Indonesia Accounting Research Journal, 11 (1) (2023), pp.

51-67
Published by: Institute of Accounting Research and Novation (IARN)

Indonesia Accounting Research Journal

Journal homepage: https://journals.iarn.or.id/index.php/IARJ/index

Comparative Analysis of Financial Performance: Conventional

Banks vs. Sharia Banks
Fischer Mirakhor Bashir 1, and Cohen Gorton 2
1,2Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Selangor, Malaysia

Article Info ABSTRACT

Article history: His research compares the financial performance of conventional and
Sharia banks to identify operational trends and their ramifications. The
Received Sep 9, 2023
study examines financial data, risk management, customer behavior, and
Revised Sep 22, 2023
market perception in these two banking systems. Conventional banks
Accepted Sep 27, 2023
perform well due to their wide product offerings and market presence.
Due to their interest-based income, they have greater ROA and ROE.
Keywords: These banks are vulnerable to interest rate changes and market
uncertainty, requiring diligent risk management. Sharia banks emphasize
Comparative Analysis; ethics, social responsibility, and risk-sharing. Due to interest-based
Conventional Banks; income and interest rate risk management limits, they struggle to achieve
Ethical Compliance; profitability while attracting a specific customer base. Comparative
Financial Performance; analysis yields strategic recommendations for both institutions. To
Sharia Banks. improve financial performance and address shortcomings, revenue
diversification, ethical compliance, risk management, regulatory
adaptation, innovation, customer-centricity, and strategic
communication are essential. The banking industry must balance
financial innovation with ethical compliance, according to this report.
This method ensures client value and need responsiveness in a changing
financial context. Banks may navigate a competitive marketplace and
meet diverse client financial needs by following these concepts. This
analysis helps create a banking environment that is inclusive, responsive,
and matched with varied client groups' changing requirements and
beliefs.

This is an open access article under the CC BY-NC license.

Corresponding Author:
Fischer Mirakhor Bashir,
Faculty of Economics and Management,
Universiti Kebangsaan Malaysia, Selangor, Malaysia
43600 UKM Bangi, Selangor Malaysia
Email: [email protected]

1. INTRODUCTION
The global financial landscape is diverse, encompassing various financial systems, each shaped by
distinctive principles and practices(Cohen, 1996). In this context, two prominent banking models have
gained widespread recognition: conventional banking and Sharia-compliant (Islamic) banking.
Conventional banking operates within the framework of conventional finance, while Islamic banking
operates in adherence to Sharia principles, which prohibit interest (Riba) and encourage profit-sharing
arrangements (Mudarabah and Musharakah), among other ethical and religious considerations.
Conventional banking, the bedrock of the global financial system, operates on well-established
principles, including the use of interest-based transactions and a wide array of financial products(Ariff,
2014). In contrast, Sharia banks, adhering to Islamic law (Sharia), operate with a fundamental

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prohibition on interest (Riba) and adhere to ethical guidelines, emphasizing profit-sharing

