Abstract:
Islamic banks are growing rapidly in Pakistan and competing with conventional banks which have deep roots in the financial market of this country. There are 5 full-fledged Islamic banks and 15 conventional banks offering Islamic banking services as compare to 51 conventional banks offering conventional banking services in Pakistan. Till today, Islamic banking industry has been managed to capture 10% of total banking market in Pakistan. This study is an attempt to discover the growth impact of Islamic banks in Pakistan on the growth in deposits of conventional banks. To check the impact, financial data from annual reports of 5 Islamic and 5 conventional banks have been taken for the period of 2010 to 2014. The statistical tool Regression is used to find out the growth impact of Islamic banks on conventional banks. Additionally, Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) are used to check the efficiency level of both types of banks. The findings of the study revealed that the growth level of Islamic banks has an impact on the growth of conventional banks as deposit growth of Islamic banks has significant but negative effect on the growth in deposits by conventional banks. Whereas, profitability growth and investment growth of Islamic banks has no significant effect on the growth in deposits by conventional banks. Similarly, financing growth of Islamic banks has significant positive effect on the deposit growth by conventional banks. The results also proved that conventional banks have been found more efficient than Islamic banks whereas, foreign Islamic banks have been proved to be more efficient that local Islamic banks in Pakistan.
