Global Financial Recession and its Impacts Performance with of Islamic Banking in Pakistan

By Faiz.M.Shaikh, Munawwar Ali Kartio

Abstract

The research investigates the performance of Islamic banking compare with the conventional Banking system in Pakistan. Data were collected from six leading conventional banking and four Islamic banks operated in Pakistan. It examines the major products/services offered by various Islamic banking institutions (IB) as well as analyzing such institutions’ financial performance based on the latest data available. It was revealed that some of the practices and the financial instruments used by the Islamic banks do not seem to conform to the traditional Islamic principles, and it offers suggestions for improvements. It was revealed that performance of Islamic banking the recession period is better than conventional banking in Pakistan. It was further revealed that Islamic banking has more growth in the recession period in Pakistan. The main reason of slow growth of Islamic banking is due to unawareness among the customers and the conventional banks in Pakistan has longer history and experience in doing the banking business and holding dominant position in the financial sector in Pakistan. The financial ratios such as return on Assets (ROA), return on Equity (ROE), Loan to Deposit ratio(LDR) Loan to Asset Ratio(LAR) Debt to equity Ratio(DER), Assets Utilization(AU), and Income to Expense ratio(IER) are used to assess banking performance. T test and F-test were used in determining he significance of results. It was revealed that Islamic banking is less profitable, less risky and less efficient compare with the conventional banking in Pakistan during the study period 2007- to march 2009.