BookReview:TheMillionaireNextDoor

Original Research : Conventional Banking and Islamic Banking Islamic Banking, Conventional Bank, Financial Outcomes

Islamic Banking (IB) is a contemporary segment of banking and finance that has become increasingly significant in many Muslim countries. Malaysia is one of the countries that has adopted a dual banking system. Conventional Banks (CBs) borrow money from depositors at a low interest rate and lend them to borrowers at a high interest rate. In contrast, interest is forbidden in Islam and therefore Islamic banks enter into profit-sharing arrangements with both depositors and borrowers. This study seeks to determine whether differing banking arrangements based on different philosophies lead to different outcomes. Several previous studies have compared the profitability,liquidity and risk performance of the two banking systems, but few studies have focused on revenue distribution between the two types of banking systems. Secondary data from the annual reports of 10 banks with both conventional and Islamic banking windows for five years was used. We used financial ratios to process the data, such as profit return to depositors’ ratio, net profit ratio, risk ratio and so on. The independent sample test was used to analyse these ratios. Our findings indicate that depositors get higher returns from Islamic banking than from
conventional banking. In contrast, conventional banks appear to have a higher taxation cost, operating cost and net profit margin. In the area of profitability and risk performance, conventional banks perform better, while Islamic banks are more liquid.

http://mfpc.org.my/wp-content/uploads/2017/05/3-14_Original-Research_Paper-1_Conventional-Banking-Islamic-Banking.pdf