Banking System In Pakistan Research Articles

Determinants of Bank’s Financial Stability in Pakistan

The purpose of this study is to investigate the role of both internal and external factors in achieving better stability in context of Pakistani banking industry. The internal determinants that this research study have used are bank size, funding risk, liquidity risk, credit risk and return on assets while external variables utilized includes money supply and unemployment rate. The study contains 10 years secondary data over the period 2013-2022 of 24 commercial banks of Pakistan. This study conducted correlation analysis and GMM model estimation for analysis. The findings show that liquidity risk, bank profitability, funding risk and bank size have positive and significant impact on bank stability. On the other hand, credit risk effects negatively bank stability. The result showed that money supply positively affects the stability of banks in Pakistan. On the contrary, unemployment is negatively affecting banks stability. The findings of this study have important implications for policymakers, regulators, banks, investors, and other stakeholders in the Pakistani banking sector. By enhancing the understanding of the factors influencing bank stability, the research contributes to identifying the importance of development of evidence-based policies, risk management strategies, and regulatory reforms aimed at development of a stable and resilient banking system in Pakistan.

Appraisal of the Constraint of Adoption for E-Banking System in Pakistan

Based on the notion of e-Readiness, this research aims to provide a detailed and original explanation of the factors that may affect the adoption of E-Banking, which is the relatively latest variant of conventional banking in Pakistan. This research is designed to evaluate the opportunities and constraints of the E-Banking system and to find the socio-economic determinant of adoption to propose the policy implications to increase the efficiency of the online banking system in Pakistan. The primary data were collected with the help of a well-structured questionnaire and a well-designed survey. A sample of 600 respondents was selected by stratified simple random sampling technique. Collected data was organized and analyzed. The results indicated that family sizes, age of the respondent, education of the respondent, and income of the households were observed as the important socio-economic characteristics of e-banking adoption. The constraints relating to socio-economic, financial, demographic, and technological factors are highly ranked by respondents. Variables related to financial and institutional factors are ranked low as banking is an efficient sector in Pakistan, and a competitive environment ensures the efficacy of the banking system. Results of the probit model showed that Age of Customer education, personal income, working hours, gender, remittances, credit card user, and distance from bank branch.

The Determinants of Growth In Banking Sector: Time Series Analysis of Conventional And Islamic Banking In Pakistan

A well-developed financial and banking system efficiently transformssavings into investments. The banking system of Pakistan is based on a dual structure of conventional and Islamic banking. The current study aims to identify the factors that determine growth in the banking industry of Pakistan, keeping in view both conventional and Islamic banking. For this purpose, the ARDL model was applied on the time series data of Pakistanfor the period 2007-2022. The data was taken from the State Bank of Pakistan (SBP). The variable ‘investment’ was used as a proxy to measure growth in the banking sector, comprising both conventional and Islamic banking sectors. The results of the empirical analysis indicated that growth in deposit, growth in GDP, and population growth are the main determinants of growth in the banking sector of Pakistan. Based on the findings of the study it is suggested that measures must be taken to increase deposits in both systems of banking by giving various incentives to households.

Strategic Directions for Developing an Islamic Banking System

Islamic banking generally referred to as interest free banking has been gaining popularity in the recent past. The main pillar of Islamic finance is prohibition of interest. Unlike conventional banking where interest is an integral part of the banking system, Islamic banking avoids interest in all bank transactions [Samad and Hassan (1999)]. The banking system in Pakistan is undergoing a transition from conventional model of banking to the new concept of Islamic banking, based on principles of Islamic economics. The new system should not only eliminate interestbased transactions but also introduce the concept of “Zakah” a contribution to the poor [Molla, et al. (1988)]. The prohibition of Riba is based on the arguments of social justice and equality.

The Transmission Mechanism of Monetary Policy via Bank’ Balance Sheet: An Empirical Study of Dual Banking System in Pakistan

The Transmission Mechanism of Monetary Policy via Bank’ Balance Sheet: An Empirical Study of Dual Banking System in Pakistan

Customer Satisfaction Standards According to Islamic and Conventional Banking System in Pakistan

