Comparative Analysis of Financial Performance of Islamic vs. Conventional Banks Using CAMEL Model: Evidence from Palestine

Abstract

Evaluating the performance efficiency of banks and monitoring their activity is essential to their survival in light of the rapid growth of risks facing them, since many financial crises were caused by them. Therefore, measuring banks performance by knowing their strengths and weaknesses enable regulators and managements to correct deviations before it is too late. The positive role played by the Islamic banking system cannot be ignored for financing and investment services in various financial, economic and social activities. In recent years Islamic banks were able to impose themselves to become a difficult number in the composition of the financial cycle and economic growth in the world, as evidenced by the rapid growth of these banks in all countries, Muslim and non-Muslim. This transformation is recognition of the success of the Islamic experience. This study aimed to evaluate the financial performance of Islamic and conventional banks in Palestine over the period 2017–2018 prior to the corona virus crisis using CAMEL model. The results show that there are no clear significant differences in performance between Islamic and conventional banks in Palestine during study period. Both conventional and Islamic banks have powerful and satisfactory capital levels comparative to the firm's risk profile and consistent with Palestinian Monetary Authority (PMA) regulations. In terms of asset quality, Islamic banks kind of are better in managing their asset portfolio than conventional banks which considered less risky. However, there were no significant differences in profitability ratios, liquidity ratios and efficiency ratios.