arrangements (Mudarabah and Musharakah), risk-sharing, and asset-backed transactions.
The emergence and rapid growth of Sharia banking over the last few decades have captured
the attention of economists, policymakers, and market participants globally(Iqbal & Mirakhor, 2013).
Its expansion extends beyond regions with predominantly Muslim populations, reflecting a growing
demand for ethical and interest-free financial services among both Muslim and non-Muslim
consumers. Consequently, the exploration of the financial performance of Sharia banks relative to
conventional banks becomes paramount.
The coexistence of these contrasting banking systems has raised interest in exploring and
understanding their respective financial performance(Allen & Gale, 2000). This research delves into
the comparative analysis of the financial performance of conventional banks, entrenched in global
financial markets for centuries, and Sharia banks, which have gained prominence due to the growing
demand for ethical and interest-free financial services among Muslim and non-Muslim consumers.
The motivation behind this study stems from the unique operating principles of both banking
systems(Diamond & Rajan, 2005). Conventional banks operate under established financial practices,
utilizing interest-based transactions and a diverse range of financial products. In contrast, Sharia banks
operate under a framework that complies with Islamic law, focusing on risk-sharing, asset-backed
transactions, and adherence to ethical and moral guidelines. The distinctive nature of these banking
models invites an in-depth exploration and comparison of their financial performance.
The financial world has witnessed the rapid expansion of Islamic finance over the past few
decades, with Sharia-compliant assets and institutions gaining substantial traction in both Muslim-
majority and non-Muslim-majority countries(Lum, 2021). This growth has sparked interest in
understanding how Sharia banks perform in comparison to their conventional counterparts in areas
such as profitability, risk management, asset quality, and overall financial stability.
Primarily, this comparative analysis stands as a pursuit to decipher the distinctive operating
mechanisms of conventional and Sharia banks. It aims to shed light on their approaches to risk
management, asset quality, profitability, and financial stability(Iqbal et al., 2010). By dissecting their
financial indicators, including but not limited to return on assets (ROA), return on equity (ROE), and
liquidity ratios, this study seeks to uncover the comparative strengths and weaknesses inherent in both
banking systems.
Furthermore, the comparative analysis of these two banking systems is not merely of academic
interest but has practical implications. It provides insights for policymakers, regulators, investors, and
stakeholders in the banking industry. Understanding the differences in financial performance between
conventional and Sharia banks can offer valuable insights into the resilience, risk management
practices, and profitability of each system, thereby guiding strategic decisions, regulatory frameworks,
and investment choices.
Furthermore, as the global financial ecosystem navigates through evolving market dynamics,
economic uncertainties, and shifts in consumer preferences, understanding the performance
disparities between conventional and Sharia banks becomes a cornerstone for making informed
decisions in an increasingly interconnected and diverse financial world.
This research aims to contribute to the existing body of knowledge by conducting a
comprehensive comparative analysis of the financial performance of conventional banks and Sharia
banks, shedding light on their distinct operational frameworks and financial outcomes.

2. RESEARCH METHOD
Existing Literature and Related Studies
The literature on conventional banking and Islamic finance is abundant and diverse, offering
a rich tapestry of insights into the workings, principles, and challenges associated with these two
distinct banking systems. Understanding this body of literature is essential in providing the necessary
context and theoretical background for the comparative analysis of their financial performance.

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Conventional banking, as entrenched in the global financial system, has been extensively
studied and documented. Studies by authors such as Mishkin (2016) and Saunders and Cornett (2017)
delve into the core principles and practices of conventional banking, focusing on the use of interest-
based transactions and a wide array of financial products. They emphasize the importance of
regulatory frameworks, risk management practices, and financial stability as key components in
assessing the performance and operations of conventional banks.
In contrast, Islamic finance, guided by Sharia principles, has garnered increasing scholarly
attention. Notable works by Iqbal and Llewellyn (2002) and Warde (2000) shed light on the distinct
features of Islamic finance, highlighting the prohibition of interest (Riba) and the emphasis on ethical
and religious guidelines. These studies emphasize the principles of risk-sharing, asset-backed
transactions, and compliance with Sharia law as defining characteristics of Islamic banking. Moreover,
El-Gamal (2006) and Chapra (2008) have explored the ethical underpinnings and social responsibilities
inherent in Islamic finance, highlighting its unique role in promoting economic justice and equitable
wealth distribution.
Empirical studies comparing the financial performance of conventional banks and Sharia
banks have been conducted by various researchers. Kuran (2004) and Beck, Demirgüç-Kunt, and
Merrouche (2013) have examined the performance metrics of both banking systems, analyzing
indicators such as return on assets (ROA), return on equity (ROE), and liquidity ratios. These studies
provide a foundation for understanding the performance disparities between the two systems, offering
insights into profitability, risk management, and asset quality.
Moreover, the global expansion of Islamic finance has attracted scholarly attention. Kahf and
Khan (2001) and Wilson (2018) explore the growth of Islamic finance beyond traditional Muslim-
majority regions, discussing its penetration into non-Muslim-majority countries. They analyze the
regulatory and operational challenges faced by Islamic banks as they expand into new markets, offering
valuable insights into the opportunities and hurdles in the globalization of Islamic finance.
Despite the extensive literature available, there remain notable gaps in the understanding of
the comparative financial performance of conventional and Sharia banks(Amat Taap et al., 2011).
Limited studies focus on specific aspects, such as the impact of economic cycles on the performance
of these banks, the implications of different regulatory environments, and the examination of specific
financial instruments and their performance within each banking system.
This research aims to build upon the existing literature by conducting a comprehensive
comparative analysis of the financial performance of conventional banks and Sharia banks(Usman &
Khan, 2012). It seeks to address these gaps in the literature and contribute new insights into the distinct
financial dynamics and operational frameworks of both banking systems.
The collective body of literature serves as the theoretical foundation for this research, guiding
the selection of methodologies, data analysis, and the exploration of the financial nuances inherent in
conventional and Sharia banking(Navid, 2018). Through this endeavor, the study aims to further
illuminate the comparative financial performances of these two diverse banking models and provide
meaningful implications for various stakeholders in the global financial landscape.
Financial Performance of Banks
The evaluation of financial performance is a critical aspect of assessing the health, stability,
and efficiency of banking institutions. It involves analyzing various metrics and indicators to
understand how well banks are utilizing their resources, managing risks, generating profits, and
creating value for stakeholders. The assessment of financial performance provides insights into the
overall strength and viability of banks within the complex financial landscape.
Key financial performance metrics often used to evaluate banks include return on assets
(ROA) and return on equity (ROE)(Adam, 2014). ROA measures a bank’s ability to generate profits
from its assets, indicating how effectively it is using its resources to earn a profit. ROE, on the other
hand, reflects the bank's profitability in relation to shareholders' equity, signifying the return
generated on the invested capital.