This study analyzed consumer loyalty with Islamic banks and ordinary banks in Pakistan. The historical backdrop of regular banks in Pakistan is superior to that of Islamic banks. The improvement of an Islamic financial framework in Pakistan is at an untimely stage. In Pakistan, not many banks offer clean Islamic financial administrations to their clients. This concentrate likewise analyzes consumer loyalty with the administrations of traditional banks as well as Islamic banks. Our objective region is the Pakistani financial area, and the information comes from interviews with five Islamic banks and five ordinary banks in Pakistan. The aftereffect of this exploration showed that the clients of the two banks were from Islamic banks or traditional banks were happy with the offices given by the banks, notwithstanding, the clients of regular banks were happier with Islamic banks. Hypothetically, current investigations supplement the writing on the above viewpoints and connection them to consumer loyalty. Simultaneously, it causes to notice the factors that are fundamental for the advancement of Pakistan's Islamic financial framework. The discoveries likewise give important data and direction to Islamic banks to plan creative item advancement procedures and publicizing approaches to hold existing clients and draw in possible clients. This study extends the extent of the accessible writing on Islamic banking; However, it doesn't address the situation of the ordinary financial area.

Shar¯ı‘ah Governance Framework and Perception of Islamic Banking in Pakistan

Purpose: Globally commercialized Islamic Banks were launched in 1970s at Middle East, Africa while in year 2002 at Pakistan. As of 2019, there were 5 full-fledge Islamic Banks operating in Pakistan and nearly all conventional banks have Islamic windows. Islamic Banks captured more than 15.5% share of the total Pakistan’s banking market and have far greater potential and capacity to take major share in the market. Methodology: Researchers have examined State Bank of Pakistan’s Shar¯ı‘ah Governance Framework and compared it with the Shar¯ı‘ah governance framework of Malaysia, in light of IFSB guidelines. Based on key findings, focused group interviews of Shar¯ı‘ah scholars were carried out to get their perception about the Shar¯ı‘ah compliance and effectiveness of Shar¯ı‘ah Governance Framework in Pakistan. Findings: The study focused on 5 key components of a good governance system, independence of Shar¯ı‘ah board, competence, confidentiality, consistency and disclosure requirement. The study revealed that Pakistan’s Shar¯ı‘ah governance system is compliant with IFSB guidelines and comparable with Malaysian model. Significance: This study is a unique study in the context of Pakistan. The finding of this research study will provide a comprehensive over view of the Shar¯ı‘ah Governance Framework (SGF) and perception of the Shar¯ı‘ah Scholars on SGF. The study findings may be useful for Islamic banks and other institutions using Islamic mode of financing. Limitations: The study was conducted on a limited sample size mainly from Karachi however the study may be replicated on a bigger sample size and including other cities while the number of conducted interviews can be increased if we go for pan Pakistan as they were only 15 dues to limitation of city as Karachi. Practical Implication: The Shar¯ı‘ah scholars have positive opinion and shown satisfaction on Shar¯ı‘ah governance system and effectiveness of Shar¯ı‘ah controls.The study results can be used to improve public perception about Shar¯ı‘ah compliance of Islamic banking system in Pakistan.

A Piece of Education on Comparative Performance Study of Islamic Banking system and Commercial Banking system in Pakistan

Purpose of the study: Islamic banking has been explained in numeral ways. This study is shown to find out the difference among the two parts of banking, the first one is Islamic banking and the second one is conventional banking system of Pakistan with respect to liquidity, efficiency, and profitability. The secondary data from banks of each banking subdivision is taken for valuation. Proportion analysis is used to define the characteristics of study respondents and regression analysis is used to study the difference in term of significant factors that affect client trust of Islamic banks and commercial banks.
 Methodology: The secondary data from banks of each banking area is taken for calculation. Ratio analysis is used to conclude the characteristics of study respondents and regression analysis is applied to examine the difference in term of significant factors that influence customer trust of Islamic banks and commercial banks. Five Islamic banks and five commercial banks has been taken as sample under population of all the banks
 Main Findings: The results of the study show that there is important difference among the both kinds of banking for the variables under study. Furthermore, influence of return on asset is more on client trust for the study period (2015– 2019) for the Islamic bank as compared to the conventional banking. The study also inspects the important factors that are significant for development of Islamic banking.
 Application of this study: This study contributes toward the financial area for policymakers in order to build the best policies of the banking system. New banks can get advantage form this study in order to achieve their goals this thing will ultimately lead toward the success.

