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(A Comparative Study between Conventional
And Islamic Banks)
Sidrah Zahid
Method of Bussiness Research
Instructor Sir Akbar Lakhani

Danger is inescapable and intrinsic in every last financial movement. As indicated by Brain (2001) hazard
happens when result is indeterminate. Hazard exists as a part of a domain in which different associations
work (Shafiq and Nasr, 2010) so every last business needs to face hazard. Without going out on a limb,
development of business resemble a bad dream (Asim et al., 2012). Banks like all organizations face
different sorts of danger which emerge because of the way of their exercises. The real point of banks is to
augment benefit by overseeing hazard and by giving different monetary administrations (Alimshan,
2011). In Practice we have two managing an account frameworks. One which takes after typical premium
based practices called routine managing an account and second which takes after Islamic law and perform
premium free exercises which is known as Islamic saving money (Khattak et al., 2013). Both these
managing an account frameworks are recognized as routine banks take after the SOPs arranged by their
higher power; their salary is premium which is earned by loaning cash and they exchange the whole
hazard to others. While Islamic banks take after arrangements made by Sharia'h that denies premium that
is the reason Islamic banks don't bargain in premium and are exchange situated banks, their pay is benefit
which is earned by exchanging. They impart danger to both loan specialists and borrowers (Ashfaq,
Dangers confronted by both Islamic and Conventional banks can be isolated in two classifications: money
related dangers and non-monetary dangers. Monetary danger is further separated into credit hazard,
liquidity hazard and market hazard where as non-budgetary dangers are isolated into lawful danger,
operational danger and administrative danger (Gleason, 2000). Other particular dangers confronted by
Islamic banks incorporate absence of riba free hazard supporting instruments, benefit misfortune sharing
based government securities are immature, Islamic banks have restricted access to moneylender of-final
resort offices gave by national bank because of absence of Sharia'h good loan specialist of-final resort
offices, estimation of assets and return rate are not sure, uneven data build the conceivable outcomes of
good risk (Mounira and Anas, 2008). Powerful and productive danger administration procedure is
essential because of these dangers confronted by banks. One of key errand of bank is to find and oversee
risks.(Fatemi and Fooladi, 2006). It is vital for banks either traditional or Islamic, to make hazard
administration a necessary piece of their business rehearses as continually they need to manage hazardous
exchanges either eagerly or unwillingly.
Hazard administration is a fundamental part of key administration of an association. It is a continuous
procedure of danger evaluation through various apparatuses and techniques which recognize every
conceivable danger, figure out which dangers are basic to fathom as quickly as time permits and after that

execute systems to manage these dangers (Tariqullah and Habib, 2001). Current danger administration
framework in view of the Basel II intends to advance money related dependability (BCBS, 2006). The
Basel Accord has subsequently showed up as an endeavor to ensure saving money framework all around
the globe from the effects of monetary emergencies and structures it by utilizing an arrangement of
standards which take into consideration precise danger administration (Makwiramiti, 2008).
A productive and powerful hazard administration is the need of every single association and is one of the
key obligations of bank. However viable danger administration helps the execution of an association. The
past monetary emergencies revealed deficiencies in the execution and danger administration hones with
numerous banks assuming exorbitant danger with too little respect for long run execution (Sitanta, 2011).
Banks can snatch opportunities with more prominent certainty just with an incorporated methodology of
overseeing danger and execution.
Problem Statement
Those money related emergencies reveal weaknesses in the execution and danger administration hones
with numerous banks assuming over the top danger with too little respect for long run execution. Its mean
Organizations need data in regards to the effect of Risk Management on their execution.
Research Objectives
To assess the usage of danger administration in customary and Islamic banks.
To think about the relationship between danger administration and execution of both sort of banks.
Research Scope
Hazard administration was evaluated in the Islamic and Conventional banks in karachi. Meezan Bank and
MCB Bank taken as ordinary bank.
Research Hypotheses Design
H1: Conventional banks act more upon danger administration when contrasted with Islamic banks.
H2: Risk administration increments operational execution of the banks.
H3: Risk administration increments money related execution of the banks.