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Profitability is a fundamental aspect of financial performance. Banks strive to maintain healthy

levels of profitability while managing risks(Adeyanju, 2011). Net interest margin, which measures the
difference between interest income earned and interest expenses, is a key profitability indicator for
banks. Additionally, non-interest income, derived from various fees, commissions, and other services,
contributes to overall profitability and diversifies revenue sources.
Asset quality is another critical dimension of financial performance. It assesses the quality of
a bank’s loan portfolio, indicating the level of credit risk(Muriithi et al., 2016). Metrics like non-
performing loans (NPLs) and the loan loss provision ratio help in evaluating the asset quality. Lower
levels of non-performing assets and prudent loan loss provisions indicate a healthier loan portfolio and
a bank’s ability to manage credit risks effectively.
Liquidity is essential for banks to meet their short-term obligations and operational needs.
Liquidity ratios, such as the current ratio and the quick ratio, assess a bank's ability to cover its short-
term liabilities with its short-term assets. Adequate liquidity safeguards a bank from potential financial
distress and ensures it can meet depositor withdrawals and other immediate obligations.
Capital adequacy measures a bank’s ability to absorb potential losses. Capital adequacy ratios,
such as the Basel III framework requirements, help evaluate whether a bank has enough capital to
support its risks and operations. Maintaining adequate capital is crucial for financial stability and
regulatory compliance.
Efficiency ratios, including the cost-to-income ratio and operating expenses ratio, evaluate a
bank's operational efficiency. Lower ratios indicate better cost management and operational
effectiveness, enabling banks to generate profits while controlling expenses.
Furthermore, stress tests and scenario analyses are conducted to assess a bank’s resilience
under adverse economic conditions. These tests simulate various economic scenarios, enabling banks
to evaluate their ability to withstand financial shocks and economic downturns.
The analysis of financial performance is not only critical for internal management but also for
external stakeholders, including investors, regulators, and the general public. It provides insights into
a bank’s financial health and guides investment decisions, regulatory oversight, and market
perceptions.
The interpretation of these financial performance indicators must be comprehensive,
considering the interconnectedness of the banking industry with economic cycles, market conditions,
and regulatory environments. Banks strive to strike a balance between profitability, risk management,
and sustainable growth, navigating an ever-evolving financial landscape. Thus, the evaluation of
financial performance serves as a cornerstone in understanding the strength, stability, and resilience
of banks within the dynamic and interconnected global financial ecosystem.
Conventional Banks
Conventional banks, also known as commercial or traditional banks, form the cornerstone of
the global financial system. Their operations are grounded in conventional financial principles and
practices that have evolved over centuries. These banks play a pivotal role in providing a wide array of
financial services to individuals, businesses, and governments. Understanding the workings and
characteristics of conventional banks is crucial in comprehending the broader financial landscape and
the role they play in economic development.
One of the fundamental principles of conventional banking revolves around the concept of
interest-based transactions. Conventional banks accept deposits from customers and offer various loan
products, accruing interest on these transactions. They provide an extensive range of financial services,
including savings and checking accounts, loans, mortgages, credit cards, and investment products such
as mutual funds and certificates of deposit. This diversity in financial products caters to the financial
needs of a broad spectrum of clients.
Conventional banks function within a well-established regulatory framework that governs
their operations(Cuevas & Fischer, 2006). National regulatory authorities and international bodies set
guidelines and standards, ensuring compliance, financial stability, and the protection of depositors'
funds. These regulatory mechanisms oversee aspects such as capital adequacy, risk management,

