DOES THE FINANCIAL PERFORMANCE OF ISLAMIC BANKS ARE HIGHER THAN THE TRADITIONAL BANKS IN BANGLADESH? PANEL DATA ANALYSIS

This study aims to examine the results found that the financial performance of Islamic banks and traditional banks is satisfactory but more satisfactory in the case of Islamic banks in Bangladesh. The study also found that profitability has increased significantly in the banking sector in the last five years. Based on empirical findings, financial performance indicators significantly affect the financial performance of the baking sector; that’s why policymakers should care about financial performance determining factors and focus on rapid economic growth with risk recovery techniques. The present study is a small attempt to understand the current financial performance of Islamic Banks and Traditional Banks. The findings help the researchers and all parties involved in the banking system understand profitability and its role.


LITERATURE REVIEW
The bank is a financial institution that is working as the most important organ of the economic growth and development of any country. Banks provide financial security by accepting customer savings, creating high employment opportunities through investment and playing a role in alleviating poverty. Similarly, the economic development of a country also depends on the performance of the banking industry. Researchers have taken the issue of the financial banking industry's financial performance very seriously. Many previous studies have evaluated comparative financial performance between traditional and Islamic banks.
The literature reveals that numerous studies have scrutinized the financial performance of Islamic banks and Traditional banks and found mixed results (Mustafa, 2019;Safiullah & Shamsuddin, 2019;Hassan et al., 2019;Komijani & Hesary, 2018;Zahid et al., 2016). For instance, Majeed and Zainab (2021) analyzed traditional and Islamic banks' financial performance using financial ratio analysis (FRA). The finding shows that Islamic banks are better capitalized, have higher liquidity and are less risky than conventional banks. Still, the profit earnings ratio of Islamic banks is lower than conventional banks. Uddin, Ahsan, and Haque (2017) studied on comparison of financial performance of Islamic banks and conventional banks in Bangladesh during 2010-2014 by analyzing CAMEL tests. They didn't find any difference between Islamic banks and conventional banks in financial performance. They also noticed that traditional banks' assets quality and management quality are better than Islamic banks. Saeed et al. (2013) conducted a study on comparative financial performance between Islamic banks and traditional banks in Pakistan during 2007-2011 by using Data Envelopment Analysis (DEA) and financial ratio analysis (FRA) methods to analyze data. They found from their study that conventional banks are more competent than Islamic banks. Kakakhelet et al. (2013) found that Islamic banks have a better financial position, especially better in cash and assets turnover than conventional banks but less profitable than traditional banks.
On the other hand, Majeed and Zanib (2016) revealed that Islamic banks are highly profitable and proficient. Kias and Ramlan (2016) studied the profitability of Islamic banks and conventional banks in Malaysia, studied period used data from 2006 to 2011. He used a linear regression test to find results. He found that conventional banks are less profitable than Islamic banks, whereas the total loan to total assets is higher than conventional banks. Najjar (2012) studied the financial performance of traditional and Islamic banks in Bahrain by using financial ratio analysis (FRA) and found that Islamic banks' financial strength is better than traditional banks. Milhem and Istaiteyeh (2015) also analyzed financial performance through ratio analysis and concluded that effective asset management, effective liquidity rates and high profitability of Islamic banks than traditional banks. Ibrahim (2015) studied the financial performance of two UAE-based Islamic and conventional banks during 2000-2006. The findings showed that Islamic banks are more profitable than conventional banks, but there are significant differences between the two banks. Jubilee et al. (2021) assessed the differences between Islamic and conventional banks' productivity in the context of Asian countries by applying DEAbased MPI panel data methodologies. They found that Islamic banks are more productive than conventional banks but not statistically significant. Rodoni et al. (2017) analyzed a comparison of the productivity and efficiency of the 30 Islamic banks during 2009-2013 in Pakistan, Indonesia and Malaysia using MPI and DEA data analyzing methods. They found Islamic Islamic banks of Malaysia more productive than others countries. Kamarudin et al. (2017) studied 21 Islamic banks belonging to Malaysia and Indonesia using the MPI panel data method during 2006-2014. They found statistical significant of profitability better than banks of Malaysia and Indonesia. Habib (2018) found a significant difference between Islamic banks and conventional banks and noted that the profitability of Islamic banks is better than conventional banks in developing countries and developed countries using panel data DEA and MPI techniques during 2013-2015 for G20 countries. Qureshi and Abbasb (2019) studied 15 traditional banks and two pure Islamic banks in Malaysia using CAMEL ratio analysis during 2010-2017. They found that the financial performance of Islamic banks is more satisfied than traditional banks. Aljahdali and Faleel (2021) argued that Islamic banks are less profitable but more liquid, less risky and more efficient than traditional banks. They concluded this by analyzing 3 Islamic banks and 3 traditional banks using t-test to determine the significance between the two groups.
Thus, we propose the following hypothesis;

