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Determinants of Banks Profitability & Liquidity and the Role of BASEL III in Islamic & Conventional Banking Sector of Pakistan: A Case Study of NBP

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  • Sitara Bibi
  • Fatima Mazhar

Abstract

This study aimed to examine and compare the performance of Islamic and Conventional banking sector of Pakistan in terms of the impact of BASEL III reforms on the profitability and liquidity of Islamic and conventional banks of Pakistan. For this purpose, National bank of Pakistan has been taken as a unit of analysis and eight year’s financial data has been collected from the official website of NBP. BASEL III standard’s ratios including CAR, CER and LCR have been used as an independent variable while the bank’s profitability and liquidity have been taken as a dependent variable. Descriptive statistics have been performed first to examine and compare the performance of both Islamic and conventional banking sector before and after the induction of BASEL III. After that T-Test has been performed to investigate the differences between the impact of BASEL III on the profitability and liquidity of Islamic and conventional banking sector. The regression analysis has been performed to examine whether BASEL III has a strong relationship with Islamic or conventional banking sector. The results found that BASEL III has a significant positive relationship with the profitability and liquidity of the Islamic sector. Islamic banks are higher in terms of the impact of BASEL III on profitability and liquidity. They are more profitable, more liquid and highly capitalized with BASEL III standards. While Conventional banking sector needs to redesign their policies and make them more compliant with BASEL III to generate more profit and be more liquid as Islamic banks are.

Suggested Citation

  • Sitara Bibi & Fatima Mazhar, 2019. "Determinants of Banks Profitability & Liquidity and the Role of BASEL III in Islamic & Conventional Banking Sector of Pakistan: A Case Study of NBP," The Economics and Finance Letters, Conscientia Beam, vol. 6(1), pages 40-56.
    • Handle: RePEc:pkp:teafle:v:6:y:2019:i:1:p:40-56:id:1618
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    References listed on IDEAS

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    1. Muhammad Sajjad Hussain & Dr. Muhammad Ramzan & Muhammad Shahid Khan Ghauri & Waqas Akhtar & Waqar Naeem & Khalil Ahmad, 2012. "Challenges and failure of Implementation of Basel Accord II and reasons to adopt Basel III both in Islamic and Conventional Banks," International Journal of Business and Social Research, LAR Center Press, vol. 2(4), pages 149-174, August.
    2. Mohamed Ali Trabelsi & Naama Trad, 2017. "Profitability and risk in interest-free banking industries: a dynamic panel data analysis," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 10(4), pages 454-469, October.
    3. Muhammad Sajjad Hussain & Dr. Muhammad Ramzan & Muhammad Shahid Khan Ghauri & Waqas Akhtar & Waqar Naeem & Khalil Ahmad, 2012. "Challenges and failure of Implementation of Basel Accord II and reasons to adopt Basel III both in Islamic and Conventional Banks," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 2(4), pages 149-174, August.
    4. Muhammad Mehtab Azeem & Akin Marsap & Cigdem Ozari, 2015. "Impact of Basel Accord on Banking System(Evidence from Islamic Banks of Pakistan)," Applied Finance and Accounting, Redfame publishing, vol. 1(2), pages 1-9, August.
    5. Osama M. Al-Hares (Correspondnce author) & Kashif Saleem, 2017. "Islamic Banks Financial Performance and Implications of Basel III Standards in the GCC: An Empirical Analysis," Review of Economics & Finance, Better Advances Press, Canada, vol. 7, pages 80-97, February.
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    1. Ebrahim Mohammed Al‐Matari, 2023. "The determinants of bank profitability of GCC: The role of bank liquidity as moderating variable—Further analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1423-1435, April.

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