Corporate Governance, Risk-taking and Efficiency of Islamic Banks: Comparative Study Between Pakistan and Malaysia

Purpose: This study aims to compare the governance, risk-taking, and efficiency of pure Islamic Banks between Pakistan and Malaysia. Design: Total 9 years of data from 2009 to 2017 used for analysis. Data Envelopment Analysis (DEA) has been used for the measurement of Islamic bank's efficiency. Efficiency has been measured by (Technical Efficiency, Pure Technical Efficiency, and Scale Efficiency). Z-score has been used to measure risk-taking. Results: This comparative study shows that Shariah Supervisory Board has a significant impact only on Malaysian Islamic Banks with technical, pure technical, and scale efficiency. At the same time, board independence has a meaningful relationship with the efficiency of IBs of both countries. Board meetings significantly impact Pakistani Banks' pure technical efficiency while it substantially affects Malaysian banks' technical efficiency. Results also show that risk-taking has a significant negative impact on the efficiency of both countries. Implications: Pakistani Islamic banks should focus more on Shariah Supervisory Boards to develop the Islamic Banking system in Pakistan because it significantly impacts the Efficiency of Malaysian IBs.

Awareness, Understanding, and Usage of Islamic Banking Products and Services: A Case of Customers' Satisfaction Towards Islamic Banking in Pakistan

The Islamic banking sectors in Pakistan are experiencing a challenging phase of progress due to intense competition with conventional banks. The primary purpose of this study is to articulate the literature of Islamic banking in Pakistan by investigating the influence of the level of awareness, understanding and usage of Islamic banking products and services on the satisfaction level of its account holders. For achieving this objective, a sample of 400 respondents is chosen through purposive sampling technique from the target population from Islamic banks in Pakistan. The calculated results of PLS-SEM Bootstrapping and SPSS revealed a significant and positive influence of the awareness and understanding level of account holders of Islamic banks on their satisfaction levels. However, the Islamic bank usage by account holders has no impact on their satisfaction level due to the provision of less innovative products and services as compared to conventional banks. This study thus enhances the literature regarding the aforementioned aspects of customer satisfaction. It simultaneously draws an attention to the area that is suitable for the prosperity and progress of the Islamic banking system of Pakistan. The results of this study also give valuable information and helpful guidelines for Islamic banks to formulate innovative strategies of products and promotional policies to retain and attract potential customers. Though this study is broadening the scope of Islamic banking literature, it is not considering the scenario of conventional banks. Islamic banks can manage and enjoy the competitive edge if similar information about conventional banking is available for comparison purposes, which provides the scope of study in future research.

Is Micro Financing Creating Social Value: The Effect of Impact Investment of Microfinance Banks on Borrowing Firms’ Financial and Social Performance and with the Mediatory Role of Principal-Agent Relationship

Impact investment has emerged as an idea for sustainable development and aims at creating positive change towards the environment and society besides increasing returns. There have been many debates regarding its functionality and viability and argue that is made in favor of “financial returns” and “social returns” by various practitioners. The microfinance banking system in Pakistan is still in the infancy phase concerning impact investment. This study explored the relationship between impact investment and how various dimensions of impact assessment influence financial performance and social performance and how it will in turn affect the social value creation. For this we developed a theoretical framework, modifying financial intermediary social value equation model developed by that conceptualized the mediatory role of principal-agent relationship in impact investment and performance nexus. Impact of investment. To measure impact investing, we used a 3 tier Business Performance measurement matrix conceptualized by Rowe-Haynes, M. D. (2017). These included Job, Business Survival, Ethnicity and minority, Business, and Bank Impact. We hypothesized that these impact investing dimensions affect both financial performances as well as social performance through strengthening Principal-Agent Relationship. Higher financial and social performance would in turn lead to social value creation in the society. Empirical validity was established by conducting a survey using a close-ended questionnaire. Data were collected from 100 small/ medium scale businesses using confirmatory factor analysis and structured equation modeling. The survey of each business included its owner who got loans as well as conducting another round of survey with the bank managers who sanctioned those loans. The results suggested that ethic and minority impact positively and significantly influence the financial performance along with the principal-agent relationship. Also, the social performance of organizations seems to be a key contributor to social value creation. This implies that social inclusion in society to integrate all segments along with a focus on the management of principal-agency problems is imperative for financial performance. Hence, the findings imply that impact investment is not increasing financial value as much as it addresses social performance indicators. This social performance leads to social value creation in the society hence impact investment creates social value.