H1. There is no difference between Islamic banks and traditional banks relating to financial performance.
Based on previous studies, we can be said that many studies have been conducted on traditional banks relating to the financial performance in the world and Bangladesh. Although there is some research on the financial performance of Islamic banks separately, the number of comparative studies is less. Most of the studies have documented different and mixed results. There is little evidence to suggest that both Islamic banks and traditional banks have had productive levels in Bangladesh. So based on the previous studies gap, the purpose of the present study is to provide comparative empirical evidence of two different banking sectors (Islamic and Traditional)

METHOD Sample Selection
Except for Bangladesh bank itself, there are 60 scheduled banks among these 43 private commercial banks and 6 state-owned commercial banks providing banking services in Bangladesh (Bangladesh Bank, 2021). This study considered 10 banks as a sample among the private banks by selecting 5 Islamic banks and 5 traditional banks randomly. The following Islamic and traditional banks

Variables Covered
Financial ratios are used to measure capital adequacy (CA), asset quality (AQ), management efficiency (ME), profitability (P), liquidity efficiency (LE), which are the independent variables of this study. On the other hand, financial performance is considered a dependent variable of the current study.

Data Analysis, Instruments and Measurements
Various financial and accounting ratios have been used for performance analysis, such as Capital Adequacy Ratio CAR), Asset Quality Ratio (AQR), Management Efficiency Ratio (MER), Liquidity Ratio (LR) and Profit Ratio (PR). Profit ratio includes ROR, ROE and EPS-Earning per Share. The present study used a very well-known bank's financial ratio calculation method. Cole (1972) first introduced these ratios to calculate the bank's financial performance. Many researchers have used this method for similar objectives, i.e., Narayan and Phan (2019); Mukhibad and Kafid (2018); Shawtari et al. (2018); and Bitar et al. (2019). In addition to measuring the performance of concerned banks, different descriptive statistical tools have been used in this study. The FRA model of Panel data has been used to determine a bank's financial performance. The study used panel data analysis software and Decision Analyst Stats 2.0 for analyzing the data.  Table 1 shows the calculation of ROA. Among the Islamic banks and conventional banks, Islamic Banks' position is strong; Islamic Banks' average growth in ROA is better than conventional banks. The average growth of ROA for Islamic Bank and the traditional bank is 16.79% and 10.27%, respectively. Individually, FISBL is in a better position among the banks; it is also observed that all Islamic banks' performance is good and gained optimum growth rate. The table reveals a significant difference between Islamic banks and traditional banks based on ROA.  Table 2 shows that the average growth rate of ROE is higher for the Islamic banks; most of the Islamic banks' financial position based on ROE is good enough than conventional banks. The mean value of Islamic banks is 2.99, whereas the mean value of traditional banks is 2.14. The results reveal that the financial performance of Islamic banks is better than traditional banks but not significant. Table 3 indicates that the average growth rate of Earning per Share of Islamic banks is 7.80%. In contrast, traditional banks have 5.69%, which means that the financial performance of Islamic banks calculated good in position, particularly the financial performance of Islamic banks are calculated higher in position rather than a traditional one, earning per share of IBBL, SIBL, AAIBL SJIBL and FSIBL of all Islamic banks looks great based on growth rate. Finally, the table-3 reveals that the financial performance based on earnings per share of Islamic banks is higher than traditional banks but not statistically significant. From table 4, it is clear that the capital adequacy ratio of Islamic Bank Bangladesh (IBBL) is higher among the two categories bank of 13.43% and the average capital adequacy ratio of SIBL, AAIBL, SJIBL and FSIBL is 10.82%, 12027%, 13.09% and 9.46% respectively. On the other hand, the average capital adequacy ratio is highest for NBL from traditional banks group. It is observed from Table 4 that the capital adequacy ratio of the Islamic Banking sector is quite better than the traditional banking sector but not significant.  Table 5 shows that Islamic and traditional banks' asset quality is different. But calculated shows that Islamic banks' asset quality is better than traditional banks based on the mean value of asset quality. The average growth rate of Islamic banks is 3.78% and for traditional banks is 2.68% but statistically not significant. If we see all banks individually, most of the Islamic banks' asset quality position is better than traditional banks. Alternatively, the asset quality of traditional banks is also good in Bangladesh. Table 6. Loan to Deposits It is observed from table-6 that the loan to deposit ratio for Islamic banks and traditional banks is different based on sample industry average values that are 11.82% and 10.77%, respectively. The calculation value of Islamic banks is higher than that of traditional banks. Individually, IBBL, SIBL, DBBL and MBL are first, second, third and fourth, respectively, based on Mean values (0.78, 0.63, 0.56 and 0.44). Table-6 reveals that loan to deposit as a determinant of financial performance is better for Islamic banks than traditional banks but not a significant difference.  Table 7 shows the Islamic and traditional banks' net loan to total assets ratios. NLAR is good for Islamic banks than others. The mean value of Islamic banks is 83.12%, and the mean value of traditional banks is 72.78%. It is observed that among the Islamic banks. The net loan to total assets ratio is highest for IBBL and lowest for FSIBL. Results reveal a difference between traditional and Islamic banks but are statistically insignificant.  Table 8 found that Islamic banks' Average Tax Management Efficiency is improved than conventional banks; values are 55.62% and 53.82 %, respectively. Both categories of banks' have good tax management efficiency. Among the Islamic banks, SJIBL and IBBL have the better position and gained 1 st and 2 nd position. PBL and BAL gained the first and second positions among the traditional banks, respectively. Islamic banks' tax management efficiency is better than traditional banks; Statistical value shows no significant difference between these two groups of banks. From Table 9, we see that Islamic banks' Average Expense Control Efficiency is better than traditional banks. The mean value of the Islamic bank group is 96.9%, and traditional banks are 88.6%, respectively. It is also observed that IBBL, AAIBL and SIBL gained 1 st and 2 nd and 3 rd position among the Islamic banks, respectively. Also observed among the traditional banks MBL, BAL and DBBL gained 1 st and 2 nd and 3 rd position respectively. Result reveals from table-9 that there is a significant difference between Islamic banks and traditional banks in the case of Average Expense Control Efficiency. https://www.cribfb.com/journal/index.php/ijfb Indian Journal of Finance and Banking Vol. 9, No. 1;2022 Fund Management Efficiency  Table 10 shows that Islamic banks' fund management efficiency is better than traditional banks; the mean value of Islamic banks and traditional banks is 18.54% and 16.87%, respectively. It is observed from table-10 that according to the fund management efficiency ratio IBBL is best from the Islamic bank's group, and BAL is the best from traditional banks group. There is a difference between Islamic banks and traditional banks' financial performance based on Fund Management Efficiency but not significant.