Literature Review
Sitwat Habib et al. (2014) directed exploration on Operational Risk Management in Corporate and
Banking Sector of Pakistan. This exploration expects to discover the explanations behind the execution or
absence of appropriation of coordinated operational danger administration approach. The paper uncovered
that hazard administration can enhance hierarchical execution however in Pakistan, organizations don't
have suitable base and legitimate information of danger administration. Research demonstrated that in
keeping money division of Pakistan the idea of operational danger administration can be seen up to some
Barati et al. (2013) have completed an observational investigation of Risk Management in Iranian Banks.
The aim of this exploration was to examine the elements which broadly impact the danger administration
hones and to study relationship between some managing an account proportions like money to resource
proportion, capital ampleness, size of bank and obligation to value with liquidity, credit and operational
dangers. This study inferred that all dangers have positive association with capital sufficiency and
obligation. On one hand, capital sufficiency had a positive association with liquidity hazard where as the
sizes of banks, money to resource and obligation to value proportions had a converse association with
liquidity hazard. In the event of credit danger, capital sufficiency had a converse association with it where
as obligation to value proportion and credit danger are emphatically related and there weren't any
connection between credit hazard and different variables. Then again, the money to resource proportion,
sizes of banks and capital ampleness had a reverse association with operational danger. At long last the
consequences of this concentrate likewise demonstrated that there weren't any connection between the
obligations to value proportion and operational danger.
Emira et al (2013) have directed examination on Comparative Analysis of Risk Management in
Conventional and Islamic Banks (The Case of Bosnia and Herzegovina). This exploration paper
attempted to decide the dependence of banks' monetary execution on the danger administration. The
consequences of this examination uncover that in any case practices of danger administration are creating
around the world. At present every one of the banks comprehend the estimation of danger administration
yet at the same time they don't have adequate courses for danger administration. Presentation of Islamic
banks when contrasted with routine banks to hazard is a great deal all the more yet its dynamic danger
administration framework permitted it to always contend with traditional banks and get great returns.
Finally, banks which have compelling danger administration framework have better money related

Ali Said (2013) has examined on Risks and Efficiency in the Islamic Banking Systems (the Case of
Selected Islamic Banks in MENA Region). The target of this study was to research how in Islamic banks,
dangers and proficiency are associated with each other. This exploration presumed that credit hazard has
negative association with effectiveness, while operational danger has observed to be adversely related to
proficiency as well. The liquidity hazard indicated unimportant relationship to productivity in Islamic
banks in MENA region.
Naveed et al (2013) led research on Risk administration practices and demeanor of Pakistani Islamic
keeping money framework representatives. This study was proposed to investigate the Risk Management
Practices in Islamic Banks and to concentrate on the effect of autonomous variables on ward variables.
The free variable of the study were understanding hazard and hazard administration, hazard appraisal and
investigation, hazard recognizable proof, hazard checking, credit hazard examination and the reliant
variable was danger administration hones. The outcome demonstrated that four out of five free variables
have positive and critical effect on ward variable.
Selma et al (2013) led inquire about experimentally on Risk Management Tools Practiced in Tunisian
Commercial Banks. The motivation behind the specialists was to examine hazard administration practices
and strategies took after by banks. The outcomes uncovered that banks in Tunisia know the significance
of effective danger administration in upgrading bank execution and cost lessening. In addition banks have
dynamic danger administration structures in Tunisia. Further analysts presumed that hazard
administration must be a progressing process which methodicallly addresses all dangers confronted by
association in past, present and future.
Omar et al. (2011) directed exploration on Risk administration and the execution of the Basel Accord in
developing nations (An application to Pakistan). The point of this exploration was to look at states of
mind of Pakistani banks towards Basel Accord execution arrangements and consequently to figure out
which elements make obstructions in the Basel Accord usage in these banks. Consequences of this
examination demonstrated that supervisors' perspective with respect to Basel Accord is sure however
operational danger shows up as a noteworthy snag for Basel Accord usage in Pakistan. Private banks than
open banks are in fact more competent and positively slanted towards Basel Accord usage.
Salman and Zain (2011) led look into that whether powerful hazard administration influence hierarchical
execution. Their significant intention was to look at the present practices of danger administration and
effect of these practices on execution of an association and to distinguish the probability of enhancements
in programming advancement segment of Pakistan. The finding demonstrated that the greater part of the
associations are not utilizing appropriately hazard administration rehearses other than that the vast