Contemporary And Lawful Basics Of Islamic Banking In The Light Of Teaching Of Prohet (SAW)- An Analytical Study

Islam is a universal religion and relevant for all ages. Islam has its own social, political and economic principles based on the Qur’an and Sunnah; which are designed for the betterment of mankind. This paper is related to the basic concepts of Islamic Banking with a focus on the Practical issues of Interest (Riba). In Islam, Interest is strictly prohibited contrary to western ways of banking. Hence, since the last couple of years as banking has gained popularity in Pakistan, many people have raised questions on whether the banking system in Pakistan is interest free or not. This is one of the issues addressed in the paper. Moreover, many western and eastern economists have debated that banking cannot be done without interest. Islam on the contrary proves that interest free banking can be established and also devises a definite method to do so. Shedding light on this issue, this research article also keenly discusses Islamic Banking and its roots according to Sharia and also evaluates the Revolution, significance, Criticism, and Objectives of Islamic Banking.

A Comparative Analysis of the Performance of Islamic and Conventional Banks: Does Corporate Governance Matter

The purpose of this study is to investigate the impact of corporate governance (CG) internal structure on the performance of Islamic and conventional banking system in Pakistan. To account for the problem of heteroscedasticity, this study used GLS estimation technique by using a sample of five fully fledged Islamic and 15 conventional banks for the period from 2006 to 2015. The study finds that board size and its composition largely contribute to the Islamic and conventional banking performance. However, board committees have an insignificant relationship with the performance of conventional and Islamic banks that demands further investigation into the structure and powers of the board committees. In short, this study provides evidence that corporate governance does matter for the performance of Islamic and conventional banking. The current findings are useful for the policymakers and regulators to improve the existing governance structure for achieving better performance in the financial sector.

Nexus between customer preference and operation of conventional banks Islamic windows in Pakistan

Purpose The purpose of this study is to investigate the nexus between preferences of customers toward operations of Islamic windows from conventional banks. However, financial institution system of any country has a dominant importance for its growth level. This study makes a comparative analysis and nexus among Islamic windows of conventional banks, Islamic and conventional banks. Design/methodology/approach A well-designed questionnaire has been made and distributed among three types of bank customers to get their perception and preference regarding services qualities and operations from all three types of financial institutions. This study used statistical package of social sciences software for data analysis. Findings The results revealed that customers from Islamic windows have serious dispute on its Shariah-compliant regulation and fifty one per cent (51 per cent) of customer did not trust on the member of Shariah board. The mid age of customers preferred the services of Islamic windows, as it has multi-dimensional options for customers. Finally, customers from almost all three types prestigious that technology has found a significant impact for better service qualities and found a positive change in customer behavior. Originality/value This study is a first ever attempt in its nature to investigate that the customer’s preferences and different operations exist in three types of banking system in Pakistan. This study also helps to policymakers regarding customer needs and wants to provide better services.

Disintermediation of banks in a developing economy

Purpose The purpose of this paper is to investigate how Pakistani banks manage their portfolios (lending vs investment) when the economic indicators are not supportive. This study investigates three aspects of the banking system in Pakistan – prevalence of disintermediation, post-crisis profitability orientation and depositor protection by financial system in unfavorable conditions. Design/methodology/approach This study is limited to identifying the key economic and financial drivers behind disintermediation and its subsequent impact on banks’ profitability and depositors’ protection. GLS panel regressions and Engle–Granger causality test as specified by the error correction model have been used to test the major hypothesis of this study. Findings This study shows that small banks have been shifting major part of their portfolios toward risk-free investments to be able to maintain their profitability more efficiently and effectively, like large banks. The study also observes that significant pairing causality exists between gross credit loans and investments confirming disintermediation hypothesis for all types of banks except Islamic or Sharia compliant banks, whereas for significant pairing causality, the results are mixed for remaining variables among gross credit loans as a proportion of assets and economic variables that include GDP growth, unemployment, KSE-100 and SBP policy rate. It is also confirmed by the results that disintermediation improves banks profitability and depositor protection, thus providing a good rationale and justification to banks for opting it. Originality/value The study focuses on the impact of structural changes in portfolios only of commercial banks’ revenue-generating assets not including other financial institutions as a part of banking system. Furthermore, data are extracted from balance sheets and is the sole property of corresponding author.

How Shariah Compliance and Traditional Banks Are Performing? A Case of Pakistan

The study is conducted with the objective of comparing shariah compliance and traditional banks of Pakistan from performance perspective. The relative investigations are conducted by means of t-test, for the period 2010-2017. Ratios based on CAMEL approach are applied to identify the managerial and financial performance of shariah compliance and traditional banks of Pakistan. It is observed that Shariah compliance banks are significantly better in managing capital appropriacy, managerial competency, earning quality and liquidity as compared to their traditional counterparts. The findings reveal significant implications for policy makers in assessing the capabilities of Shariah compliance and traditional banks in Pakistan, and for ascertaining the direction of future banking system in Pakistan. Findings of the study also underpin awareness and trust in Shariah compliance banks of Pakistan. Furthermore, according to authors information, there is no comprehensive research in Pakistan that differentiate the performance of Shariah compliance and traditional banks by applying CAMEL approach on variables under study as well as on current data set.

