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

Khalil, Faiza; Siddiqui, Danish Ahmed

doi:10.2139/ssrn.3397473

Cited by 4 publications

(6 citation statements)

References 2 publications

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“…(Khairul Umam, 2013) Based on Danish Ahmed Siddiqui's research related to the financial performance of Islamic banks compared to conventional banks, it turns out that there are differences and are slightly better in terms of liquidity, risk and solvency, except for profitability there is no difference. (Khalil & Siddiqui, 2019) Aliman Syahuri Zein, Safrul, Saparuddin Siregar The Comparative Analysis of Islamic Banking Performance Between Camel and RGEC Implementation http://jurnal.iain-padangsidimpuan.ac.id/index.php/attijaroh DOI: https://doi.org/10.24952/tijaroh.v6i2.2453…”

Section: Bank Soundness Measurement Using the Rgec Methodsmentioning

confidence: 99%

The Comparative Analysis of Islam Banking Performance in Terms of Camel and Rgec Implementation

Zein¹

2021

At-tijaroh

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This study aims to analyze the comparative performance of Islamic banking in terms of the application of CAMEL and RGEC. The bank soundness indicators used for the RGEC method consist of; risk profile (NPF), earnings (ROA), capital (CAR). Meanwhile, the CAMEL method consists of; capital (CAR), assets, earnings (ROA), and liquidity (represented by FDR). Data was obtained from the official website of the OJK, www.ojk.go.id and the official website of BI, namely www.bi.go.id. The sample used was 10 years, from 2011 to 2020. The statistical test used was the paired sample t test through the SPSS application, and descriptive analysis. The results of the study concluded that in general, Islamic banking for the last 10 years was declared healthy. It's just that when viewed from the indicators of risk profile, earnings, liquidity, there are differences in the bank soundness of Islamic banking using the RGEC and CAMEL methods. As for the CAR indicator, there is no difference. The bank soundness measured used by the RGEC method is carried out using a risk-based bank rating (RBBR) approach. This assessment is a comprehensive and structured assessment of the results of the integration between risk and performance profiles which includes the implementation of good governance, profitability, and capital. So that the OJK as a supervisor can carry out appropriate and timely supervision, because the assessment is carried out comprehensively on all assessment factors and is focused on significant risks and can be immediately communicated to the bank in order to determine follow-up supervision

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Section: Bank Soundness Measurement Using the Rgec Methodsmentioning

confidence: 99%

The Comparative Analysis of Islam Banking Performance in Terms of Camel and Rgec Implementation

Zein¹

2021

At-tijaroh

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“…2. Asset Quality: Asset quality is one of the most important components of the CAMELS framework for evaluating a financial institution/bank [12]. The quality of assets indicates future losses for the bank and its ability to overcome these unexpected losses [5].…”

Section: Camel Model Componentsmentioning

confidence: 99%

“…Return on Assets (ROA) is an indicator of banks' management efficiency in converting investments into net earnings. Many studies and researches have used these ratios as an indicator and measurement of the bank's profitability such Khalil & Siddiqui [12] and Nguyen and Nguyen [20]. On the other hand, Return on Equity (ROE) which is also widely used as a profitability indicator, measures banks' ability to generate income for shareholders, which means the net benefits shareholders receive on their funds invested in the firm [20].…”

Section: Research Approachmentioning

confidence: 99%

Comparative Analysis of Financial Performance of Islamic vs. Conventional Banks Using CAMEL Model: Evidence from Palestine

Zedan¹

2022

IJEFM

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Evaluating the performance efficiency of banks and monitoring their activity is essential to their survival in light of the rapid growth of risks facing them, since many financial crises were caused by them. Therefore, measuring banks performance by knowing their strengths and weaknesses enable regulators and managements to correct deviations before it is too late. The positive role played by the Islamic banking system cannot be ignored for financing and investment services in various financial, economic and social activities. In recent years Islamic banks were able to impose themselves to become a difficult number in the composition of the financial cycle and economic growth in the world, as evidenced by the rapid growth of these banks in all countries, Muslim and non-Muslim. This transformation is recognition of the success of the Islamic experience. This study aimed to evaluate the financial performance of Islamic and conventional banks in Palestine over the period 2017-2018 prior to the corona virus crisis using CAMEL model. The results show that there are no clear significant differences in performance between Islamic and conventional banks in Palestine during study period. Both conventional and Islamic banks have powerful and satisfactory capital levels comparative to the firm's risk profile and consistent with Palestinian Monetary Authority (PMA) regulations. In terms of asset quality, Islamic banks kind of are better in managing their asset portfolio than conventional banks which considered less risky. However, there were no significant differences in profitability ratios, liquidity ratios and efficiency ratios.

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“…In this issue, a large number of studies have been conducted focusing on the banks' financial ratio, for example, profit (profit-asset ratio), income ratio, credit risk, liquidity risk (Migliardo and Forgione, 2018;Khalil and Siddiqui, 2019), net interest margin, return on equity (ROE) (Gupta and Mahakud, 2020), loan growth (Karim et al, 2014) and capital adequacy. These studies have explored banks' performances in various dimensions.…”

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confidence: 99%

“…However, these results did not conclude the overall strength of banks and provided some conflicting comparisons. Like, Khalil and Siddiqui (2019) concluded that conventional banks' performance in profitability is higher than the Islamic banks whereas Islamic banks have less liquidity risk and have more financial strength than conventional banks. Karim et al (2014) explored that both conventional and Islamic banks have higher loan growth whereas in equity growth, Islamic banks perform better than the conventional banks.…”

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confidence: 99%

Financial strength of banking sector in Bangladesh: a CAMEL framework analysis

Afroj

2022

AJEB

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PurposeThis paper investigates the financial strength of banks in Bangladesh and factors affecting the financial strength over the years 2010–2015 on 35 banks.Design/methodology/approachAdditive value function with CAMEL rating (capital stength, asset quality, managerial efficiency, earning ability, liquidity) has been employed to calculate banks’ financial strength index (FSI). In the second stage, panel regression has been exercised to find out the determinants of banks’ financial strength.FindingsEmpirical finding exhibits that the Islamic banks of Bangladesh are financially stronger and outperform conventional and Islamic window banks with higher liquidity. In the ownership category, private banks have more financial strength with higher capital strength, asset quality, managerial efficiency and earning ability than public banks. Bank size, loan recovery, salary and banking sector development positively affect whereas the loan-asset negatively affect the bank’s financial strength in Bangladesh.Research limitations/implicationsThis study has its limitations despite its importance. CAMELS is a more improved form than using CAMEL. But because of the data deficiency on “S” which represents sensitivity, it would not be possible to use CAMELS framework. Further researchers could incorporate this.Practical implicationsGovernment and banks should allow Islamic banks to enter the market on easy terms because of their outstanding performance in the existing market. In addition, banks should provide loans with consideration so that they cannot create credit risk. In addition, they should calculate composite financial strength annually to understand which components they need to work on.Originality/valueThis study extends the extant result on the composite FSI. It is hard to examine the financial strength of banks using only ratio value, which misleads most of the time. The study offers evidence on how the FSI provides more rigorous results and what are the factors contribute most to the financial strength of banks.

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

Cited by 4 publications

References 2 publications

The Comparative Analysis of Islam Banking Performance in Terms of Camel and Rgec Implementation

The Comparative Analysis of Islam Banking Performance in Terms of Camel and Rgec Implementation

Comparative Analysis of Financial Performance of Islamic vs. Conventional Banks Using CAMEL Model: Evidence from Palestine

Financial strength of banking sector in Bangladesh: a CAMEL framework analysis

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