majority of the associations don't have reported danger administration strategy precisely. It likewise
inferred that the associations which are utilizing hazard administration rehearses have elite contrast with
those association which are not utilizing hazard administration hones.
Naveed et al (2011) directed exploration on Risk Management Practices and Islamic Banks: An Empirical
Investigation from Pakistan. Their motivation of study was to inspect the association's level variables that
have extensive effect on the danger administration. The discoveries of study demonstrated that bank's size
and money related dangers (credit and liquidity danger) are emphatically and essentially related with each
other while bank's size has negative and measurably unimportant connection with operational danger. The
obligation to value and NPLs proportions are adversely and essentially identified with operational and
additionally liquidity hazard while they are emphatically identified with credit hazard. The capital
ampleness has positive huge connection with liquidity where as it is contrarily and altogether identified
with operational and credit hazard.
Afsheen et al. (2010) have inquired about on Risk Management Practices Followed by the Commercial
Banks in Pakistan. This exploration paper expects to look at the mindfulness about danger administration
inside the saving money part of Pakistan. Both Primary and optional information gathering sources were
utilized. Essential information was assembled from 15 business bank's danger administration offices The
optional information was gathered from execution audit of the managing an account framework report of
the time of 9 years from 2000 to 2008. Discoveries of this exact study have demonstrated that there is a
significant uniqueness in the utilization of danger administration viewpoints among the business banks in
both open and private segments. Additionally the budgetary dependability pointers vary in criticalness for
every sort of business bank. In spite of the fact that staff of business banks has a general comprehension
about danger and its administration, still there is a requirement for business banks to give preparing to
staff in danger administration customized by necessities.
Romzie (2009) has led research on Risk Management Practices and Risk Management Processes of
Islamic Banks (A Proposed Framework). The point of this examination was to recommend theoretical
system and to concentrate on the relationship between danger administration practices and hazard
administration perspectives like comprehension danger and its administration, its ID, its investigation and
appraisal and observing. This study prescribed an applied structure on the premise of danger
administration perspectives and its practices. The outcomes demonstrated that hazard administration
practices and the greater part of its perspectives are emphatically related with each other.

Al-Tamimi and Al-Mazrooei (2007) directed examination to analyze the danger administration practices
and methods in managing distinctive sorts of danger in national and outside banks of UAE. The point of
exploration was to recognize the danger administration practices and methodology in UAE banks. The
outcome demonstrated that these banks are more fit for overseeing hazard furthermore observed that UAE
national and outside banks are not at all like to each other in danger appraisal, its investigation, inspect
and controlling.

Research Methodology
The "substance" of populace is representatives and clients of both Islamic and Conventional bank, the
"Degree" of populace is Karachi and "Time" is March 2016.
Sampling Technique
Likelihood based Sampling systems was utilized for this examination. From likelihood based inspecting
systems, Stratified and arbitrary examining strategy were utilized for gathering information. Stratified
strategy was utilized for gathering information from workers and straightforward irregular testing
technique was utilized for clients.
Sample Size
All out example size for study is 150. An example size for Islamic banks is 75 and for ordinary banks it
was additionally 75. Out of which 10 tests were gathered from top administration, 20 from center level
administration, 20 from lower level administration and 25 were clients.
Data Collection
For this study a poll was utilized for essential information gathering and it was comprised of closefinished inquiries which were further partitioned into unmitigated and consistent variables.Primary
information obtained from surveys was then examined through SPSS.Further auxiliary information was
gathered from money related proclamations of Islamic banks and ordinary bank more than three years
period from 2013 to 2016 .
Standard instruments for this study were utilized to gauge the variables that were Employee fulfillment,
Customer Satisfaction and Risk administration.
Employee Satisfaction was measured through eight inquiries taken from scale (alpha=?) .
Customer Satisfaction was measured by 9-things scale (alpha = ?)

Data Analysis
The primary theory was tried through Student's T-test (Independent Sample Test). For this test one clear
cut and one constant variable is required. Here clear cut variable is "Bank" which is isolated into two
classifications Islamic and Conventional; and one nonstop variable is Risk Management.
H0: Conventional banks don't act more upon danger administration when contrasted with Islamic banks.
H1: Conventional banks act more upon danger administration when contrasted with Islamic banks.
Second Hypothesis, Risk administration increments operational execution of the banks, was tried through
relationship. In this theory operational execution was operationalized through representative fulfillment
and consumer loyalty. Along these lines co connection of danger administration was found with worker
fulfillment and consumer loyalty independently.
For the primary part of the speculation, two constant variables utilized were Risk Management and
Employee Satisfaction. What's more, for the second part of the theory, two consistent variables utilized
were Risk Management and Customer Satisfaction.
H0: Risk administration does not increment operational execution of the banks.
H1: Risk administration increments operational execution of the banks.
For testing third Hypothesis Financial Ratios investigation was utilized and after that the discoveries were
connected with the danger administration. Hazard administration is now measured above through
understudy T-test where as Financial execution is measured by taking after monetary proportions:
Profitability Ratios
1. Return on asset (ROA) = Profit after tax/ total asset
2. Return of equity (ROE) = Profit after tax/ equity capital
3. Profit expense ratio (PER) = profit/total expense.
Risk and Solvency Ratios
1. Debt to equity ratio (DER) = Debt/ total equity
2. Debt to total asset ratio (DAR) = Debt/total asset

