Analyzing performance of banking sector in Pakistan: Conventional Vs IslamicSubmitted By: Mahnaz Mirzaman929640381000In the Partial Fulfillment for the Degree of MS Accounts & Finance The University of LahoreLAHORE SCHOOL OF ACCOUNTANCY & FINANCE 2018The University of LahoreLahore School of Accountancy & FinanceSupervisory CommitteeWe the Supervisory committee, certify that the contents and the form of thesis submitted by Mahnaz Mirzaman have been found satisfactory and recommend it for the evaluation of the External Examiner for the award of degree of MPhil Accounting and Finance.Supervisor__________________________Co-Supervisor__________________________Member___________________________The University of LahoreLahore School of Accountancy & FinancePlagiarism Evaluation ReportThis is to certify that I have examined the Turnitin report of the thesis entitled “Analyzing performance of banking sector in Pakistan Conventional Vs Islamic”.The thesis contain no text that can be regarded as plagiarism. The overall similarity index obtained from the Turnitin software is____.SupervisorThe University of LahoreLahore School of Accountancy & FinanceExamination CommitteeThe thesis viva of Mahnaz Mirzaman (——-) was held on____________ at the Lahore school of Accountancy & Finance, The University of Lahore. The supervisory and Examination committee gave satisfactory remarks on the Thesis and viva and were approved for the award of the degree of Mphill Accountancy and Finance.External ExaminerInternal ExaminerCOPY RIGHTThis copy of thesis has been supplied on condition that anyone who consults it is understood to recognize that its copyright rests with its author and that no quotation from the thesis and no information derived from it may be published without author’s prior consent.Copy by University of Lahore, Lahore School of Accountancy ; FinanceThe University of LahoreLahore School of Accountancy ; FinanceUNDERTAKINGI Mahnaz Mir Zaman declared that the contents of my thesis entitled “Analyzing the financial performance of Islamic banks and Conventional banks in Pakistan” are based on my own research findings and have not been taken from any other work except the references and has not been published before.
I also undertake that I will be responsible for any plagiarism in this thesis.Mahnaz Mirzaman DEDICATIONThe toil and sweat of affectionate parents as moral support enshrined and grafted in me untiring zeal to get higher ideals of life My respectable Father Mother, HusbandSweet sisters and brothers for their love, patience, encouragement and support that inspired me to accomplish this humble effort May God bless them with his choice bounties in this world and next. It is also dedicated to my sweet uncles and friends.Mahnaz Mirzaman ACKNOWLEDGEMENTI am thankful to Allah Almighty, the most beneficent who enabled me to undertake and complete this task successfully. At this occasion I pray tribute to the Holy prophet (PBUH), Whose personality remained a guiding torch to me.I owe my special gratitude to my supervisor Mr. Amir Iqbal for his indispensable cooperation and motivated to me to carry out research in a well-organized manner. Without his guidance and persistent help, this dissertation would not have been possible.
I would like to pay thanks to my husband who encourage me and help me in my work.In the last I must pay complements to my parents and family members for their love, amiable attitude, moral support and prayers for my success.TABLE OF CONTENTSChapters Page No.Certification iPlagiarism iiApproval iiiCopy Right ivUndertaking vDedication viAcknowledgement ViiTable of Contents ViiiList of Table XList of Figures XiAbstract xiiChapter One: Introduction 1.1 Background of Study 11.2 Gap Analysis 21.3 Problem Statement 21.4 Objectives 21.
5 Research Questions 31.6 Significance of Study 3Chapter Two: Literature Review 2.1 Review of Literature 42.2 Hypothesis 19Chapter Three: Methodology ; Data 3.1 Population 203.2 Sample Selection 203.3 Data Collection Method 203.
4 Model 203.5 Data Analysis 213.6 Variable Description 21 3.6.
1 Dependent Variable 220.127.116.11 Financial Performance Index 2222 3.6.2 Independent Variable 22 3.6.2.
1Capital Adequacy 18.104.22.168 Asset Quality 22.214.171.124 Management 3.
6.2.4 Earning 3.6.2.
5 Liquidity 2222222222Chapter Four: Empirical Results ; Analysis 4.1 Ranking of Banks on the basis of FPI 23 4.1.1 Construction of Composite FPI 234.2 Bank Progress Ratio 26Chapter Five: Conclusion 5.
1 Background 285.2 Key Findings 285.3 Limitations ; Future Directions 28References 30LIST OF TABLESTables Page NoTable 126.96.36.199 Composite FPI shows the performance of all banks during 2007- 2016 25Table 4.2.1 Progress of Banks 27Table 4.
2.2 Degree of Bank Progress 27Table Appendix A-1 Overview of weight assigned to parameters 32Table Appendix A-2 Overview of performance parameters Description descriptions 33Table Appendix A-3 Ranking of Banks from 20017-2016 35LIST OF FIGURESFigure Page NoFigure-1 FPI for 2016 36Figure-2 FPI for 2015 36Figure-3 FPI for 2014 37Figure-4 FPI for 2013 37Figure-5 FPI for 2012 38Figure-6 FPI for 2011 38Figure-7 FPI for 2010 39Figure-8 FPI for 2009 39Figure-9 FPI for 2008 40Figure-10 FPI for 2007 40Figure-12 Progress Ratio 41Figure-13 Composite FPI for Banks 41ABSTRACTIslamic banking is a banking system that is based on the principles of Islamic law, also referred to as Shariah law, and guided by Islamic economics. Financial transactions within Islamic banking are a culturally distinct form of ethical investing. On the other hand, Conventional Banking is an Un-Ethical Banking system based on Man-Made Laws. It is profit-oriented and its purpose is to make money through interest. This study analyzes the financial performance of Banking Sector in Pakistan. The aim of this study is to compare the financial performance of conventional banking sector and Islamic banking sector.
For this purpose all banks in Pakistan selected for this study and most of data has been collected from financial statements of sampled banks over the period of 2007 to 2016.CAMEL model is used to analysis the performance of both types of banks in tem of Capital adequacy, Asset quality, Management and Liquidity. I have constructed the financial performance index (FPI) which based on CAMEL ratios and banks performance ranked according to FPI.
Result show that Conventional Banks were on the top of list. Progress ratio showed that Islamic banks had better performance than Conventional Banks in 2016 as compared to 2007.CHAPTER 1INTRODUCTIONIn this chapter of my thesis have to introduce the background of the study I have made, the gap analysis, problem statement, research objectives, research questions, research hypothesis and the significance of the study.1.
1 Background of the StudyThe role of banks in economic development is to remove the deficiency of capital by stimulating savings and investment. A sound banking system mobilizes the small and scattered savings of the community, and makes them available for investment in productive enterprises.Van Horne, James and Wachowicz, John (2005) told that, “A bank is a corporation registered with either the central bank or the federal government of the country. They provide the services of deposits, withdrawals, interest dealing, making loans, discount notes, investments in financial securities etc depending on bank’s type.Islamic banking is a banking system that is based on the principles of Islamic law, also referred to as Shariah law, and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest by lenders and investors. Since this system of banking is grounded in Islamic principles, all the undertakings of the banks follow Islamic morals.
