Financial Performance Comparison of Islamic and conventional banks in the United Arab Emirates (UAE)

  • Mosab I Tabash Al Ain University of Science and Technology - College of Business
  • Ali T Yahya Aligarh Muslim University, Aligarh - Department of Business Administration
  • Asif Akhtar Aligarh Muslim University, Aligarh - Department of Business Administration
Keywords: Financial performance, Islamic banks, Conventional banks, ROA, UAE


This paper examines the financial performance of Islamic and commercial banks in the United Arab Emirates (UAE). The paper gives an empirical insights and comparisons between the performance of Islamic and conventional banking sectors.  The sample of the study consists of 5 fully-fledged Islamic banks and 14 conventional banks working in the UAE under the period 2011-2014. The study uses descriptive analysis, correlation, independent sample t test and multiple regression analysis to assess the performance and to compare between both types of banks. The Return on Assets (ROA) is used as proxy for profitability for both types of banks while bank size (log A), liquidity, capital adequacy, financial risk and operating efficiency as proxies for financial performance for both types of banks. The results showed that there is no significant difference between Islamic banks and conventional banks in terms of profitability (ROA) while there is a significant difference between Islamic and conventional banks in terms of liquidity, operation efficiency, capital adequacy, and financial risk. Further, the results indicated that the Islamic banks have higher operating efficiency, bank size and more liquidity than their counterparts of UAE. However, conventional banks are found to have better capital adequacy ratio than Islamic banks. In terms of financial risk, Islamic banks are found to have higher five times than conventional banks which may reflect challenges in the area of risk management in Islamic banks.

Keywords: Financial performance, Islamic banks, Conventional banks, ROA, UAE.

JEL Classification: A10, E60, G21


Download data is not yet available.


Adnan, M., and Ramlan, H., (2015), The Profitability of Islamic and Conventional Bank: Case study in Malaysia, Procedia Economics and Finance, 35, pp. 359 – 367.

Aremu A. M. (2011), “A Perspective on Liquidity and Asset Management of Commercial Banks in Nigeria: Evidence from Some Selected Banks”, Journal of Emerging Trends in Economics and Management Science, Vol. 2 (6), pp. 454-460.

Athanasoglou, P. P., Brissimis, S. N., Delis, M. D., (2008),“Bank-specific, Industry specific and Macroeconomic Determinants of Bank Profitability”, Journal of International Financial Markets, Institutions and Money, Issue 18, pp. 121-136.

Al-Kassim, F. (2005), “The profitability of Islamic and conventional banking in the GCCcountries: a comparative study”, unpublished paper.

Ansari, S. and Khalil-ur-Rehman, S.Z. (2011), “Comparative financial performance of existing Islamic Banks and contemporary conventional banks in Pakistan”, 2nd International Conference on Economics, Business and Management, IACSIT Press, Singapore.

Bader, M.K.I., Mohamad, S., Ariff, M. and Hassan, T. (2008), “Cost, revenue and profit efficiency of Islamic verses Conventional banks: international evidence using data envelopment analysis”, Islamic Economic Studies, Vol. 15 No. 2, pp. 23-76.

Bashir, A.M. (2000), “Determinants of profitability and rates of return margins in Islamic banks: some evidence from the Middle East”, paper presented at the ERF Seventh Annual Conference, Amman, Jordan, 26-29 October, available at: pdf/1185358321_finance4.pdf (accessed 5 July 2011).

Bashir, A.M. and Hassan, M.K. (2003), “Determinants of Islamic banking profitability”, paper presented at the ERF 10th Annual Conference, Marrakech, Morocco, 16-18 December, available at: (accessed 6 July 2011).

Beck, T., Demirgüç-Kunt, A. and Merrouche, O. (2013), “Islamic vs. conventional banking: business model, efficiency and stability”, Journal of Banking and Finance, Vol. 37 No. 2, pp. 433-447.

Bordelean E. and Graham C., (2010), “Impact of Liquidity on Bank Profitability”, Bank of Canada Working Paper No. 2010-xx, pp. 1-24.

C? ihák, M. and Hesse, H. (2008), “Islamic Banks and financial stability: an empirical analysis”, IMF Working Paper 08/16.

Emirates Diary, Islamic banks in UAE report, 2015, Available at, accessed on 19 Sept. 2016.

Hanif, M., Tariq, M., Tahir, A. and Wajeeh-ul, M. (2012), “Comparative performance study of conventional and Islamic banking in Pakistan”, International Research Journal of Finance and Economic, Vol. 83, pp. 62-72.

Hasan, M. and Dridi, J. (2010), “The effects of the global crisis on Islamic and conventional banks: a comparative study”, IMF Working Paper WP/10/201.

Kamaruddin, B. H., and Mohd, R. (2013),“CAMEL analysis of Islamic banking and conventional banking in Malaysia”, Business and Management Quarterly Review, 4(3), 81-89.

Khrawish, H., (2011), “Determinants of Commercial Bank Performance: Evidence from Jordan”, International Research Journal of Finance and Economics, Issue- 81, pp. 148-159.

Kumbirai, M. and Webb, R. (2010), “A Financial Ratio Analysis of Commercial Bank Performance in South Africa”, African Review of Economics and Finance, Vol. 2(1), pp. 30-53.

Nimalathasan, B. (2008). A comparative study of financial performance of banking sector in bangladesh – an application of camels rating system, 2(2), 141–152.

Olweny, T. and Shipo T., (2011),“Effects of Banking Sectoral factors on the Profitability of Commercial Banks in Kenya”, Economics and Finance Review, Vol. 1(15), pp. 1-30.

Tabash, M. I., and Anagreh S. A., (2017), “Do Islamic banks contribute to growth of the economy? Evidence from United Arab Emirates (UAE)”, Banks and Bank Systems, 12(1), pp. 113-118, doi:10.21511/bbs.12(1-1).2017.03.

Tabash, M. I., and Dhankar R. S. (2014), “The Impact of Global Financial Crisis on the Stability of Islamic Banks: Empirical Evidence”, Journal of Islamic Banking and Finance, 2(1), pp. 367-388.

Tarmizi, H., and Wasiuzzaman, S. (2017), Profitability of Islamic Banks in Malaysia: An Empirical Analysis, Banking and Finance, 6(4), 53-68.

Zarrouk, H., Ben Jedidia, K., & Moualhi, M. (2016). Is Islamic bank profitability driven by same forces as conventional banks? International Journal of Islamic and Middle Eastern Finance and Management, 9(1), 46–66.

Wasiuzzaman, S. and Tarmizi, H.A. (2010), “Profitability of Islamic banks in Malaysia: an empirical analysis”, Journal of Islamic Economics, Banking and Finance, Vol. 53, p. 68.

Zahid, Z., Hussin, S. and Azizuddin, A. (2016), Performance comparison of Islamic and commercial banks in Malaysia, AIP Conference Proceedings 1782, doi: 10.1063/1.4966070