Advances to Debt Ratios

1. Advances to deposits ratio (ADR) = Advances/ deposits
Return on Assets (ROA)
The higher ROA proportion indicates higher execution and bank's capacity to move resource into wage.
Return on Equity (ROE)
The higher ROE proportion indicates higher administrative execution. This proportion increment or
lessening because of expansion or abatement in paid up capital and net wage.
Profit Expense Ratio (PER)
A high PER indicates cost effectiveness of bank.
Debt to Equity Ratio (DER)
DER demonstrates that bank capital can retain budgetary stuns and a lower DER proportion is best where
as higher or expanding proportion the consequence of forceful obligation is financing by the banks for
purpose of development.
Debt to Asset Ratio (DAR)
DAR proportion demonstrates peril of bank's business and its budgetary intensity to pay its indebted
Advances to Deposits Ratio (ADR)
Advances to stores proportion demonstrate the degree to which the bank had used its accessible assets. A
higher proportion implies banks not have enough liquidity to confront any sudden asset prerequisites
where as low proportion uncovers banks may not be procuring as much as they could be.
H0: Risk administration is not increments budgetary execution of the banks.
H1: Risk administration increments monetary execution of the banks.

Please read the questions carefully and on a scale of 1-5 (where 1 indicates Strongly Disagree and 5
indicates Strongly Agree) please rank the extent to which you agree with given statements. The
questionnaire is designed to know your opinion in general. Please note it is not to test policies of your
banks. There is no right or wrong answer. The data is being collected for purely academic purpose.


Tick the Gender

? Male

Tick the Age

? = 20

Tick the Martial

Tick the
Tick the

? Female
? 21-30

? year

? Master

? Islamic Bank

= 50


? Single

? 4145year

? Conventional

? Ph

Part-I # Risk Management



Monitoring the effectiveness of risk management is

an integral part of routine management reporting
There is a common understanding
of risk management across the bank
Responsibility of rib ski management is clearly set
out and well understood across the bank
Accountability of risk management is clearly set
out and well understood across the bank
The management of risk makes an important
contribution to the success of the bank
The management of risk makes an important
contribution to the financial stability of the bank in
The current financial climate.
Risk management helps to reduce
costs and expected losses at the
It is important to continuously review and update
risk management techniques
Your bank takes significant steps to management
keep up to date with current

Your bank understands the risk

banks and
10 management systems used by other their costs and
Your bank finds it difficult to
11 identify and prioritize its main risks
Your bank finds it difficult to
12 manage its main risks
Your bank effectively assesses the likelihood of
13 different risks occurring
Your bank uses numerical methods
14 to assess risks
Your bank is able to accurately evaluate the costs
15 and benefits of taking risks


Your banks level of risk control is appropriate for the

risks that it faces
Your banks reporting and communication processes
support the effective management of risk


Your bank develops action plans for implementing

decisions and management plans for identified


Your banks response to risk includes an assessment

of the costs and benefits of
addressing risks management
Your banks risk management processes are well
documented and provide guidance to
staff about the management of risk
Your banks training policies encourage formal
training in risk management
Your bank specifically looks to recruit highly trained
and qualified people in risk


It is dangerous to concentrate bank funds in one sector

of the economy
Bank capital is adequate if the ratio of capital to
risk weighted assets is 8%
Your bank has excellent overall risk management
practices and processes
Part-II # Employee Satisfaction
You are satisfied from working environment
You are satisfied from this job
You are satisfied from this organization
Opportunities are provided to you to make full use of
your skills and experience, in this
You are satisfied from your work performance and
productivity in this organization
You are committed (serious and sincere) to this job
You are enthusiastic about your job
You are interested to advance your career in this
Part-III # Customer Satisfaction
I am really satisfied with the services quality of this

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