DISCUSSION
The study results prove that Islamic banks' financial performance undoubtedly is higher and progressive than conventional banks. The growth of the Return on Assets (ROA) position and the growth of Islamic banks' Return on Equity (ROE) position are better than traditional banks. There is a significant difference between the Islamic banking sector and the traditional banking system in the case of ROA (table 1) but not significant in the case of ROE (table 2). The results demonstrate (Table  3) Earning per Share ratio of Islamic banks is more than the traditional banks. Islami Bank Bangladesh Limited (IBBL) has a strong position among the studied banks.
On the other hand, the position of traditional banks is also well in the case of Earning per Share Ratio. Several studies, e. g. Mustafa (2019), Habib (2018), and Jubilee et al. (2021) confirmed the same outcomes of the present study. The null hypothesis (H1) is not accepted. Furthermore, in terms of the highest position of Capital Adequacy and Asset quality, the Islamic banks' sector is diminutive healthier than the customary banking sector; the study observed that there is a difference but not significant (table 4 and (2021), liquidity ratio of net loans to total assets and the loan to deposits of both banking sector good in position but statistically not significant (table 6 and 7). Several researchers found the same findings (Ledhem & Mekidiche, 2020;Daoud and Kammoun, 2017). Some studies found a significant difference between the Islamic banking system and traditional banking system in the case of management efficiency of banks, i.e., Akram and Rahman (2018); Alsartawi (2019). It is observed that tax management efficiency, expense control efficiency and fund management efficiency of the Islamic banking sector are higher than the traditional banking sector. There is also a significant difference between both banking sectors in the case of expense control efficiency (table 9). Still, there is no significant difference in tax management efficiency (table 8) and fund management efficiency (table 10). Arising from the findings, we can reject the null hypothesis (H2) of there is no difference between Islamic banks and traditional banks relating to financial performance in Bangladesh.

CONCLUSION
The banking sector of Bangladesh is playing a key role in economic prosperity. Traditional and Islamic banks have already been able to earn the trust of their clients by providing timely services together. It has become a partner in the economic development of Bangladesh, not as a rival but as a helper. As a Muslim-majority country, Islamic banks are not enjoying additional benefits, but in some cases, progress is being hampered by shariah-compliant formalities. Since Bangladesh is a Muslimmajority country, the entire financial system is not run according to Islamic shariah.
Similarly, the banking sector is not based on Islamic shariah as an integral part of the economy. For all these reasons, the Islamic banking sector has not achieved the desired success, and the number of Islamic banks is insufficient. In addition, the success of Islamic banks is enviable despite the unfavorable environment of the Islamic banking system. Research has shown that Islamic banks are ahead in the indicators of financial performance appraisal like profitability, management efficiency, asset quality, liquidity position, and capital adequacy look good in the Islamic banking sector that is slightly absent in the traditional banking sector. It is necessary to take all indispensable steps to make the Islamic banking system uninterrupted; Above all, it is time to formulate more research base policies to modernize the banking system of Bangladesh. It is hoped that the results and findings of the present study will benefit all parties involved in the banking sector. Every study has some limitations, and the present study is not out of it. Future researchers have the opportunity to research financial performance analysis of both banking sectors comparatively by taking more sample size and financial performance indicators related variables.