A Comparative Examination of Islamic Banking and Conventional Banking in Pakistan.

1. Final Year Project 2
A Comparative Examination of Islamic Banking
and Conventional Banking in Pakistan
P R E S E N T E D B Y: R A H O L R A I
(09-2613)

2. Introduction
 The basic purpose of the study is to make comparative analysis of Islamic banking and
conventional banking in Pakistan.
 In any society banking sector (conventional or Islamic) plays a central role in the
development of economic of country.
 I am doing this research on many factors such as current position of banking sector, in
term of assets, equities, investments, financing, deposits profitability etc. my
researches based on Pakistan environment.

3.  In this study I had used the data of almost six year from 2007 to 2012. I took data from
annual report Of banks, reviews and the news bulletin of state bank of Pakistan.
 In Pakistan there is only five full fledged banks and 12 Islamic windows currently
working .
 I had selected the conventional banks, who have Islamic window for my research.

4. Problem Statement:
 In this research I want to investigate and want to examined the growth of pure Islamic
banking stream, Islamic windows and the selected conventional banks in term of
assets , deposits, advances/financing, investments , returns on assets and equity.
 This study evaluates, that what are the factors which affects and supports the growth
of Islamic and conventional banking in Pakistan, which may help customers to take
decision for their deposit, selling, purchasing of services and products within Islamic
banks.

5. Research Questions
 Which one of the banking streams is comparatively more profitable and more liquid?
 Which one of the banking stream has comparatively more growing?
 How are Islamic banking window performing with regard to their conventional
counterparts.
 Which one of the banking stream has comparatively more investments and more
financing?

6. Research Objective
 The main objective of this research is to investigate and conduct a comparative
analysis of both Islamic and conventional banking.
 In this study I am discussing growth in term of returns and probability and comparison
between the assets, investments/advances of both banks
Primary objective:
 This investigation is to understand the state of affairs in the banking sector, How is the
Islamic banking sectors performing vis-à-vis the conventional banking in Pakistan.
 A major gap in literature has been the focus on Islamic banks only. To the best of my
knowledge there has been no prior study that has examined the Islamic banking
sector as a whole which include the Islamic banking arm of the conventional banks.
Secondary objective
 To make recommendation that will encourage investors and other individuals to make
their future financing/deposits/investments in more secure and productive way in
Pakistan.

7. Research Methodology:
 Quantitative research
 Primarily based on archival data
 Data collected from annual accounts of Islamic banking and conventional banks and
also from annual reports of stat bank of Pakistan.
Data collection
 Data collected from annual accounts of Islamic banking and conventional banks and
also from annual reports of stat bank of Pakistan.
Secondary data techniques:
 Few more Data sources I used to find out more about the data and about banking
sector of Pakistan theoretical information for expels books published journals and
articles the internet as revealed in the literature review.

8.  Target population:
 The banking sector, more specifically the Islamic banks, the conventional banks and
their Islamic banking arms which includes dedicated Islamic banking branches and
Islamic window operations.
 Research design
 The research design for my study is based on archival data. I took all the data from
annual accounts of financial institutions and banks includes (5 fully fledged Islamic
banks and 12 conventional banks along with Islamic windows) for 2007 to 2012, which
is 6year data I also take data from state bank of Pakistan’s annual repots.

9. Practical Application:
 This research will help in creating public awareness to get into the knowledge of
positive and negative aspects of banking, growth rate, performance .

10. CONCEPTUAL FRAMEWORK
Deposits
Growth of Islamic
banking in Pakistan
RELIGIOUS
PERSPECTIVE
Investment
Financing/advances
Profitability and
Liquidity
Assets
Growth of Islamic
banking in Pakistan

11. Variables:
As know that it is archival based research, so in this research I examined so
many deferent variables
Dependent variables
Growth rate and Performance
Independent variables
Assets
Financing/investments/deposits/liabilities
Increasing and decreasing market share
Return of equity and return of assets

12. Hypothesis
 H1: The growth of Islamic banking is positively and gradually eroding the
market share conventional banking .
 H2: The environment of banking sector in Pakistan became competitive, which
has negatively impacted the conventional banks. The implication being Islamic
banking provide an alternative avenue these institutions

