To analyze the Comparative Financial Performance Analysis of Islamic and Conventional Banks in Pakistan

This exploration study was directed to make correlation of money related execution of 5 Islamic banks and 5 routine banks in Pakistan from 2008-2015. To survey the money related execution of Islamic and routine banks enlightening insights was utilized for the inner determinants of CAMEL model. To check whether there is critical distinction or not in execution of Islamic and traditional banks one way ANOVA was used. To assess those components which impact the execution of banks Regression was implemented. On the premise of discoveries it is reasoned that there is noteworthy contrast in execution of Islamic and conventional banks in significant terms. Citation: Naeem B (2016) To analyze the Comparative Financial Performance Analysis of Islamic and Conventional Banks in Pakistan. J Bus Fin Aff 5: 235. doi: 10.4172/2167-0234.1000235


Introduction Background
Financial and economic activities are mainly supported by banking sector in any country [1]. The system of banking which is based on the rules of Islamic laws and economics are known as Islamic banking system. Islamic banking is mainly based on 2 rules which are prevention of interest and also sharing of profit or loss [2]. The concept of Islamic banking is not only confined to prohibition of interest but also to avoid from immoral activities [3]. Most of the studies related to Camel model are conducted which influence the financial performance of conventional banks. Those components which influence the money related execution of Islamic banks is an under looked into range. The exact studies which are identified with the determinants of the benefit of the Islamic banks are not very many [4]. Exact studies identified with the correlation of money related execution of Islamic and conventional banks are not very many. Along these lines with a specific end goal to fill the hole in the writing near money related execution investigation of Islamic and conventional banks is required [5].

Problem statement
In Pakistan Islamic banks initiated their operations in year 2002. Internal factors which are broadly categorized as Camel model are named as capital adequacy, asset quality, management quality, earning quality and liquidity." This study will look at those components which influence the money related execution of Islamic and conventional banks in Pakistan. In Pakistan administration, diverse administrative powers, investors and partners will have far reaching examination of the Islamic and traditional banks.

Research gap
In Pakistan very few studies are conducted which have analyzed comparative financial performance analysis of Islamic and conventional banks [6]. According to Hunjra and Bashir, there is need of comparative financial performance analysis of Islamic banks and conventional banks to fill the gap in literature [5].