Therefore, it could be said that financial transactions within Islamic banking are a culturally distinct form of ethical investing.On the other hand, Conventional Banking is an Un-Ethical Banking system based on Man-Made Laws. It is profit-oriented and its purpose is to make money through interest”This sector can perform important role in the overall country’s economic performance. In Pakistan, the banking sector has always shown notable performance in the past and in the same way the trend is going on.I am going to examine the financial performance of Islamic and Conventional banks in Pakistan. I compared the efficiency and effectiveness in operation of both banks conventional and Islamic banks in terms of Capital adequacy, Asset Quality, Management, Earnings and Liquidity.1.
2 Gap AnalysisIslamic banking is the parallel banking system in Pakistan and almost in every muslim country. Comparative performance study of both banking systems is conducted by many researcher in Pakistan and Muslim countries. In Pakistan their in no research conducted by any researcher since 2012. Banks play a vital role in the economic activities of any country so there is necessary to analyze the performance of conventional and Islamic banks regularly. Islamic banking is becoming a famous in the Muslim community day by day so to improve the performance we must have to study and analyze both banking sector. 1.3 Problem Statement”Comparative analysis of financial performance of Islamic and conventional banks”.In Pakistan conventional and Islamic banks are operational parallel.
Some conventional banks also offer Islamic banking system among pure Islamic banks. Islamic banks economical activities are based on Islamic shariah Law in which both parties’ investor and lender equally share profit and loss. Conventional banks operations are based on Interest.
So how the both banking sectors are performing in the economic activities with this distinct. 1.4 ObjectivesTo conduct a comparative analysis of Islamic bank and conventional banks in Pakistan.To find out whether the Islamic bank or conventional banks are operating efficiently.1.5 Research QuestionsAre Islamic banks performing better than conventional banks in Pakistan?Are Conventional banks performing better than Islamic banks in Pakistan?1.
6 Significance of the studyThe research will provide assist in comparison of performance of Islamic banks and conventional banks of Pakistan. This research is relate with whole banking sector of Pakistan in which Islamic bank and conventional banks are doing their jobs according to the same rules and regulation of economic, political and social work frame.As banks play a vital role in economic activities of any country so it’s necessary to evaluate the performance of banks. This study is useful for all stakeholders and investors in making right decisions regarding bank capital adequacy, asset quality, management, earning and liquidity. This study is also important because few researchers have work on this issue in Pakistan. Investors need safety against safe custody of financial valuables so it’s important to compare the financial performance analysis of conventional and Islamic banks to take right decision. CHAPTER 2LITERATURE RIVEWIn this chapter, I have to review some of the research studies on Islamic and conventional banking. Let us see what previous studies say about the comparative financial performance of Islamic banking and conventional banking.
2.1 Review of Literature Muhammad Imran, Hunjra and Amber (2014) conducted the research on Comparative financial performance analysis of conventional and Islamic banks in Pakistan. The aim of this study is to compare financial performance of Islamic and conventional banks to support the depositors, investors, bank managers and shareholder by providing the clear picture of financial position of Islamic banks as well as Conventional banks in Pakistan. For this purpose he used 5 year annual data starting from 2008-2012. He used Ratio analysis technique to analyse the performance of both banks. Data was collected from financial statements.
They conclude that conventional banks are more profitable, deployed and operationally efficient while less liquid and more risky as compared to Islamic banks.Zahoor khan, Muhammad Farooq and M.Fawad (January 2010) conducted the research on Analysis of the performance of Islamic and banking sector in Pakistan . The aim of this study to know which banking sector is more viable and profitable. They used sample of four banks, two from Islamic banks and two from Conventional banks .For this purpose they used four year data starting from 2006- 2009 collected from State bank of Pakistan. They used ratio analysis technique to measurethe profitability and earning capacity of both banks conventional and Islamic banks .
They also used comparative analysis techniques to compare the operations and products of both Islamic and conventional banks. They conclude that Islamic banks are as profitable as conventional banks although the Islamic banks are infant in banking industry of Pakistan. Liquidity and solvency ratio show that Islamic banks are batter then conventional because Islamic banks maintain lower debt and more equity in capital structure so that it minimize the risk of default. Islamic banks are more efficient in cost but less efficient in profit and revenue as compared to conventional banks.Abdul Rasheed, M. khaleeq and Sana jabeen( January 2015) Conducted research on “Analysing performance Of banks in Pakistan conventional Vs Islamic Banks” . The aim of this study to analyse the performance of banks .
for this Purpose they used Seven year data starting from 2006-2012. First they construct financial performance index on the bases of CAML’s ratio and then rank the banks according to the financial performance index. They used all the Islamic banks and conventional banks (except of few small or public sector banks). They take 22 banks as a sample and used Secondary data.CAML test and ranking technique to examine the performance. They Conclude that Conventional banks ware on top of the list and then Islamic banks Stood after 12th rank in terms of performance.
Progress ratio show that Islamic banks had better in 2012 as compared 2006.Pir Qasim shah (2012) Conducted research on the performance analysis of related Islamic banks and conventional Banks of Pakistan through camel Frame work. For this purpose he used 10 year data starting from (2003-2012).Financial data was collected from annual reports. He found Meezan bank and NIB bank consistent with Sample requirement. Various Parameter of CAMEL model and was tested from t test for mean comparison.
He found there is significant difference between Islamic banks and conventional banks in risk weighted credit exposure, regulatory Capital, advance in portion assets portfolio, long term debt paying ability.Sanaullah and Ansari (2010) evaluated the financial performance of Islamic banks and Conventional banks in Pakistan for the period of 2006 -2009. They estimated financial ratio to measure the performance in tem of profitability, liquidity risk and solvency, capital adequacy development and operational efficiency. They used t test and ANOVA to determine significance of mean difference of these ratios between and among banks. Sample of this study was Meezanbank, Bank Islami, Dubai Islamic bank selected as Islamic banks and Askari bank, Atlas bank limited and Samba banks limited was selected as conventional banks.
They conclude that Islamic banks provide more liquid, less risk and operationally efficient then Islamic banks.SitiRochmahIka and Norhayati Abdullah (2011) conducted research on A comparative study of financial performance of Conventional and Islamic banks in Indonesia. The aim of this study to strengthen the regulatory environment for further growth of Indonesia’s market Islamic finance.Secondry data was collected from Financial statements of banks for the period of 2007-2007. Financial performance was measured in term of profitability, liquidity, risk and solvency and efficiency.