13. Individual Islamic Banking Share from Total Islamic Assets
YEAR
2012
2011
2010
2009
2008
2007
Bank Islami
12.3%
14.0%
13.2%
13.5%
9.8%
9.5%
Burj Bank
8.0%
6.6%
5.2%
5.1%
4.9%
4.5%
Meezan
Bank
53.4%
47.6%
45.3%
48.8%
44.0%
44.0%
Dubai
Islamic
12.4%
11.4%
11.7%
13.9%
16.5%
14.0%
Al- Baraka
Bank
14.0%
17.2%
17.8%
7.8%
8.5%
5.9%
100.0%
100%
100%
100%
100%
100%

14. Individual Islamic Banking Market Share from whole
Banking Sector In Terms Of Assets
year
2012
2011
2010
2009
2008
2007
Bank Islami
0.6%
0.7%
0.6%
0.5%
0.3%
0.3%
Burj Bank
0.4%
0.3%
0.2%
0.2%
0.2%
0.1%
Meezan Bank
2.7%
2.3%
1.9%
1.9%
1.5%
1.2%
Dubai Islamic
0.6%
0.5%
0.5%
0.5%
0.6%
0.4%
Al- Baraka Bank
0.7%
0.8%
0.8%
0.3%
0.3%
0.2%
Total market
share
5.1%
4.8%
4.3%
3.9%
3.3%
2.7%
Percentage
Change
5.88%
10.41%
9.30%
15.38%
18.18

15. RATIOS
Bank
Islami
Burj Bank
Return On Equity
4.3%
1.6%
23.1%
5.1%
-3.0%
Return On Assets
Cash And Cash
Equivalent To Total
Assets
0.4%
0%
1.3%
0.5%
-0.3%
6.9%
7%
8.4%
15.5%
14.6%
Investment To Total
Assets Ratio
38.4%
38%
55.6%
33.6%
38.4%
Advances/Financing To
Total Assets ratio
28.1%
34%
32.3%
41.4%
36.7%
86%
78%
84.0%
83.6%
85.2%
91%
86%
94.0%
89.2%
91.2%
Deposit To Total Assets
Total Liabilities To Total
Assets
Al- Baraka
Meezan Bank Dubai Islamic
Bank

16. Individual Islamic Window Market Share In Terms of Total
Islamic Banking Assets
YEAR
2012
2011
2010
2009
2008
2007
NBP
1.2%
1.4%
1.4%
0.9%
1.1%
0.9%
UBL
4.5%
3.9%
3.2%
3.4%
4.2%
3.9%
ASKARI
5.2%
6.4%
6.9%
10.1%
12.2%
8.6%
BANK ALFLAH
35.8%
39.9%
41.5%
42.3%
46.4%
50.4%
BANK AL HABIB
3.3%
3.6%
4.0%
4.0%
3.1%
4.8%
HABIB BANK
11.2%
6.7%
5.4%
1.6%
2.0%
2.4%
HABIB
METROPOLATIO
N
7.9%
8.0%
10.2%
11.7%
10.0%
12.6%

17. 2012
2011
2010
2009
2008
2007
MCB
4.9%
5.7%
6.0%
7.5%
11.3%
14.2%
SONARI
S.CHARTERE
D
BANK OF
KHYBAR
1.4%
1.3%
1.7%
1.8%
1.6%
2.1%
11.9%
12.3%
9.2%
9.3%
9.3%
0.0%
5.4%
5.4%
6.0%
6.8%
7.4%
9.0%
FAYSAL Bank
7.3%
5.4%
4.5%
0.6%
0.0%
0.0%
100.0%
100.0%
100.0%
100.0%
100%
100%

