Financial Performance of Islamic Banks vs. Conventional Banks:The Case of Malaysia

ABSTRACT: There is no doubt that banks play a vital role in the economy of all countiries. Stability of economy dependends basically on banks’ well-performance within a country. This study is intended to examine financial performance of two deifferent banking systems in Malaysia: Islamic versus Conventional. Main aim of this study is to compare banks’ profitability ratio including Return on Assets (ROA) and Return on Equity (ROE), and also find out their behaviour in the world 2008 financial crisis . In order to investigate and compare these two banking systems, 7 Islamic and 7 Conventional banks were selected among malaysian banking sector. Data was extracted from annual financial reports of banks for the period of 2005-2011. Applying E-views software some correlation and regression analysis were carried out on data and tried to find out the impact of some independent variables (bank spesific factors) including capital adequacy (CAR), liquidity (LQR), asset quality (ASQ), management efficiency (EFF), and Dummy on ROA and ROE of banks.Regarding our impirical analysis conventional banks performed better than itsIslamiccounterparts in terms of profitabilty. However, Islamic banks’ performance during 2008 financial crisis was better as compared to conventional banks. Keywords: Islamic Banking, Conventional Banking, Profitability. ……………………………………………………………………………………………………………………………………………………………………………………………………………………