This study comparatively focuses on the impact of macroeconomic determinants and the internal indicators on performance of conventional and Islamic banks in Pakistan. It evaluates the differential effects of macroeconomic variables and bank specific variables with a baseline study of five banks from each system. To determine the short-run and long-run impact of these factors, co-integration & general to specific approach are adopted. This study also considers bank specific and macroeconomic variables in two separate models (Return on Assets and Return on Equity). Our objective is to find the extent to which each system of banking is performing in the country. The results indicate that in the long run, Gross Domestic Product, and inflation, is positively related to performance, while Interest rate has no effect on the performance of banking sector in Pakistan. Similarly, bank size, capital adequacy, expenses, interest income and non-interest income are the bank related factors that significantly influence the performance of financial sector.