Strategies to determine the determinants of financial performance of conventional and Islamic commercial banks: Evidence from Bangladesh

Abstract

This paper aims to determine the role of bank-centric, industry-centric and macroeconomic determinants on the financial performance of conventional and Islamic commercial banks in Bangladesh. The financial performance of 28 conventional and 8 Islamic commercial banks was measured by Return on Assets, Return on Equity, Net Interest Margin, and the Pre-provision Profit Ratio. Generalized method of moments and pooled, fixed effects and random effects estimates have been applied considering panel data from 2015 to 2019. It is observed that the bank-centric, industry-centric and macroeconomic determinants have a mixed impact on the financial performance of conventional and Islamic banks due to policy variations, the sentiment of the public toward an Islamic banking system, and the monitoring capacity of the regulatory authority. Despite having favorable conditions, the performance of Islamic banks is not as satisfactory as conventional banks. To have accurate performance indications, there should have a level playing ground for both types of banks.