Department of Finance

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https://escholar.umt.edu.pk/handle/123456789/1164

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Browsing Department of Finance by Subject "Conventional banks"

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    Financial risks in banking sector of Pakistan
    (University of Management and Technology Lahore, 2017) Muaaz Ahmad, Hafiz
    Banking industry plays a vital role in economic performance of every country. Banks used to generate its profit by taking loans from one party with the lower interest rates and lend it to the other party with the higher interest rates, the difference between these interest rates are basically the profit of banks but this process of generating income is not as smooth as it looks like. Banks has to face lots of threats which are known as financial risks. This study covers all the financial risk which includes market risk, credit risk, liquidity risk, rate of return risk, interest rate risk and equity risk for Islamic banks and conventional banking sector prevailing in Pakistan. This comparative study investigates the different determinants of all type of risks and the level of financial risks prevailing in banking industry. Furthermore, it examines which banking sector (Islamic or Conventional) is more sensitive to the underlined risks. The aim of this study is to examine that up to what extent Pakistani banks are affected by financial risks and to compare the all financial risks that what type of risks are more harmful for Islamic banks and what type of risks are more hazardous for the conventional banks. Secondary data is being used in this study and it is collected from annual reports, SBP web site and from different articles from 2002 to 2016. Total 10 banks are being undertaken in this study as a sample in which 5 banks are Islamic and 5 are conventional. Regression model is used in this research and Descriptive Analysis, Fixed and Random Effect, Hausman Test are the techniques which has been used with the help of E-views and MS Excel. The results depict that Islamic banks are more sensitive to liquidity risk and credit risk as compare to the conventional banks. In case of market risk, both sectors are facing approximately the same level of risk. Conventional banks are more sensitive to equity risk, interest rate risk and rate of return risk.