They used Mann-Whitney to compare the financial performance of Islamic and Conventional banks.They conclude there is no major difference in financial performance between Islamic and conventional banks, expect in term of liquidity.Dr,WageedAkhtar, Ali Raza, Muhammad Akram and Orangzaib (2011) Conducted a research on Efficiency and Performance of Islamic Banking: The Case of Pakistan. The purpose of this study is to get results of efficiency and performance of interest free banking. For this purpose they used five year data starting from 2006-2010, Secondary data was collected from the financial statements of banks.In which one Islamic bank and two commercial banks (Government and Private) were selected. They used financial ratios measure the performance of banks in term of Profitability, Liquidity Risk and Credit Risk Trend Analysis is also used to check the trends of balance sheet and Income statements.
They conclude there is no significant difference between Islamic and conventional banks in respect of profitability. While this paper discovered the divergence in liquidity and credit performance.The trend analysis reveals the good trend of balance sheet of Islamic bank while in income statements there is no meaningful difference.Rami Zeitun(2012) conducted research on Determinants of Islamic and Conventional Banks Performance in GCC Countries Using Panel Data Analysis.
The aim of this study to investigate influential factors on islamic banks and conventional banks. For this purpose he used cross-sectional and time-series relating to the banks in (GCC) countries. Data was taken from Bank scope database for the period 2002-2009. OLS regression was used in this study. Two sample ware used in this study.
The first sample contains 38 conventional banks and the second sample contains 13 conventional banks, the conclude that bank’s equity is important in explaining and increasing conventional bank profitability, while it is not for islamic bank. The cost-income was found to have a negative and significant impact on banks performance for Islamic and conventional banks. It is important for Islamic and conventional banks to minimize cost-income.
RehanaKouser,IrumSaba (2012) conducted research on Gauging the Financial Performance of Banking Sector using CAMEL Model: Comparison of Conventional, Mixed and Pure Islamic Banks in Pakistan. For this purpose they used five year data starting from 2006-2010 .They used primary and secondary data to make study more comprehensive. Primary data was obtained from Interview and Secondary data was obtained from financial statements. Six banks was selected from Islamic Branches of Conventional Banks , Four banks from full-fledge islamic banks and four banks from conventional banks.Two categories of tests are employed.
First category is based on the comparison of the means in three categories of banks. Secondly they used the trend analysis for graphical comparison and trends in CAMEL ratios. Tests were performed using SPSS. They conclude that there are significant differences in the mean CAMEL ratios of three bank types.
The performance measurements of Islamic banking in Pakistan are different in comparison to the results drawn from the similar studies done in other parts of the world. The difference in results is largely due to the fact that Islamic banking has longer history in these countries as compared to Pakistan where full-fledged Islamic banking started merely few years back. Moreover, conventional banking has a longer history, deeper roots, vast experience of learning from the financial markets mechanisms, and larger share in the Pakistan financial sector. They found that Islamic bank have adequate capital and Good asset management as compared to Islamic branches of Conventional banks and Conventional banks. Islamic banks in general have good management competency in comparison to conventional banks.
The earnings of Islamic branches of conventional banks are greater than full-fledge Islamic banks and conventional banks.K.K. Siraj and P. SudarsananPillai (2012) Conducted research on “Comparative Study on performance of Islamic Banks and Conventional Banks in GCC region” for this purpose they used six years data starting from 2005-2010. Secondary data was collected from the financial statements. The study selected six Islamic banks and six conventional banks. They used financial ratios to measure the performance and use ANOVA.
They conclude that Islamic banks are more equity financed than conventional banks.Dr.Shahid Jan Kakakhe ,FaryalRaheem, and Dr. Muhammad Tariq Conducted research on,”A Study of Performance Comparison between Conventional and Islamic Banking in Pakistan.” The aim of this study was to examine and evaluate the performance of Islamic and Conventional banks.
For this purpose data was collected from the financial statements of Banks for the period of 2008 to 2010. Financial ratio analysis techniques are used to measure the performance of bank. They concluded that Conventional Banks are more profitable than Islamic banks. Islamic bank have better Current ratio cash debit to asset and asset turnover ratio while conventional banks are good in other remaining ratios. Conventional banks are more efficient than Islamic banks in Pakistan.Md. DulalMiah and KashfiaSharmeenconducted a research on Relationship between capital, risk and efficiency: A comparative study between Islamic and conventional banks of Bangladesh. Purpose of this study was to investigate the relationship between Capital risk and efficiency of Islamic and conventional operating in Bangladesh.
For this purpose, they used eleven years data starting from 2001 to 2011. They assembled data from financial statement of Islamic and Conventional banks. Stochastic frontier approach was used to measure the efficiency and Seemingly Unrelated Regression approach for assessing the relationship between Capital Risk and efficiency.
They conclude that Conventional Banks are more efficient in managing Cost than Islamic banks and relationship between Capital and risk was also bidirectional but positive for Islamic banks. Raja Irfan Sabir , Naeem Akhtar ,Osama Ghafoor ,Iqra Hafeez, Anjuman Chaudhri And Asad Ur Rehman ( 2014) Conducted research on Difference Between Islamic Banks and Commercial Banks Performance In Pakistan . Objective of this was study to identify the difference between operations of Islamic banks and Non Islamic Banks In Pakistan, and how it effects the depositors. For this purpose, they used the samples of three Islamic banks and three Non Islamic banks. Secondary data was taken from financial statements of banks to find the difference of Islamic and Conventional banks performances.
Ratio analysis was used for analyzing the performance of Islamic and commercial banks. They concluded that conventional banks performance is better and Highly Profitable in term of ROA because conventional banks have greater hold on our whole economy for many years . By Muhammad Jaffar, IrfanManarvi conducted research on Performance comparison of Islamic and Conventional banks in Pakistan. For This purpose they used samples of five Islamic Banks and Five conventional banks for five year Period starting from 2005 to 2009.
Secondary data was collected from SBP website. To measure the financial performance CAMEL analysis was used. They concluded that Islamic Banks performed better in possessing adequate capital and better liquidity position while Conventional banks pioneered in management quality and earning ability and asset quality was almost same for both mode of Banking. AbidUsman and Muhmmad and Muhammad Kashif Khan (2012) conducted research on Evaluating the Financial Performance of Islamic and Conventional Banks of Pakistan: A Comparative Analysis.
For this purpose three Islamic and three conventional banks were selected as samples on the Basis of equal weight of invested capital and number of existing branches . Data was collected from financial statements of both type banks for the period of three years starting from 2007 To2009. To make the Comparative Study profitability and liquidity ratio were used. They found that Islamic banks were more profitable than conventional banks and also had high liquidity power over conventional banks. MasudRana, Md. Kamal Hossain and Rebeka Sultana Rekha (2016) Conducted research on Profitability and liquidity of conventional banking and Islamic banking in Bangladesh: A comparative study. The aim of this study was to focus on Islamic Banking system and conventional Banking System performance.
