Comparative Financial Analysis of Conventional and Islamic Banks of Developing Countries

Source:
By:Md. Abdul Halim, Md. Nazmul Islam,Abdul Gaffar Khan

DOI: https://doi.org/10.30564/jbar.v3i4.2446

Abstract:

This study investigated the financial performance of Bangladesh’s StateOwned Commercial Banks, Islami Shariah Based Private commercial Banks and Conventional Private Commercial Banks over 12 years from 2006 to 2017. The objective of this study is to find out the financial performance of a bank based on CAMEL indicators. The finding of this study is that Islami Shariah Based Private commercial Banks and Conventional Private Commercial Banks has a good position than StateOwned Commercial Banks. Specific, Pubali Bank Limited, Standard Bank Limited, Prime Bank Limited, City Bank Limited and Al-Arafah Islami Bank Limited are in the best position in Bangladesh under this study. We also found that the performance of State-Owned Commercial Banks is not good. This study gives a policy implementation according to results. 1. State-Owned Commercial Banks should restructure the infrastructure. 2. It needs more emphasis on efficiency and effectiveness to control the cost and loan investment. 3. It will be required to pay more in insurance premiums. 4. It should be born in mine, for higher rating banks. We suggest to a higher number of rating banks that it’s hinders a bank’s ability to expand by investing, consolidating, or adding more branches. We also suggest to all lower rating banks. The institutions with a poor rating will be required to pay more in insurance premiums.

References:

[1]Adam, M. H. M. Evaluating The Financial Performance Of Banks Using Financial Ratios-A case Study Of Erbil Bank For Investment And Finance. European Journal of Accounting Auditing and Finance Research, 2014, 2(6):162-177. [2]Ahsan, M. K. Measuring financial performance based on CAMEL: A study on selected Islamic banks in Bangladesh. Asian Business Review, 2016, 6(1): 7-56. [3]Ailemen, I. O., Ojeka, S. Corporate Governance as a tool for Curbing Bank distress in Nigeria Deposit Money Banks: Empirical Evidence. Research Journa of Finance and Accounting, 2013, 4(13): 41-51. [4]Ariff, M. Islamic banking: Asian-Pacific Economic Literature, 1988, 2(2): 48-64. [5]Asad, M., Ahmad, I., Haider, S. H., Salman, R. A Critical Review of Islamic and Conventional Banking in Digital Era: A Case of Pakistan. International Journal of Engineering & Technology, 2018, 7(4): 57-59. [6]Berger, A. N., Boubakri, N., Guedhami, O., Li, X. Liquidity creation performance and financial stability consequences of Islamic banking: Evidence from a multinational study. Journal of Financial Stability, 2019, 44. https://doi.org/10.1016/j.jfs.2019.100692 [7]Bourkhis, K., Nabi, M. S. Islamic and conventional banks’ soundness during the 2007-2008 financial crisis. Review of Financial Economics, 2013, 22(2): 68- 77. [8]Chol, B. B., Nthambi, E. K., Kamau, J. N. Ownership structure, bank stability, and the financial performance of commercial banks in South Sudan. International Journal of Research in Business and Social Science, 2019, 8(6): 31-39. [9]Čihák, M., & Hesse, H. Islamic banks and financial stability: An empirical analysis. Journal of Financial Services Research, 2010, 38(2-3): 95-113. [10]Gugong, B. K., Bala, H. Equity Formation And Financial Performance of Listed Deposit Money Banks in Nigeria. European Journal of Accounting Auditing and Finance Research, 2015, 3(8): 25-39. [11]Jalbani, A. A., Shaikh, S. A. A. Risk management in Islamic and conventional banks: A differential analysis. Journal of independent studies and research, 2009, 7(2): 67-70. [12]Kargi, H. S. Credit risk and the performance of Nigerian banks. Ahmadu Bello University, Zaria, 2011. [13]Kaur, J., Kaur, M., Singh, S. Financial performance analysis of selected public sector banks: A CAMEL model approach. International Journal of Applied Business and Economic Research, 2015, 13(6): 4327- 4348. [14] Khan, A. Bank Management: A Fund Emphasis. Ruby, 2008. [15] Kumar, M. A., Harsha, G. S., Anand, S., Dhruva, N. R. Analyzing soundness in Indian banking: A CAMEL approach. Research Journal of Management Sciences, 2012, 1(3): 9-14. [16] Latif, Y., Abbas, A., Akram, M., Manzoor, S., Ahmad, S. Study of performance comparison between Islamic and conventional banking in Pakistan. European Journal of Educational and developmental psychology, 2016, 4(1): 17-33. [17] Merchant, I. P. An empirical study of Islamic banks versus conventional banks of GCC. Global Journal of Management and Business Research, 2012, 12(20): 33-41. [18] Pappas, V., Ongena, S., Izzeldin, M., Fuertes, A.- M. A survival analysis of Islamic and conventional banks. Journal of Financial Services Research, 2017,51(2): 221-256. [19] Roman, A., Şargu, A. C. Analyzing the financial soundness of the commercial banks in Romania: an approach based on camel’s framework. Procedia Economics and Finance, 2013, 6: 703-712. [20] Subayyal, M., Usman, M., Aziz, F. Comparative analysis of Islamic & Conventional banks: risk & return perspective: Faculty member at Majan College University College, Muscat Oman, 2016. [21] Tarawneh, M. A comparison of financial performance in the banking sector: Some evidence from Omani commercial banks. International Research Journal of Finance and Economics, 2006, 3(3): 101-112. [22] Ujuju, L., Etale, L. Macroeconomic analysis of the relationship between interest rate, economic growth, and bank lending in Nigeria. European Journal of Business and Innovation Research, 2016, 4(3): 29- 37. [23] Velnampy, T., Anojan, V. Financial performance of state and private sector commercial banks: A comparative study during war and post war scenarios of Sri Lanka. European Journal of Business and Innovation Research, 2014, 2(1): 93-105.