Abstract
The prime objective of the paper is to measure and compare the financial soundness of Conventional as well as Islamic commercial banks in Bangladesh using the Bank-o-meter model. The Bank-o-meter model is the model that helps to find the solvency scores of the banks to avoid insolvency issues and it is used to measure the financial position of banks. This model was developed by International Monetary Fund (IMF). The study found that all the conventional, as well as Islamic banks, are super sound but Islamic banks are financially less sound compared to their conventional counterparts. The study also suggests that the management of Islamic banks should give extra emphasis on maintaining sound management and ensuring adequate liquidity.
Highlights
Today’s business institutions are excessively dependent on banks for funds to sustain and grow
The findings prove to be in line with the benefits of conventional banking in view of profits and liquidity, while Islamic banking is dominant in credit risk management and maintenance of liquidity
Comparison between conventional and Islamic banks according to Bank-o-meter model given bellow: This study developed the following hypothesis Ho: There is no difference in financial soundness between conventional banks and Islamic banks according to Bank o meter model
Summary
Today’s business institutions are excessively dependent on banks for funds to sustain and grow. Safiullah, (2010) from his study of ‘Superiority of Conventional Banks & Isla-mic Banks of Bangladesh: A Comparative Study’ found that the financial soundness of Islamic banks and con-ventional commercial banks in Bangladesh are appreciable in view of their business developments, liquidity and solvency, profitability, commitment to the economy and community, efficiency and productivity. Analysis of internal factor measures the difference between the performance of Islamic as well as conventional banks in view of profitability, liquidity, credit risk, and sovereignty. Different financial ratios were used to determine profit, liquidity, and credit risk; and to test solvency bank-o-meter model is used. Data Analysis An Independent Sample t-test is used to determine whether there are any significant differences in the financial soundness of conventional and Islamic commercial banks. The area between 50 and 70 is defined as gray than 70 are solvent and termed as super sound banks, area because of the susceptibility to error classification. while those having an 'S' value below 50 are not sol-
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