For this Purpose, they used secondary data Collected from Published Material, annual reports of banks, internet and journals for the period of three years starting from 2013 to 2014. They selected four Islamic Banks and four conventional Banks of Bangladesh. They used the Ratio analysis techniques to measure the performance of banks. They classified the ratios in term of profitability, Liquidity, Risk and solvency, operational ratios and Capital adequacy ratio. They conclude that performance of Islamic banks in business development, profitability, liquidity and solvency is better than the conventional banks of Bangladesh. By Imtiaz .P. Merchant conducted research on Empirical Study of Islamic Banks Versus Conventional Banks of GCC.
The objective of research was to analyze the performance of Islamic banks and conventional banks based in the Gulf Cooperation Council (GCC) .He used five years data starting from 2008 to 2012. Data was gathered from financial statements of banks. CAMEL approach was used to measure the performances of both types of banks. He found that Islamic banks perform better than conventional banks. Suzanna El Massah and Ola Al-Sayed conducted research on banking sector performance: Islamic and conventional banks in the UAE. For this purpose they selected samples of eleven Conventional banks and five Islamic banks.
They collected data from annual reports of banks for the period of seven year starting from 2008 to 2014. They used Ratio analysis technique to measure the performance of Islamic banks and Conventional Banks. Performances of banks measured in respect of Profitability, Liquidity, Solvency and Credit risk.
They found that conventional banks perform better than islamic banks in term of profitability, credit risk management as well as solvency. Sanaullah Ansari1, Khalil-ur-Rehman (2011) conducted research on Comparative Financial Performance of existing Islamic Banks and Contemporary Conventional Banks in Pakistan. The Objective of this research was to examine the financial performance of Islamic banks and conventional banks of Pakistan. For this purpose, they used samples of five Islamic banks and five conventional banks. Data was collected from the financial reports of the banks for the period of 2005 to 2009. To measure the performances of banks, they used ratio analysis approach and descriptive study. They found that Islamic banks were much superior than the conventional banks.
And they have the capacity to increase their market share by generating new activities in Pakistan. AbdusSamad (2004) Conducted research on the Performance of interest- free Islamic Banks Vis-A-vis interest based Conventional Banks of Bahrain. The aim of this study was to analyze the comparative performance of Bahrain’s Islamic banks and Conventional banks during the Post-Gulf war period. For this purpose data was collected for the period of ten years starting from 1991 to 2001. To measure the performance he used profitability ratio, liquidity ratio, and credit risk. In the light of Ratio analysis he conclude that there is no major difference in performances between Islamic banks and conventional banks with respect to profitability and liquidity ratio. Islamic banks exposed less credit risk compared to the conventional banks.
HaseebShahid ,RamizurRehman, GhulamShabbir Khan Niazi and AwaisRaoof (2010) Conducted research on Efficiencies Comparison of Islamic and Conventional Banks of Pakistan.The objective of this study was to investigate the efficiency of Islamic banks and conventional banks. For this purpose they took five Islamic banks and five conventional banks samples for the period of 2005 to 2009. Data Envelopment Analysis (DEA) model was used to measure the efficiency of both types of banks under the approach Constant Return to Scale (CRS) and Variable Return to Scale (VRS). In the light of analysis they concluded that technical efficiency of Conventional banks was much better than Islamic banks .
The statistics Show that there is no significant difference in mean efficiency of conventional and Islamic banks. RummanaZaheer and HafsaJamil (2016) conducted research on the Performance Comparison Analysis of Islamic and Conventional. Banks – Case Study of Pakistan. For this purpose, they collected data of five Islamic banks and five conventional banks for the period of nine years starting from 2006 to 2014. To measure the performance ratio, analysis technique was used. In the light of analysis, they concluded that conventional banks have dominant position in banking sector and Islamic banks need to grow. Muhammad ShehzadMoin (2013) conducted research on Financial Performances of Islamic Banking and Conventional Banking in Pakistan: A Comparative Study .
The aim of this study was to examine and evaluate the financial performances of conventional and Islamic banks in Pakistan. He compared the Meezan Bank Ltd. and five conventional banks for the period of five years starting from 2003 to 2007. He collected data from the income statement and balance sheet. He used ratio analysis to measure the financial performance. T test and F test were used to determine the significant of performances of both banks. He concluded that MBL is less profitable and less risky and less efficient than Conventional banks.
Mona Esam Fayed (2013) conducted research on Comparative Performance Study of Conventional and Islamic Banking in Egypt. The aim of this study was to examine, which one of banking sector performs better. For this purpose, three Islamic banks and six conventional banks were selected to make comparison for the period of three year starting from 2008 to 2010.Data was collected from financial statements of banks. Ratio Analysis technique was used to gauge profitability liquidity and credit risk, and model Bank-O-metre was used to gauge the solvency .
He conclude that conventional banks perform better in term of profitability, liquidity, credit risk and solvency. AymanAbdal-Majeed Ahmad Al-smadi, FaizulHamdan and Mahmoud Khalid Almsafir (2015) conducted research on Islamic banking Vs conventional banking, during the Global financial Crises: Malaysia as a case, the objective of this research was to examine the impact and performance of conventional and Islamic banking in Malaysia . For this purpose, banks of Malaysia, Iran, Iraq, Turkey, UAE and Kuwait were used for the comparison on the performance. They study the research articles from 1997 to 2011 on the performance.
They used financial ratio analysis to evaluate the performance of banks. They concluded that Islamic banks perform better than conventional banks in term of profit, operation, efficiency, liquidity and business growth. Mukdad Ibrahim (2016) conducted research on A Comparative Study of Financial Performance between Conventional and Islamic Banking in United Arab Emirates.
The main Objective of the study was to compare the financial performance of Islamic banks and Conventional banks .To measure the financial performance and made a comparison between Dubai Islamic bank and bank of Sharjah. For this purpose he used five years data starting from 2002 to 2006. Financial ratio was used to measure the banks performances.
The main ratio was Liquidity, profitability, management capacity, Capital structure and share performances.The descriptive measurements were used to measure the performance and the stability-variability of these ratios. He concluded that there was no significant difference in between the financial performance of both banks, but the banks in Sharjah have high degree of liquidity, profitability and capital structure. Dubai Islamic bank was better in relation to share indicators performance and in terms of overall stability. MuhamadRidho Chandra Sena and TaufikFaturohman (2016) conducted research on the profitability comparison between Islamic banks and conventional banks in Indonesia from 2004 to 2014. The main objective of this study was to make comparison between islamic banks and conventional banks. For this purpose they collected data of all the banks of Indonesia for the period of eleven years starting from 2004 to 2014.