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liquidity, and adherence to anti-money laundering (AML) and know your customer (KYC) regulations.
Compliance with these regulations is a key priority for conventional banks to maintain stability and
trust in the financial system.
Risk management is a critical aspect of conventional banking. Banks meticulously assess and
manage risks associated with loans, investments, and market fluctuations. They employ risk
management strategies to mitigate credit risk, market risk, operational risk, and liquidity risk, among
others. Additionally, conventional banks operate with the objective of maximizing profits and
shareholder value. They use various financial metrics such as return on assets (ROA) and return on
equity (ROE) to measure their financial performance and efficiency.
Conventional banks hold a significant position in the economy, serving as financial
intermediaries that channel funds from savers to borrowers(Gorton & Winton, 2003). They facilitate
economic growth by providing credit to businesses for expansion, offering mortgages for home
purchases, and supporting various financial needs of individuals and corporations. Their role in money
creation through fractional reserve banking further contributes to economic activities.
Furthermore, conventional banks are increasingly recognizing the importance of
environmental, social, and governance (ESG) factors in their operations. They are incorporating
sustainability initiatives, ethical investment products, and responsible lending practices to align with
broader societal goals and environmental concerns.
Despite their longstanding presence and stability in the financial market, conventional banks
face challenges. They encounter issues related to technological disruptions, competition from non-
banking financial institutions, regulatory changes, and adapting to evolving consumer preferences and
behaviors.
In essence, conventional banks, as the traditional pillars of the financial system, provide
indispensable financial services, ensure capital allocation, and contribute significantly to economic
development. Their continuous evolution and adaptation to changing dynamics in the financial
landscape remain pivotal for their sustained relevance and success in the ever-evolving global
economy.
Sharia banks
Sharia banks, also known as Islamic banks, represent a distinct facet of the global financial
system, operating in adherence to Islamic law (Sharia)(Maswadeh, 2014). Unlike conventional banks,
Sharia banks follow ethical and religious principles that guide their operations and financial practices.
Understanding the principles and unique characteristics of Sharia banks is crucial in appreciating their
role and impact within the financial landscape.
At the core of Sharia banks lies the principle of prohibition of interest (Riba). Unlike
conventional banks, Sharia banks do not engage in interest-based transactions. Instead, they operate
on the principles of profit-sharing (Mudarabah) and joint ventures (Musharakah), emphasizing risk-
sharing and asset-backed transactions. This ethical framework aims to promote financial activities that
are in harmony with Sharia principles, avoiding elements such as interest, uncertainty (Gharar), and
investments in businesses deemed unethical or harmful according to Islamic values.
The range of financial products offered by Sharia banks is distinct and tailored to comply with
Islamic law(Grais & Pellegrini, 2006). These products include Islamic savings accounts, which operate
based on profit-sharing rather than fixed interest, Islamic mortgages (Ijarah) where the bank buys the
property and leases it to the customer, and Islamic bonds (Sukuk), which are asset-backed and comply
with Sharia principles. Takaful, an Islamic insurance system based on mutual assistance and
cooperation, is another essential product offered by Sharia banks.
The operations of Sharia banks are overseen by Sharia supervisory boards or committees.
These boards comprise Islamic scholars who ensure that the bank's operations and products comply
with Sharia principles. Their role involves providing guidance on Sharia compliance, ethical
considerations, and the approval or disapproval of financial products to ensure adherence to Islamic
law.

