CAMELS Based Rating: Comparative Analysis of Conventional Banks (CBs) and Islamic Banks (IBs) in Pakistan

Abstract

This study investigated the performance differences between IBs and CBs in Pakistan using the CAMELS rating framework. The study analyzed three IBs and same number of three CBs for the period of 2011-2023. The research employed both independent sample t-tests and logistic regression analysis. The results show that IBs excel in AQ and sensitivity to market risk, reflecting their strengths in maintaining low levels of non-performing assets and effective risk management practices. On the other hand, CBs perform better in earnings and liquidity, indicating more efficient profit generation and liquidity management. However, both types of banks need to improve in Management Quality, highlighting the importance of enhancing operational efficiency and governance. The study suggests that IBs should focus on increasing profitability and improving liquidity management while adhering to Shariah principles. CBs should adopt risk-sharing mechanisms and ethical practices to enhance stakeholder confidence and ensure long-term sustainability.