To analyse the data they used financial ratios, Descriptive statistics and Mean Whitney test. In the light of analysis they found that there was difference between Islamic banks and conventional banks in each ratio. Sujan Chandra Paul1, Probir Kumar Bhowmik, Mohammad Rakibul Islam, Md. Abdul Kaium and Abdullah Al MasudConducted research on Profitability and Liquidity of Conventional Banking and Islamic Banking in Bangladesh.
A Comparative Study. The main objective of this study was to examine and evaluate the performance of Islamic banking and conventional banking in term of profitability and liquidity for the period of 2008 to 2012. They collected data from financial reports of five Islamic banks and five conventional banks .The Sample was selected on the basis of their asset sizes. They used financial ratios to measure the profitability and liquidity and T test and F test to determine the significance of differential performance of both types of banks. They found that Islamic banks are less profitable than Conventional banks but there was no significant difference in liquidity of both types of banks. Muhammad AzeemQureshi and MadeehaShaikhConducted research on Efficiency of Islamic and Conventional Banks in Pakistan: A Non-parametric Approach.
The main objective of this study was analysing the comparative efficiency of banks in Pakistan. For this purpose they used ratio analysis method and data Envelopment analysis method to compare the efficiency of both types of banks For the period of six years starting from 2003 to 2008. They found that Islamic banks were most cost efficient and less revenue efficient.
Chan KokThim, Yap VoonChoong, Yong Gun Fie, Lam WoonHar conducted research on Assessing Financial Performance of Malaysian Islamic and Conventional Commercial Banks, Using Financial Ratios. The objective was to assess the overall performance of Islamic banks as well as conventional banks in Malaysia using financial ratios. For this purpose they compared the five Islamic banks and five Conventional banks for the period of 2006 to 2010. They collected data from journals and published reports.They used financial ratios to measure performance in term of liquidity, profitability, risk and solvency and efficiency ratio. They concluded that conventional banks were better financial ratio than Islamic banks in Malaysia during the period of 2006-2010.
Muhammad Bilal and Sohail Abbas conducted research on Comparison of Islamic banking and conventional banking: an empirical review. The aim of the research was to make efficient comparison of Islamic banking and Conventional banking.For this purpose they used stochastic Frontier approach and traditional financial approach. They found higher rate of return for Islamic banking as compared to conventional banking. Ishaq AB, Karim A, Ahmed S and Zaheer Aconducted research on evaluating performances of commercial banks in Pakistan. An application of camel model.
For this purpose they used seven years data starting from 2007-2013. Data was collected from articles, papers, the World Wide Web and pervious papers. CAMEL approach was used to evaluate the execution of financial accuracy of conventional banks in Pakistan. They took capital adequacy, asset quality, management efficiency, earning and liquidity as independent variables and earnings per share is dependent variable. They concluded that total deposit to equity, non-performing loan to gross advances, non-performing loan to equity. Admin expenses to interest income ratio and gross advances to total deposits ratio was negatively correlated with banks performance. The return on asset and return on equity positively correlated to banks performance. Muhammad FarhanAkhtar, Khizer Ali, ShamaSadaqatconducted research on Liquidity Risk Management: A comparative study between Conventional and Islamic Banks of Pakistan.
The main objective of this study was to evaluate the liquidity risk management in conventional and Isamic banks of Pakistan. For this purpose they used sample of six Islamic banks and six conventional banks. Data was collected from annual reports of the banks for the period of 2006 to 2009. They used liquidity risk as dependent variable and size of bank, Return on asset, networking Capital, return on equity, and capital adequacy ratio as independent variable. Descriptive statistics, correlation and regression analysis was used to compare the effect of independent variable on the dependent variable. They concluded that there was positive relationship of size of banks and networking capital to net assets with liquidity risk in both models. In addition capital adequacy ratio in conventional banks and return on asset in Islamic banks were found positive and significant.
NormaizatulAkmaSaidi, AnnuarMd Nassir, Mohamed HishamYahya and Amalina Abdullah (2011) Conducted research on Islamic and Conventional banks: An empirical study of liquidity risk. The aim of this study was to examine the liquidity risk for Islamic and conventional banks in south Asia. For this purpose they obtained data of all Islamic and conventional banks of four countries of south Asia for the period of Five years starting from 2010 to 2014. Data was collected from income statements and balance sheet. They used liquidity ratio to measure the liquidity risk and descriptive statistics was used to compare the liquidity risk between conventional banks and Islamic banks.
They found that Islamic banks exposed to higher liquidity risk than conventional banks. BEN MBAREK Hassene and BEN MBAREK Kais (2016) conducted research on the performance of islamic bank and Conventional banks in Malaysia considering crises period. The aim of this study was to make comparison of efficiency of Islamic banks and conventional banks. For this purpose they used sample of 34 banks in which seventeen was Islamic banks and seventeen was conventional banks. They collected data from annual reports for the period of fifteen years starting from 2000 to 2015. To evaluate and examine the performance they used they used three financial ratios.
Profitability ratio, efficiency ratio, and performance ratio. They found that Islamic banks were more profitable than conventional banks. Youssef Latif, Ali Abbas, Muhammad NadeemAkram, ShahidManzoor and Saeed Ahmad (2016) conducted research on performance comparison between Islamic and Conventional banks of Pakistan. The aim of this study was to evaluate the comparison of Islamic banks and conventional banks of Pakistan. For this purpose they used sample of 10 banks in which five were Islamic banks and five were Conventional banks. They collected data from financial statements of banks for the period of five year starting from 2006 to 2010.
They used financial ratio analysis to measure the financial performance of banks. For comparison they used trend analysis. They concluded that Islamic bankswere less risky more solvent and efficient than conventional banks. Trend analysis balance sheet and income statement of Islamic banks showed positive trend as compared to conventional banks. Onakoya, AdegbemiBabatunde and Onakoya, AdekolaOlaitan (2013) Conducted research on The Performance of Conventional and Islamic Banks in the United Kingdom: A Comparative Analysis.
The aim of this study was to evaluate performance efficiency of Islamic bank and conventional banks in United Kingdom. For this purpose they selected top four Islamic banks and five conventional banks. Secondary data was collected from financial statements. They used financial ratio analysis technique to measure the performance. They found that Islamic banks expose less risk more efficient and cost effective than conventional banks because conventional banks depend upon external sources for funding. AzamShafique, Muhammad AsimFaheem,Iqra Abdullah (2012) conducted research on Impact of Global Financial Crises on the Islamic Banking System.
The main objective of this study was to examine which banking system performs better during the financial crises of 2008. For testing this view they used descriptive study. They concluded that Islamic banks were also badly affected by financial Crises but their performance was better than Islamic banks during global financial crises. Mohamed H. Rashwan (2012) conducted research on How did listed Islamic and Traditional Banks Performed: pre and post the 2008 financial crisis. The aim of this study to examine and compare the performance of Islamic banks and conventional banks pre and post the 2008 financial crises. he selected research period 2007 and 2008.He used these year as a dependent variable.
