Financial performance comparison of Islamic and traditional banks in emerging markets

Abstract EN

Purpose – This study aims to investigate the performance differences of Islamic and traditional banks in Egypt by using financial ratios.

Design/methodology/approach – This study analyzed 2 Islamic and 9 traditional banks for the periods of 2002-2010.

Descriptive statistics and paired sample T-test were performed.

Secondary data was obtained from the annual financial reports of the banks for the period under the study.

Findings – The performance of the Egyptian traditional banks shows su-premacy and dominance over the performance of the Egyptian Interest free banks.

The capital adequacy ratios, profitability level, quality of management, and liquidity proved to be significantly better for traditional banks.

While the results of the study concerning the quality of assets showed no significant dif-ference between Islamic and traditional banks.

Research limitations/implications – The major limitation of this paper is the sample size that may be judged to be small and this is due to the fact that this study is based on assessing the performance of the only two fully fledged Interest free banks operating in Egypt during the period of study.

Moreover, Egypt is a distinctive case compared with other Muslim countries when it comes to Islamic banking and finance due to the fact that Egypt is one of the few Muslim countries where the top religious establishment has approved and supported the interest-based banking system.

Finally, the study totally de-pended on the financial measures to evaluate the performance of Islamic and traditional banks.

Many other non-financial measures could be incorporated to assess the performance of banks other than the financial measures.

Originality/value – This is an original research that compares perfor-mance differences across Islamic and traditional banks by using financial ratios.