18. Individual Islamic Window Banking Market Share
from whole Banking Sector In Terms Of Assets
2012
2011
2010
2009
2008
2007
NBP
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
UBL
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
ASKARI
0.2%
0.2%
0.1%
0.2%
0.2%
0.1%
BANK ALFLAH
1.1%
1.1%
0.8%
0.7%
0.7%
0.5%
BANK AL HABIB
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
HABIB BANK
0.3%
0.2%
0.1%
0.0%
0.0%
0.0%
HABIB
METROPOLATION
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
MCB
0.1%
0.1%
0.1%
0.1%
0.2%
0.1%

19. SONARI
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
S.CHARTERED
0.4%
0.3%
0.2%
0.2%
0.1%
0.0%
BANK OF KHYBAR
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
FAYSAL NAMK
Share of Islamic Banking
Arms of Conventional Banks
0.2%
0.1%
0.1%
0.0%
0.0%
0.0%
3.0%
2.6%
2.0%
1.7%
1.4%
0.9%
Percentage Change
13.5%
33.5%
17.5%
9.1%
51.9%
0

20. Ratios
NBP2012
Return On
Equity
Return On
Assets
Cash And Cash
Equivalent To
Total Assets
Investment To
Total Assets
Ratio
Advances/Finan
cing To Total
Assets ratio
Deposit To Total
Assets
Total Liabilities
To Total Assets
UBL
ASKARI
BANK
ALFLAH
34.7%
1.0%
8.6%
21.6%
25%
-2.2%
0.0%
0.5%
1.4%
3%
1%
2.3%
2.17
15.2%
11.0%
19.4%
33%
6%
4.5%
34.3%
59.7%
64.6%
46.9%
16%
66%
69.3%
37.2%
23.1%
19.8%
28.5%
78%
9%
22.5%
41.6%
13.8%
81.6%
86.7%
69%
92%
87.0%
93.8%
96.0%
94.9%
92.5%
87%
96%
92.9%
Bank al
habib
HABIB
BANK
HABIB
METROPOL
ATION
35.2%

21. MCB
SONARI
S.CHARTE
RED
BANK OF
KHYBAR
FAYSAL
BANK
Return On
Equity
3.3%
-3.1%
40.9%
20.6%
16.6%
Return On
Assets
0.3%
-0.3%
3.5%
3.0%
1.0%
Cash And Cash
Equivalent To
Total Assets
4.8%
6.1%
5.5%
9.9%
10.0%
Investment To
Total Assets
Ratio
13.2%
29.0%
24.2%
59.4%
44.2%
Advances/Finan
cing To Total
Assets ratio
69.0%
51.2%
51.8%
19.8%
41.8%
Deposit To Total
Assets
70.2%
85.3%
84.3%
82.1%
86.8%
Total Liabilities
To Total Assets
90.8%
90.8%
91.6%
85.6%
93.6%

22. Overall Market Share Of Both Streams
Year
2012
2011
2010
2009
2008
2007
Share of Islamic banks
in overall banking
industry in term of
assets
5.1%
4.8%
4.3%
3.9%
3.3%
2.7%
Share of Islamic
Banking Arms of
Conventional Banks
3.0%
2.6%
2.0%
1.7%
1.4%
0.9%
Total of Islamic banking
stream share
8.1%
7.4%
6.3%
5.6%
4.7%
3.6%
Market Conventional
Banks with Islamic
Banking Arms
67.7%
64.6%
62.4%
69.1%
67.1%
49.3%
Total assets of the
Banking Industry
10,058,900 8,852,600 7,942,300 6,492,400 5,789,500 5,668,200

23. Distributed Portion within banks
2012
2011
2010
2009
Islamic
0.3%
0.3%
0.2%
0.1%
conventional
99.7%
99.7%
99.8%
99.9%
Islamic
1.5%
1.2%
0.7%
0.6%
0.6%
conventional
Islamic
98.5%
98.8%
99.3%
99.4%
99.4%
4.5%
4.4%
3.4%
4.3%
4.9%
conventional
95.5%
95.6%
96.6%
95.7%
95.1%
Islamic
20.1%
19.9%
15.8%
11.9%
11.0%
conventional
79.9%
80.1%
84.2%
88.1%
89.0%
Islamic
2.2%
2.2%
2.1%
1.7%
1.4%
conventional
97.8%
97.8%
97.9%
98.3%
98.6%
Year
NBP
UBL
ASKARI
BANK
ALFLAH
BANK AL
HABIB
2008