He applied MANOVA technique to analyse the financial secondary data. He concluded that there was a significant difference between two sectors in 2007 and 2009 and there were no significant difference in 2008. An Islamic bank was better performed in 2007 than traditional banks. And traditional banks outperform in 2009. Dr.
Said Jaouadi, Rachida Ben Jazia and AzzaZiadi (2014) conducted research on Examining the Efficiency and the Effectiveness of Islamic and Conventional Banking: Evidence from Indonesia. The aim of this study was to identify the financial factor that affects Islamic bank profitability and assess the efficiency and effectiveness of Islamic bank in Indonesia. They used time series and OLS method to estimate the pattern. They used data for research starting from March 2010 to July 2011. They concluded that Indonesian conventional banks were not operating with efficiency and effectiveness as compared to Islamic banks of Indonesia.2.
2 Hypotheses On the basis of the above literature review, the study has following hypotheses:H1: Islamic Banks are performing better than conventional Banks in Pakistan.H0: Conventional Banks are performing better than Islamic Banks in Pakistan.CHAPTER 3METHODOLOGY ; DATAThis chapter explain the framework of the research, sources and approaches of data collection, techniques of data analysis, model description and description of variables.3.1 PopulationAll Islamic and conventional banks operating in Pakistan.3.2 Sample Selection All Islamic banks and conventional banks are selected except for few small or public sector banks.
3.3 Data collection MethodSecondary data was collected from the annual reports of sampled banks which are obtained from state bank website for the period 2007 – 2016.3.4 ModelFinancial performance index for banks is calculated by following Model. FPIi=?ji CAit+?j2 AQit+?j3MTit+?j4ESit+?j5LYit+?j6RKitWhere ?j is prescribed for weight for bank ith for time T.CAit, AQit , MTit ,ESit , LYit and RKit are the CAMEL performance parameters for ith bank at time T.
After that banks are ranked according to FPI values and then banks progress is calculated by progress Ratio.PR=Composite value of banks in 2016Composite value of bank in 2007 It shows the progress of particular bank with respect to its base year. All CAMEL ratios are averaged to get Component value and finally averaged all component value to get Composite value of bank.
Component Value is calculated as CVi=wiR-LL÷UL-LLComposite Value is calculated as Cv=wj CviHere cviis Component value of each category in CMELS ratio. wi Is weight assigned to individual ratio in each component of CAMEL.R is Value of each ratio in CAMELS LL Is Lower Limit (minimum Ratio in All banks)UL is upper limit (maximum ratio in all banks)All performance parameters are ranked according to prescribed weight3.5 Data Analysis TechniqueData of banks is analyzed by applying CAMELS test and ranking techniques to examine banks performance.
After calculating the ratio, construct the financial performance index by using CAMELS parameters. Each parameter is assigned a particular weight. Equal weights are assigned to CAMELS parameters including asset quality, earning, Capital adequacy and sensitivity to risk because three factor help in growth, efficiency and survival of banks, lesser weight assigned to management and liquidity because high liquidity reduce bank profitability of banks.3.6 Variable DescriptionThe purpose of this study is to examine the financial performance of Islamic banks and conventional banks in Pakistan during the period 2007-2016. Therefore the variables are divided into two categories dependent variables and independent variables.By keeping in view the research question and objectives, it is decided that financial performance index is dependent variable and Capital Adequacy, Asset Quality, Management, Earning and liquidity are independent variables. 3.
6.1 Dependent Variable3.6.1.
1 Financial Performance Index Financial Performance index is used to measure the financial performance of any organization.3.6.2 Independent Variables3.
6.2.1 Capital Adequacy Described that how banks can meet unexpected losses with their funds and Capital.
Bank can avoid Bankruptcy issue by having much capital. 188.8.131.52 Asset Quality Described how bank can use their advances to generate income.3.6.2.
3 Management This parameter is used to examine the management and efficiency of banks. How bank can maximize profit and business activities 184.108.40.206 EarningDescribe how banks earn and sustain their earning in the future.
It show the growth of bank in term of profit.220.127.116.11 Liquidity Is more important parameter of banks. It indicates how banks can meet their obligations.
CHAPTER 4EMPIRICAL RESULTS AND ANALYSIS This Chapter of the study, I have discussed the analysis and interpretation of data used in this study. There are two main part of this section – the first part covers the ranking of banks on the basis of financial performance index (FPI) and second part covers the banks progress ratios. CAMEL model is used in this study. The data used in this study is secondary data collected from website of State bank of Pakistan.
The data was collected for these variables: Capital Adequacy, Asset quality, Management, Earning and liquidity. The period covered was from 2007 to 2016.4.1 Ranking of banks on the basis of FPIBanks were ranked according to the composite value of Bank. On the basis of this ranking bank al Habib is ranked at first position in 2007, 2009 and 2010. Muslim Commercial Bank is ranked at top position from 2010 to 2011, after that its performance decrease in 2012. But it continuously improves performance and remained at top position again from 2013 to 2016.
On the other hand Habib bank limited, united bank limited, standard chartered and National bank remain at second and third position in 2012 to 2016. Islamic banks are lower position in term of performance than conventional banks during sample time span. Meezan bank and Dubai Islamic Bank remain at sixth and seven positions during 2008 to 2016.
Other Islamic banks are also remained in bottom.4.1.1 Construction of Composite FPI Composite FPI shows the average performance of all banks from 2007 to 2016. Composite FPI is calculated by average of all year’s value.According to the ranking of banks on the basis of composite FPI, MCB was at 1st position, Fysal bank is ranked at 2nd position, silk bank at 3rd position, bank AL habib at the 4th ranked, HBL is ranked at 5th position and UBL is ranked at 6th position. On the other hand, Islamic Banks such as Meezan Bank, Dubai Islamic bank, Albaraka bank stood at 13th, 14th and 8th position, respectively. So we can say that Conventional banks are performing well in all CAMEL parameters.
Such as Capital Adequacy, Asset Quality, Management, Earning and Liquidity.Sr# Banks 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 CMP FPI R Type1 MCB 0.22 0.21 0.21 0.20 0.20 0.20 0.
19 0.19 2.67 0.18 0.45 1 CB2 Faysal Bank 0.18 0.18 0.17 0.
16 0.16 0.17 2.11 0.
17 0.17 0.17 0.36 2 CB3 Silk bank -0.10 0.10 1.80 0.12 0.
15 0.15 0.15 0.17 0.17 0.16 0.
29 3 CB4 Bank Al Habib0.20 0.19 0.19 0.19 0.
20 0.19 0.19 0.20 0.
23 0.37 0.21 4 CB5 HBL 0.19 0.19 0.19 0.19 0.
19 0.18 0.18 0.18 0.17 0.18 0.19 5 CB6 UBL 0.21 0.
19 0.19 0.19 0.19 0.19 0.
19 0.18 0.18 0.18 0.19 6 CB7 NBP 0.21 0.21 0.