Islamic Banking Financing Effect on Growth

The study is an attempt to explore the transmission channel through which development in Islamic banking could lead to economic growth. In order to determinethis transmission mechanism, the estimation based Vector Error Correction model (VECM) is used. This study has tested Murabaha, Ijarah and Diminishing Musharaka as proposed Islamic financial products because of their majority share in Islamic financing. This study has tested two co-integrated systems in the VECM model. The first system tests the effect of an increase in financing in Islamic banking products on the net financing of Islamic banks and the second system tests the effect of net financing of Islamic banks on economic growth. The results indicate that the financing done by Islamic banking products positively affects economic growth in Pakistan. Also, the net financing of Islamic banks is significantly based on financing in Ijarah and Murabaha. Hence, this study highlights the growth potential of Islamic banking which is gaining shares in the overall banking system of Pakistan.

Customer Satisfaction Level in Islamic Banking and conventional Banking (A Case of Pakistan)

The main purpose of this research study was to identify the level of customer’s satisfaction by using the products and services of both Islamic and conventional banks in Pakistan. Furthermore, this research study determined the customer’s satisfaction level in banking in terms of; internet banking, management interaction and the banking environment, service quality in term of SERVQUAL model, ATM facilities, privacy and security The main objective of the study was to investigate the following main points.(1) Customer`s satisfaction level in Islamic and conventional banks. (2) Why customers prefer to choose Islamic banking system in Pakistan? (3) Why customers prefer to choose conventional banking system in Pakistan? It is therefore, a critical literature has been carried out which investigated the real factors through which customer satisfaction take place in banking sector. The closed ended questionnaire has been used in this research study in order to collect research data. To analyze the collected data, cross tabulations and charts have also been used which showed the satisfaction level of the customers of Islamic and conventional banks and also to differentiate between the participant`s responses of Islamic and conventional banks. A large number of factors have been observed from the research study analysis which illustrated that, in Pakistan, customers are more satisfied from the products and services of conventional banks rather than that of Islamic banks. However, in Pakistan, the customer satisfaction in all financial institutions is not as good as according to the standard. In addition, the banking sector is trying to improve all of their products and services and want to make them according to the international standard. But due to various factors such as; the political instability and religious norms, the banking sector is still far behind.

Comparative Analysis of Regulatory and Supervisory System of Islamic Banks: Evidence from Pakistan, Malaysia, Bahrain and United Kingdom

This study has critically analysed the regulatory and supervisory framework of Islamic banks in dual banking system of Pakistan, Malaysia, Bahrain and United Kingdom. The core regulatory functions and issues are taken under discussion and results revealed that conflicting views of Islamic jurist and policy makers have further aggravated the Shariah problems. Over the years the regulatory framework in each country moulded in a peculiar way, where Malaysia and Bahrain have developed their indigenous governance systems while in United Kingdom Islamic banks are still under conventional setup. In Pakistan, Islamic banks are under the governance of orthodox regulatory framework, combined with developing Islamic banking regulatory systems. Further, the effectiveness of existing regulatory framework has never been fully challanged by extremely conservative and embryonic Islamic banking industry. DOI: 10.5901/mjss.2015.v6n6s2p629

English

  Financial institutes are considered to be one of the important role playing sectors in the financial establishment and economic growth of any country. Banks are part of this sector. In country like Pakistan, we have two types of banking system: one is conventional banking system and the other is Islamic banking system. This study concentrates on the Islamic banking system. Risk is one of the important factors for the success of any institute. This study focuses on risk management practices (RMP) of Islamic banking system in Pakistan. Data population of the study is Islamic banking system of Pakistan. For the data collection we used questionnaires. For this study there are five independent variables: understanding risk and risk management (URM), risk assessment and analysis (RAA), risk identification (RI), risk monitoring (RM), credit risk analysis (CRA) and one dependent variable, RMP. Initially, data reliability was found by applying Cronbach’s alpha, after that we adopted Pearson’s correlation test to detect the multi co linearity problem. No such potential problem was detected; so we applied regression model to analysis the impact of independent variables on dependent variables. From the analysis we concluded that there were four variables which have positive significance impact on the dependent variable RMP.   Key words: Risk management practices, Islamic banking, risk monitoring.