A COMPARATIVE ANALYSIS OF THE FINANCIAL PERFORMANCE OF ISLAMIC AND CONVENTIONAL BANKS IN NIGERIA

Clement Adewole, Precious Ekene Patrick

Abstract


There have been several immense changes aimed at revitalizing and revolutionizing the banking industry. These changes include geographical expansion, government policies, service proliferation, and changes in product offering and so on. Visible among these changes was the introduction of the Islamic type of banking. This type of banking is consistent with the Islamic
financing principles.With the conventional banking system in Nigeria constantly being affected by the financial and economic reforms such as monetary policies and the Islamic banking system serving as a compliment to the conventional banking system, it is presumed that the banking sector will stabilize and grow the economy especially during the period of economic inflation. In view of
the aforementioned the study carried out a comparative analysis of the financial performance of conventional banks and Islamic banks in Nigeria. Secondary data were collected from the annual financial report of 7 banks for 4 years, from a period of 2013 – 2016. The study adopted an exploratory research design and the financial performance variables; Capital Adequacy ratio, Asset Quality Ratio and Liquidity Coverage ratio were tested using the Pearson Correlation coefficient, Normality, Multicollinearity and Heteroscedasticity test. Findings from the research revealed that there is a negative relationship (-.715) between the capital adequacy measures of Islamic and conventional banks with the p-value of 0.285 > 0.05. Furthermore, the asset quality measures of conventional banks are 62 times higher than that of Islamic bank. While, the liquidity coverage measures of conventional bank are 10 higher than Islamic banks when proportionately applied. This signifies that Islamic banks are haunted by the chronic problem of excess liquidity, since they carry surplus cash and other assets in comparison to conventional banks. Based on the findings the study recommended that the institutional and operational challenges facing the
Islamic banking system in Nigeria should be addressed to enable the deficit spending unit in need of funds to easily access funds from the highly liquid Islamic banks.


Keywords


Comparative Analysis, Financial Performance, Islamic Bank, Conventional Bank

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International Journal of Management Science Research ISSN ISSN 2536 – 605X(Print)

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