19 0.18 0.18 0.18 0.17 0.
18 0.18 0.18 0.19 7 CB8 Al Baraka Bank 0.19 0.18 0.18 0.
16 0.19 0.17 0.10 0.19 0.11 0.28 0.18 8 IB9 Allied bank 0.19 0.18 0.19 0.19 0.19 0.18 0.18 0.17 0.17 0.17 0.18 9 CB10 Standerd Charted 0.17 0.19 0.18 0.18 0.19 0.19 0.19 0.19 0.18 0.18 0.18 10 CB11 Habib Metropolitan 0.19 0.19 0.18 0.17 0.18 0.17 0.17 0.18 0.20 0.22 0.18 11 CB12 SAMBA Bank 0.13 0.15 0.15 0.17 0.18 0.19 0.19 0.19 0.20 0.22 0.18 12 CB13 Meezan Bank 0.17 0.16 0.17 0.18 0.19 0.19 0.17 0.17 0.17 0.20 0.18 13 CB14 DIB 0.15 0.15 0.15 0.15 0.16 0.16 0.15 0.16 0.18 0.40 0.18 14 IB15 Askari bank 0.19 0.17 0.18 0.17 0.17 0.16 0.12 0.18 0.17 0.18 0.17 15 IB16 NIB 0.22 0.16 0.20 0.08 0.21 0.22 0.18 0.17 0.16 0.15 0.17 16 CB17 Bank Al Falah0.18 0.17 0.15 0.16 0.18 0.17 0.17 0.16 0.15 0.15 0.16 17 CB18 JS bank 0.14 0.15 0.14 0.14 0.17 0.16 0.16 0.16 0.17 0.18 0.16 18 IB19 Sonari Bank 0.17 0.17 0.15 0.15 0.16 0.17 0.16 0.16 0.16 0.17 0.16 19 CB20 Summit Bank 0.17 0.16 0.09 0.07 0.15 0.08 0.03 0.22 0.23 0.16 0.14 20 CBTable 18.104.22.168: Composite FPI shows the performance of all banks during the 2007-20164.2 Bank progress ratio:Progress of the bank is calculated through bank progress ratio. It show performance of one bank in 2016 with respect to the base year 2007.Progress ratio indicate that Conventional banks performed best in 2016, comparing their performance to the base year 2007.Among the conventional banks, the bank Al Habib, MCB, HBL, UBL, Askari bank, Habib Metropolitan, Fysal bank, NBP and summit bank performing better than other remaing Conventional bank . Silk bank Performance remained medium and SAMBA bank progress is average.On the other hand, Islamic bank are also performing well in 2016. Meezan bank, Dubai Islamic bank and bank Al Falah showed good progress. Whereas AL Baraka Bank showed average performance.Table 4.2.1: Progress of BanksSR.# BankSProgress Ratio Remarks1 Bank Al Habib1.0422 VG2 MCB 0.9265 VG3 Bank Al Falah1.1253 VG4 HBL 1.0462 VG5 UBL 1.0498 VG6 Allied bank 0.952 VG7 Standerd Charted 0.8748 VG8 Askari bank 1.0368 VG9 JS bank 0.9732 VG10 Silk bank 0.4888 M11 Al Baraka Bank 0.0496 AVG12 NBP 0.9985 VG13 Habib Metropolitan 1.2620 VG14 Faysal Bank 1.0864 VG15 Sonari Bank 1.1372 VG16 SAMBA Bank 0.5252 AVG17 Meezan Bank 0.8716 VG18 DIB 0.9403 VG19 NIB 1.7504 VG20 Summit Bank 1.8300 VGNote: VG= Very Good, AVG= Average, M= MediumTable 4.2.2: Degree of Banks’ ProgressDefinition of banks’ progress CategoryProgress ratio less than m-0.842 s Very bad progress Progress ratio between m-0.842 S and m – 0.253 S Average progress Progress ratio between m-0.253 s and m + 0.253 Medium progress Progress ratio between m+0.253 s and m +0.842 Good progress Progress Ratio greater than m +0.842 Very good progress Note: S – standard Deviation , m – Mean of progress ratio CHAPTER 05CONCLUSION5.1 BackgroundThe performance of Islamic and conventional banks was compared by using CAMEL model. Performance was evaluating such as Capital adequacy, Asset quality, Management and Liquidity. In this study FPI was constructed to measure the performance of banks that was based on CAMEL model. CAMEL Model as a tool is very effective and accurate to be used as performance evaluate in banking Sector. It suggest to measure to improve the weakness of banks. 5.2 Key FindingsIn the ranking conventional banks remained top of the list. Top Five performing banks in all parameters of CAMEL are MCB, Faysal bank, Bank Al Habib, UBL and HBL. The worst three performers are summit bank, Silk bank and JS bank. Whereas, most of the Islamic banks stood after the 10th rank. A reason could be shorter age and experience because they start their business in Pakistan from 2003. Bank progress ratio shows the performance one bank in 2016 with respect to base year 2007. Progress ratio indicates that Conventional banks are performing better in 2016 as compared to the base year 2007. On the other hand, Islamic bank also performed well in 2016. In the light of empirical result, it is found that during the year 2007-2016 Conventional banks performed better than Islamic bank in term of financial performance index, whereas Islamic banks and Conventional banks both are performed well in term of progress ratio. 5.3 Limitation & Future DirectionThis Study is limited to the banks operating in Pakistan only for the time period of 2007- 2016. The finding of this study cannot be generalized for all Islamic and Conventional banks outside the Pakistan. The intent of this study is restricted to the capital adequacy, asset quality, management, earnings and Liquidity. In future, the research can be done on the comparative analysis of Islamic and Conventional banks by incorporating the market risk. Further researcher can also continue research on this issue from 2016.ReferencesHunjra, A. I. and Bashir, A. (2014).Comparative Financial Performance Analysis of Conventional and Islamic Banks in Pakistan. Bulletin of Business and Economics, 3(4), 196-206.Dr.Abdul Rasheed, M. Khakeeq and Sana jabeen( 2015). Analyzing performance of Banks in Pakistan Conventional Vs Islamic Banks. Journal of Islamic Business and Management Vol.5 No.2,Pir Qasim Shah, (2010).Performance Analysis of Selected Islamic and Conventional Banks of Pakistan through CAMEL Framework. Business & Economic Review: Vol. 6, Issue 1: 2014 pp. 19-39SanaullahAnsari , AtiqaRehman (2011). Financial Performance of Islamic and Conventional Banks in Pakistan: A Comparative Study.8th International Conference on Islamic Economics and Finance.SitiRochmahIka and Norhayati Abdullah (2011).A comparative study of Financial Performance of Islamic band Conventional banks in Indonesia. International Journal of Business and Social Science Vol. 2 No. 15.Dr. Waheed Akhter, Ali Raza, Orangzab and Muhammad Akram (2011).Efficiency and Performance of Islamic Banking: The Case of Pakistan. Far East Journal of Psychology and Business Vol. 2 No 2Rami Zeitun (2012).Determinants of Islamic and Conventional