Research objectives
• To determine internal factors of banks that influence To analyze the Comparative Financial Performance Analysis of Islamic and Conventional Banks in Pakistan name of Mitghamr sparing bank. In any case, this bank was shut in 1967 because of political impact [8].
There are 396 Islamic banks working in 53 nations with aggregate assets of 442 billion US dollars. Around the globe number of no standard banks offering Islamic windows are 320 having complete assets of 200 billion US dollars. Yearly development rate of Islamic managing an account is 15% [2]. In the blink of an eye at least 500 Islamic money related establishments are working far and wide. Inside components are the elements that are all in all influenced by the choices and strategies of bank administration. [9]. As indicated by Olweny and Shipho [10], CAMEL structure is recommended by Basel Council on Bank Supervision and IMF as model to assess the execution of banks. This model is utilized for the inner components of the bank's execution. In creating economies routine of utilizing CAMEL show as a part of saving money studies is constrained. Wirnkar and Tanko in their study utilized CAMEL show as a part of request to study execution of managing an account division of Nigeria [11]. Ferrouhi in his study utilized CAMEL model to assess the execution of FIs of Morocco amid the time of 2001 to 2011.Profit mirrors the execution of the bank and considered as the most vital and basic variable which decide the survival of the banks [12]. Return on resource (ROA) and Profit for Value (ROE) are utilized to gauge the execution of the banks due to specific points of interest of these gainfulness proportions. ROA and ROE are broadly utilized proportions [13] (Figure 1).
Hypothetically, 2 key proportions utilized most ordinarily and most broadly as benefit measures are profit for resources (ROA) and profit for value (ROE). The purpose for is that both ROA and ROE relate nearly to the key things in bank's budgetary articulation. Return on value can be ascertained by separating the net wage after assessments with aggregate value capital. Return on resource can be characterized as the proportion of wage to aggregate resource. Financial execution of banks measured by profit for resources (ROA) and profit for value (ROE). The capacity of administration of bank regarding benefit era out of advantages of bank is reflected by ROA, and it is ascertained as the proportion of net benefit after assessment (NPAT) to aggregate resources. On the other edge ROE, is the impression of the value come back to shareholders [14].
It is critical to understand that ROA and ROE both are utilized to gauge the bank execution in Islamic and additionally traditional banks. Numerous studies utilized ROA and ROE to quantify the benefit of the banks paying little respect to look into on Islamic or conventional banks. These studies are Sufian et al. [13,15].
Moin looked at the monetary execution of first Islamic bank in Pakistan with a gathering of 5 conventional banks for a time of 2003-2007 [6]. He found that Islamic bank is less gainful, less unsafe furthermore less effective contrasted with Routine banks. Be that as it may, there is no huge contrast in liquidity between the two arrangements of banks.
Beck et al. looked at the two sorts of keeping money and their budgetary execution crosswise over numerous nations, amid late emergency and reason that however both sorts of managing an account were influenced by the emergency, Islamic banks had higher capitalization combined with higher liquidity holds bringing about better monetary execution of Islamic banks.
Comprehensively, different exact studies have been directed to look at the budgetary execution of Islamic saves money with that of conventional banks in various districts amid various periods. In any case, the volume of such inquires about is constrained because of the way that the information of Islamic banks have been inaccessible because of their late development.
Ansari and Rehman directed a study on the money related execution examination of Islamic and conventional banks situated in Pakistan for the time of 2006 -2009. Three Islamic and Three conventional banks were chosen for the study. Eighteen diverse budgetary proportions, which spoke to benefit, liquidity, hazard and dissolvability, capital adequacy, sending and operational proficiency, were used. Autonomous example t-test and ANOVA was utilized to decide the importance of mean contrasts of these proportions between and among banks. They discovered that in contrast with conventional banks, Islamic banks were exceedingly fluid, less unsafe and operationally proficient.
Return on resource is utilized to quantify the execution of the banks. ROA is ascertained by isolating the Net-Working Salary with Aggregate Resources. Swarnapali and Shah utilized ROA to quantify the execution of the banks [14].
Return on value is utilized as the intermediary to quantify the execution of the banks. ROE is measured by Net-Working Pay/Add up to Value. Ali, Akhthar and Ahmed; Sufian and Habibullah utilized ROE to decide the execution of banks [13,15].
Capital adequacy is considered as the inward element which impacts the execution of the banks. It is dictated by the isolating the aggregate value with aggregate resources, a similar intermediary for estimation of Capital adequacy is bolstered by Rao and Lakew; Dealer; Qudah and Jaradat utilized capital sufficiency proportion as inside variable which impact the execution of the bank [16].
Propelling advances is one of the real elements of the banks and consider as fundamental wellspring of gaining for the banks. It can be figured as the proportion of NPLS (Non-Performing Credits) and aggregate advances.
Administration quality is third critical segment of the CAMEL Demonstrate. Intermediary used to ascertain administration quality is Add up to Advances to Aggregate Stores (TA/TD): This proportion endeavors to measures the capacity and productivity of bank's administration to change over accessible stores while barring different assets e.g. value capital, and so forth into higher gaining progresses.
Winning capacity of the monetary foundations can be resolved as

Return on assets
Return on equity the proportion of aggregate salary to aggregate cost [8]. Liquidity can be measure by venture resource proportion (Add up to Speculations/ Add up to Resources) [5].

Methodology
The essential motivation behind this examination study was to play out the relative investigation of the Islamic and conventional banks working in Pakistan. This study expects to decide how bank's interior variables impact on gainfulness of Islamic and Routine banks and which saving money section is more beneficial. Quantitative approach and enlightening outline is utilized for research.
In Pakistan a few banks are working in both surges of managing an account that is Islamic and conventional saving money. With a specific end goal to play out the similar money related execution investigation just those banks are considered which can either delegated Islamic or conventional. There are five full fledge Islamic banks performing operations in Pakistan i.e. Meezan bank, Bank Islami Pakistan, Burj bank, Dubai Islamic bank Pakistan and Al Barka bank Pakistan Five conventional banks considered of proportionate size as far as branch system as Islamic banks was chosen i.e. Comfort inspecting was utilized in this study (Table 1).
Information is gathered from the reviewed money related proclamations of the banks. Shah and Jan utilized money related explanations to gather information for assessment of monetary execution of the banks in their exploration contemplates [15].

