Financial Performance Of Selected Conventional And Islamic Banks In Kingdom Of Bahrain – A CAMEL Ranking Based Approach

Abstract

This paper evaluates and compares the performance of Retail conventional and Islamic banks in kingdom of Bahrain using CAMEL ranking approach for the period 2007-14. Empirical studies show that Islamic banks are less profitable and efficient compared to retail conventional banks due to their inherent institutional factors. Current study has tested this postulate by analyzing the performance of retail conventional and Islamic banks in Bahrain under the CAMEL ranking framework. Bahrain has been chosen as the focal point of study as both Islamic and conventional banks play a significant role in Bahrain. Apart from that the extant literature review conducted by authors identified a dearth of similar studies in Bahrain. Islamic banks have demonstrated a superior performance compared to conventional banks under all CAMEL sub-parameters. Among other findings, the empirical results show not only a better performance by Islamic banks in the inter-performance analysis; it has also identified huge variations in the performance of the banks within the sub-parameters under study. The statistical analysis conducted by the authors affirmed that there are significant differences in the intra as well as inter performance of the conventional and Islamic banks under study. Thus contrary to the conclusions drawn by other notable studies, in this research, the Islamic banks secured top positions compared to conventional banks despite their business being constrained by the sharia rules which prohibits them to undertake all profit making activities.