Banks Performance in GCC Countries Using Panel Data Analysis.Global Economy and Finance Journal Vol. 5. No. 1.RehanaKouser and Irum Saba (2012). Gauging the Financial Performance of Banking Sector using CAMEL Model: Comparison of Conventional, Mixed and Pure Islamic Banks in Pakistan. International Research Journal of Finance and Economics – Issue 82.K.K. Siraj and P. Sudarsanan Pillai (2012).Comparative Study on Performance of Islamic Banks and Conventional Banks in GCC region. Journal of Applied Finance & Banking, vol.2, no.3Dr. Shahid Jan Kakakhel,FaryalRaheem and Dr. Muhammad Tariq (2010).A Study of performance Comparison between Conventional and Islamic Banking in Pakistan. Abasyn Journal of Social Sciences Vol. 6 No. 2Md. Dulal Miah and Kashfia Sharmeen (2008).Relationship between capital, risk and efficiency A comparative study between Islamic and conventional banks of Bangladesh. International Journal of Islamic and Middle Eastern Finance and Management Volume 10 Issue 4.Raja IrfanSabir , Naeem Akhtar, Osama Ghafoor, Iqrahaffez, Anjuman Chaudary and Asadurrehman (2014). Difference Between Islamic Banks and Commercial Banks Performance In Pakistan. International Review of Management and Business Research Vol. 3 Issue.2By Muhammad Jaffar, IrfanManarvi (2011),Performance comparison of Islamic and Conventional banks in Pakistan. Global Journal of Management And Business Research Volume 11 Issue 1.Abid Usman and Muhammad Kashif Khan (2012).Evaluating the Financial Performance of Islamic and Conventional Banks of Pakistan: A Comparative Analysis. International Journal of Business and Social Science Vol. 3 No. 7Masud Rana, Md. Kamal Hossain and Rebeka Sultana Rekha (2016).Profitability and liquidity of conventional banking and Islamic banking in Bangladesh: A comparative study. International Journal of Applied Research.By Imtiaz .P. Merchant (2012).Empirical Study of Islamic Banks versus Conventional Banks of GCC. Global Journal of Management and Business Research Volume 12 Issue 20Suzanna El Massah and Ola Al-Sayed (2015).Banking sector performance: Islamic and Conventional banks in UAE. International Journal of Information Technology and Business Management Vol.36 No.1Sanaullah Ansari and Khalil-ur-Rehman (2011).Comparative Financial Performance of existing Islamic Banks and Contemporary Conventional Banks in Pakistan. International Conference on Economics, Business and Management.Abdus Samad (2004).Performance of interest-free Islamic banks versus interest based conventional banks of Bahrain. IIUM Journal of Economics and Management 12, no.2Appendix ATable A.1: Overview of weight assigned to parametersPerformance parameters Composite Weight Parameters Characteristics WeightsCapital Adequacy 20%Capital adequacyLeverage ratioCoverage Ratio 20%30%30%Asset Quality 25%Non-performing loan to gross advancesProvisions against NPLs to gross advances 50%50%Management 20% Total advances/Total depositsAsset Utilization Ratio.Earning Asset to Total Asset20%40%40%Earnings Management 25% Return on AssetReturn on equitySpread to total Asset 40%40%20%Liquidity 10% Liquid asset to total asset)investment to total assetNet loan to total asset 30%35%35%Note: Weight is assigned according to the gain earned by bank and importance of the parameters in CAMEL Model by following the paper of Dr.Abdul Rasheed (2012).Table A.2: Overview of performance parameters descriptionPerformance Parameters Description Parameter CharacteristicsCapital Adequacy Capital adequacy describes that how bank can meet unexpected loss with their funds and capital.Higher value Shows the better financial health and depicts less chance of losses. Capital adequacyLeverage ratioCoverage RatioAsset Quality Asset quality describes how a bank can use their advances in generating income.Higher value shows the banks have high performing assets. Non-performing loan to gross advancesProvisions against NPLs to gross advances Management This parameter is used to examine the management and efficiency of banks. It indicates how banks maximize their profit and business activity.High ratio shows the effectiveness of banks. It depicts the ability of banks to convert its deposits on high earning advances. Total advances/Total depositsAsset Utilization Ratio.Earning Asset to Total AssetEarnings Earning describes how banks earn and sustain their earning in the future. It also shows the growth of bank in term of profit.Higher value shows that bank has earned high value on assets and bank is efficient in generating income on investment. Return on AssetReturn on equitySpread to total AssetLiquidity Liquidity is most important parameters for any bank. It indicates how banks meet its obligation. Among all asset, cash and investment are most liquid assets. Higher value depict the banks have more liquid assets. Liquid asset to total asset)investment to total assetNet loan to total assetTableA.3: Ranking of banks from 2007 to 2016# Banks 2016 2015 2014 2013 2012 2011 2010 2009 2008 20071 MCB 1 1 1 1 2 1 1 2 1 42 Faysal Bank 5 3 5 5 6 5 3 4 5 63 Silk bank 10 7 8 8 7 7 5 4 5 74 Bank Al Habib3 2 3 2 2 3 1 1 2 15 HBL 4 2 3 2 3 4 2 3 5 56 UBL 2 2 3 2 3 3 1 3 4 57 NBP 2 1 3 3 4 4 3 3 4 58 Al Baraka Bank 4 3 4 5 3 5 7 2 8 29 Allied bank 4 3 3 2 3 4 2 4 5 610 Standard Charted 6 2 4 3 3 3 1 2 4 411 Habib Metropolitan 4 2 4 4 4 5 3 3 3 312 SAMBA Bank 9 6 6 4 4 3 1 2 3 313 Meezan Bank 6 5 5 3 3 3 3 4 5 414 DIB 7 6 6 6 6 6 5 5 4 515 Askari bank 4 4 4 4 5 6 6 3 5 516 NIB 1 5 2 9 1 2 2 4 6 817 Bank Al Falah5 4 6 5 4 5 3 5 7 818 JS bank 7 6 7 7 5 6 4 5 5 519 Sonari Bank 6 4 6 6 6 5 4 5 6 620 Summit Bank 6 5 9 10 7 8 8 6 2 7Appendix BFPI for all banks for the period 2007-2016Figure 1 : FPI for 2016Figure 2: FPI for 2015Figure 3: FPI for 2014Figure 4: FPI for 2013Figure 5: FPI for 201295250172085Figure 6: FPI for 2011Figure 7: FPI for 2010Figure 8: FPI for 2009Figure 9: FPI for 2008Figure 10: FPI for 2007Figure 11: Progress of banksFigure 12: Composite FPI