24. Distributed Portion within banks
Year
HABIB BANK
HABIB
METROPOLATION
MCB
SONARI
S.CHARTERED
BANK OF
KHYBAR
FAYSAL Bank
2012
2011
2010
2009
2008
Islamic
conventional
2.1%
98%
1.4%
99%
0.9%
99%
0.2%
100%
0.2%
100%
Islamic
conventional
Islamic
conventional
Islamic
conventional
Islamic
banking
conventional
Islamic
banking
conventional
7.9%
92.1%
1.9%
98.1%
2.7%
97.3%
6.5%
93.5%
2.0%
98.0%
2.3%
97.7%
6.4%
93.6%
1.6%
98.4%
2.5%
97.5%
5.4%
94.6%
1.6%
98.4%
2.1%
97.9%
4.5%
95.5%
2.1%
97.9%
1.6%
98.4%
9.2%
90.8%
8.1%
91.9%
4.5%
95.5%
3.2%
96.8%
2.9%
97.1%
19.8%
80.2%
18.4%
81.6%
18.5%
81.5%
19.2%
80.8%
19.4%
80.6%
Islamic
conventional
7.1%
92.9%
4.3%
95.7%
2.6%
97.4%
0.3%
99.7%

25. Conclusion
 Finally I found that the total market share of Islamic banking stream out of overall
banking sector of Pakistan.
 Which shows that Islamic banking stream of Pakistan is performing well in the market,
although the market share is low but it is gradually increasing with time period.
 In comparison we can see that the market share of Islamic stream is lower than
conventional but at the same time we have to see that the increasing pace of both
than we can observed that Islamic stream is relatively growing more than conventional
banking the Islamic stream is comparatively new than conventional banking.

26. Recommendation
 Based on the analysis I found that some of the conventional banks, who also have
Islamic window and when we make comparisons of the business of both portions , we
found that the Islamic window is doing well compare to conventional operations and
the returns on Islamic windows is also high Wise versa for Islamic windows also.

So In my perceptions some of the banks who performing well in the Islamic window,
than they must have to shift their banking system from conventional to fully fledged
Islamic banking. Same on the other side that the banks, whose windows not
performing well they make close their windows operations.

27. References and bibliography.
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Khan, Hareem Nayyar, and Nadia Asghar. "Customer awareness and adoption of Islamic Banking in Pakistan." (2012).
Awan, A. G. (2009, November). Comparison of Islamic and Conventional Banking in Pakistan. In Proceeding of 2nd
COMSATS International Business Research Conference.
Awan, Abdul Ghafoor. "Comparison of Islamic and Conventional Banking in Pakistan." In Proceeding of 2nd
COMSATS International Business Research Conference. 2009.
Hassan, Ahmad Fahmi Sheikh. AN EMPIRICAL INVESTIGATION INTO THE ROLE, A study published by Humayun.A
Dar and John R. Presley tells that profit loss sharing profit and loss dominates literature on Islamic finance.
A review of conventional and Islamic banking, dr. khawaja amjad saeed. Hailey college of banking and
finance, university of the Punjab, Lahore.
A study published by Humayun.A Dar and John R. Presley tells that profit loss sharing profit and loss dominates literature on
Islamic finance.
A review of conventional and Islamic banking, dr. khawaja amjad saeed. Hailey college of banking and finance, university of the
Punjab, Lahore.
Comparative performance study of conventional ans islamic banking in Pakistan.(muhammad hanif , professor , fast national
university Islamabad).
Erol and el bdour 1989 are considered to be first study of individual consumers attitude toward Islamic banks.
Islamic banking bulletin 2012 , state bank of Pakistan.
Government of Pakistan: “Mudarabah Companies and Mudarabah (Flotation and Control) Ordinance, 1980”.
Ahmad, Ausaf (1995), “The Development and Problems of Islamic Banks”, Jeddah: Islamic Research and Training
Institute, Islamic Development Bank.

28. Thank you