Performance Profile of Islamic and Traditional Banks of Pakistan A Comparative Study

Abstract

The main objective of the study is to compare the performance of Islamic and traditional banks of Pakistan. The comparative performance analysis is based on Interbank factors known as CAMEL, bank size and governance structure. Seventeen traditional and three pure Islamic banks are selected for the analysis. The data is collected for the most recent period from year 2010-2015. Independent sample t-test is applied to test the significance of differences. It is found that Islamic banks are significantly outperforming in liquidity status, whereas traditional banks are better in profitability and asset quality. In operational efficiency and capital adequacy, Islamic banks are at par with traditional banks. Besides having small size, Islamic banks have larger albeit less independent boards. The findings exhibit significant inferences for regulatory authorities in designing the level of interbank factors and governance structure and in setting the path for future Islamic banking in Pakistan. This study is different from previous studies in terms of study period, variables, sample and methodology.