PROFITABILITY AND LIQUIDITY OF CONVENTIONAL BANKS AND ISLAMIC BANKS IN NIGERIA: A COMPARATIVE STUDY (2012 – 2015)
Abstract
The aim of this research is to compare and evaluate the profitability and liquidity of conventional and Islamic bank in Nigeria. The study evaluates the profitability and liquidity of two types of banking system in Nigeria for the period of 2012 to 2015 in order to give clear picture of Islamic banking to the stakeholder, depositors, bank managers, investors and regulators. Different financial ratios i.e. Return on Asset (ROA), Return on Equity (ROE), Profit Expense Ratio (PER) was used for evaluating profitability and Loan to Deposit ratio (LDR), Loan to Assets ratio (LAR), cash portfolio investment & borrowing to deposit ratio (CPIBDR) was used for evaluating liquidity of these 2 categories of banks. A sample of Jaiz Islamic banks and Access bank as a Conventional bank were selected to measure and compare their liquidity and profitability. The results of t-test shows that JAIZ is less profitable and also less liquid compared to the conventional bank. The reasons are due to the facts that conventional banks in Nigeria have longer history and experience in doing banking business and hold dominating position in the financial sector with its large share in the overall financial assets of Nigeria, as compared to Islamic bank. The study recommends that Islamic banks should focus on new products development and innovative solutions to meet client's needs; also Islamic banks needs to strengthen their equity base.
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