Data analysis
In this study regression examination is utilized. Numerous specialists utilized these investigation systems. Dawood utilized clear and regression examination to decide the variables influencing the money related execution of the Islamic and routine banks [1]. CAMEL model is utilized to check the effect of inward bank particular factors on the execution of Islamic and conventional banks in Pakistan. Numerous regression models is utilized and explained by utilizing STATA. T-test is utilized to check the mean contrasts of the Islamic and conventional banks. Hunjra and Bashir utilized T-test as a part of their study to test the mean contrasts of various proportions of Islamic and routine banks [5]. One way ANOVA is utilized to decide distinction in execution of Islamic and routine banks in light of the segments of CAMEL model."

One-Way ANOVA
One path examination of difference is utilized to figure out if traditional and Islamic banks are performing distinctively or not. CAMEL model is utilized with the end goal of assessment of contrast in the execution of the both surges of saving money. Fundamental standard for acknowledgment and dismissal is that if significant value is under 0.05 reject the invalid speculation and the other way around.
Capital adequacy: As far as capital sufficiency Islamic and conventional banks are performing diversely and this distinction in execution is measurably huge as p-esteem for capital adequacy is 0.0296 which is under 0.05 subsequently, we have rejected invalid speculation.

Management quality:
There exists no distinction in execution of Islamic and conventional banks when measured as far as administration quality. Scientist don't dismiss the invalid speculation in light of the fact that the p-esteem is 0.0678 which is more noteworthy than 0.05 which demonstrates that measurably inconsequential distinction wins in execution of Islamic and traditional banks as far as administration quality.
Earning quality: There exists no distinction in execution of Islamic and conventional banks when measured as far as acquiring quality. Specialist don't dismiss the invalid theory in light of the fact that the p-esteem is 0.9138 which is more noteworthy than 0.05 which demonstrates that measurably unimportant distinction wins in execution of Islamic and conventional banks regarding procuring quality.
Liquidity: There exists no distinction in execution of Islamic and conventional banks when measured as far as liquidity. Scientist don't dismiss the invalid theory on the grounds that the p-value is 0.0688 which is more prominent than 0.05 which demonstrates that measurably irrelevant distinction wins in execution of Islamic and routine banks as far as liquidity.
Asset quality: As far as resource quality Islamic and conventional banks are performing contrary and this distinction in execution is measurably critical as p-value for capital sufficiency seems to be 0.0002 which is under 0.05 consequently, we have rejected invalid speculation ( Table 2).

Regression analysis:
In this segment scientist will demonstrate the aftereffects of regression investigation. This will expand how subordinate factors will reaction when autonomous factors change. Effect of interior factors in view of CAMEL model and ROA and ROE will be checked by utilizing the six regression models as done by Faizulayev, in his study [17].

Regression results:
The regression outcomes about show that various bank-particular inner components essentially impact the benefit of banks as measured by ROA and ROE at 95% certainty level (since their p-values are> 0.05) ( Table 3). Variables having critical effect on the gainfulness of the banks are CPA (Capital adequacy), ASQ (Resource quality), LIQ (Liquidity) and MNQ (Administration quality), as finished up by the past looks into [15,18,19]. Benefit of the banks are required to increment when capital adequacy increments and resource quality proportion diminishes which demonstrates that nonperforming advances to aggregate advances proportion is diminished. Furthermore, despite the fact that we expected administration quality to be emphatically related to benefit as built up by Faizulayev in his study [17].
Then again, it is expected that acquiring quality has positive impact on gainfulness of the banks yet in this study procuring quality has no effect on the execution determinants of the banks. Relationship of procuring quality is demonstrated measurably irrelevant these outcomes are in accordance with the examination concentrate on directed by Faizulayev [17].
Capital adequacy of Islamic banks has negative huge connection with ROA and ROE while, in routine banks capital sufficiency has negative critical connection with ROA and negative inconsequential connection with ROE. Administration quality has positive huge connection with ROA and ROE of both Islamic and conventional banks. Liquidity and Resource quality both has negative critical effect on Islamic and also traditional banks.

