shahidmanzoor09@yahoo.com Tel: +92-3134131676

⁵Institute of  Management Sciences(IMS) Bahauddin Zakariya University, Multan

E-mail: saeed6279@gmail.com Tel:  +92-346-7415798

Accepted 24 October 2014

Abstract

In Pakistan initial attempts were made in 1980s to Islamize the banking sector resulted into lot of changes in banking companies’ ordinance 1962. Since then, changes in financial system for allowing the issuance of interest free instruments, permission of Modaraba companies and Modaraba certificates’ floatation, establishment of commission for Transformation of Financial system (CTFS) and setting up of Islamic Banking Department by State Bank of Pakistan are major steps taken by government. The purpose of this study is to comprehend the nature of Islamic banks, measure and compare the performance of five Islamic banks with five conventional banks working in Pakistan over a period of five years from 2006-10. Performance comparison was conducted by trend analysis and using twelve financial ratios under category of profitability, risk, liquidity and efficiency. The study concluded that Islamic banks are less risky, more solvent and efficient than conventional banks but there is not much difference seen in terms of profitability. In respect of trend analysis balance sheet and income statement of Islamic banks revealed good positive trends as compared to conventional banks. The results of the study would be beneficial to current management of Islamic banks to improve their performance as well as potential stakeholders.

Keywords: Performance, ratios, trend analysis, conventional banks, Islamic banks