T Test of all ratios: (2008-2015):
The outcomes uncovered that a normal of routine banks ROA is superior to ROE of Islamic bank from 2008 to 2015. Moreover, measurably there is no contrast between the two means at 5% level of hugeness. ROE of Islamic banks is persistently better as contrast with ROE of routine banks amid 2008-2015 (Table 4).
The Capital adequacy proportion of Islamic Banks and conventional Banks are 14.11063% and 11.97143% individually with mean distinction of 3.90681%. Along these lines, Islamic banks performed prevalent than Routine Banks, as far as Capital adequacy, amid the study time frame. The specimen supreme t-value is 2.4106.
Administration quality is another vital component of the CAMEL Show. The proportion in this fragment includes subjective investigation to gauge the proficiency and viability of administration. The administration of bank takes essential choices relying upon its hazard observation. The Administration nature of Islamic Banks and conventional Banks are 51.61586% and 74.42177% separately with mean distinction -23.56641%. Accordingly, conventional banks performed superior to anything Islamic Banks, as far as Administration productivity, amid the study time frame. The specimen supreme t-value is -1.3867.
The earning quality of Islamic Banks and conventional Banks are 2.136455% and 1.57357% separately with mean contrast 0.4904717%. Hence, Islamic banks performed superior to anything Routine Banks, as far as Profit quality, amid the study time frame. The example outright t-esteem is 0.1610.
Liquidity of Islamic Banks and conventional Banks are 0.5401476% and 0.6045102% individually with mean contrast -06.56641%. In this manner, routine banks performed superior to anything Islamic Banks, as far as Liquidity, amid the study time frame. The example outright t-value is -1.3873.  *,**,***denote significant levels at 10%, 5% and 1% respectively. The asset quality of Islamic Banks and conventional Banks are 6.31526% and 18.83024% separately with mean contrast -12.13124%. Subsequently, conventional banks performed superior to anything Islamic Banks, as far as Resource quality, amid the study time frame. The example outright t-value is -4.1714.

Discussion and Results
The motivation behind this exploration was to survey the execution of banks in the Pakistan over the period 2008-2015 by method for the Camel display approach. Elucidating insights of the information demonstrated that Islamic banks beat conventional banks in capital sufficiency, administration quality, and liquidity and resource quality where as traditional banks overwhelm Islamic banks regarding procuring capacity. These outcomes are reliable with the past studies [17,[19][20][21].
To test whether the distinctions in execution were noteworthy, one-way ANOVA tests were done, and discovered measurably huge contrasts in the execution of Islamic and traditional banks. On the premise of discoveries it is reasoned that there is huge distinction in execution of Islamic and conventional banks as far as capital adequacy and resource quality though, as far as administration quality, winning quality and liquidity there is no huge contrast in the execution of Islamic and conventional banks. These outcomes are reliable with the consequences of past studies [6,[22][23][24][25].
The regression outcomes demonstrated that few bank-particular inner components altogether affect the gainfulness of banks. Capital adequacy, resource quality, Liquidity and administration quality are all inside elements with critical factual effect on gainfulness as likewise finished up by past studies [15,18,19]. Then again, other inner element income quality which is probably emphatically related with bank execution applied no impact on the benefit pointers ROE and ROA in light of the fact that they are factually immaterial. These discoveries are like those reported by Faizulayev in his study led in 2011 [17].
Capital adequacy of Islamic banks has negative noteworthy connection with ROA and ROE though, in traditional banks capital sufficiency has negative critical connection with ROA and negative inconsequential connection with ROE. Administration quality has positive huge connection with ROA and ROE of both Islamic and traditional banks [26,27]. Liquidity and Resource quality both has negative critical effect on Islamic and additionally traditional banks.

Research limitations
• Information of Islamic windows of traditional banks is not considered in this study.
• Inside determinants of money related execution of banks other than CAMEL are not considered in this examination concentrate on.
• NIM (Net Premium Edge) is intermediary used to quantify the execution of banks is excluded on the grounds that Islamic banks don't produce premium salary.
• Outer components like Gross domestic product and expansion are additionally overlooked.

Future recommendations
It is suggested that information of Islamic windows of routine banks ought to be considered in future studies. Also inward determinants of  budgetary execution and additionally outside determinants of banks other than CAMEL ought to be considered in future studies.