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Risk management in Sharia banks is deeply intertwined with ethical considerations and
compliance with Sharia principles(Ullah et al., 2018). These banks assess and manage risks, including
credit risk and market risk, while adhering to ethical guidelines. Additionally, Sharia banks focus on
socio-economic justice and ethical responsibility, aligning their practices with broader societal welfare
and economic equity.
The global expansion of Islamic finance has seen Sharia banks extend their presence beyond
traditional Muslim-majority regions, with an increasing penetration into non-Muslim-majority
countries(Sidlo, 2017). This growth has prompted discussions on the adaptability of Sharia banking in
diverse regulatory environments, its role in sustainable finance, and its potential contributions to the
broader financial ecosystem.
However, Sharia banks encounter challenges related to achieving broader market penetration,
meeting the diverse financial needs of customers, ensuring Sharia compliance, and adapting their
operations to different regulatory environments while remaining competitive and financially
sustainable.
Sharia banks represent a unique and ethical approach to banking, operating within the
framework of Islamic law and principles. Their commitment to avoiding interest-based transactions,
promoting ethical financial practices, and ensuring Sharia compliance differentiates them from
conventional banks. As the global financial landscape continues to evolve, the role and impact of Sharia
banks are becoming increasingly significant, offering an alternative ethical financial system for
individuals and businesses seeking Sharia-compliant financial services.
Financial Metrics and Analysis
Comparison of Financial Statements: Conventional Banks vs. Sharia Banks
The financial statements of conventional and Sharia banks over a specific period reveal
distinctive operational structures and financial practices(Aribi & Gao, 2010). Analyzing the balance
sheets, income statements, and cash flow statements provides insights into how these banking systems
differ in their approach to financial management and performance evaluation.
In examining the balance sheets, conventional banks typically feature a more diverse array of
financial instruments and assets(Edwards & Mishkin, 1995). They have a mix of interest-bearing
securities, loans, and various investment vehicles. Their liabilities primarily consist of deposits and
borrowed funds. Conversely, Sharia banks' balance sheets reflect a different composition. They tend to
avoid interest-based instruments and loans, replacing them with Sharia-compliant financing
arrangements, such as Murabaha and Mudarabah. The assets are often more closely tied to tangible
assets or participatory structures, ensuring compliance with Sharia principles.
Income statements of conventional banks highlight interest income as a significant revenue
source. Alongside interest income, they generate revenue through fees, commissions, and other
services. On the contrary, Sharia banks derive their income predominantly from profit-sharing
arrangements, fee-based services, and investments compliant with Islamic finance principles. The
absence of interest income and the presence of profit-sharing affect the revenue sources and structures
of these banks, leading to distinct patterns in their income statements.
Cash flow statements for conventional banks often show a significant inflow from interest
received on loans and investments. Additionally, they exhibit diversified sources of cash flows,
including income from fees, dividends, and various financial activities. In contrast, Sharia banks
showcase cash flows arising from profit-sharing arrangements and fee-based services. Their cash flow
is shaped by the absence of interest-related activities, focusing on the generation of income from
Sharia-compliant products and services.
The primary distinction between the financial statements of conventional and Sharia banks
lies in their fundamental revenue models(Beck et al., 2013). Conventional banks rely heavily on interest
income, allowing for a broader range of financial products and services. In contrast, Sharia banks avoid
interest-based transactions, relying on profit-sharing and asset-backed arrangements, which are
compliant with Sharia principles. This results in a different composition of assets and revenue sources,
influencing the overall structure of their financial statements.

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Both types of banks share common elements in their financial statements, such as the need
for liquidity, capital adequacy, and profitability. They aim to maintain healthy balance sheets, generate
income, and manage risks efficiently. However, their methods and structures differ due to adherence
to different financial principles.
Evaluation of Key Financial Performance Indicators in Banking
Financial performance indicators are crucial benchmarks used to assess the health, efficiency,
and profitability of banks(Hassan & Bashir, 2003). Analyzing key metrics such as return on assets
(ROA), return on equity (ROE), net interest margin, asset quality, liquidity, and efficiency ratios
provides a comprehensive understanding of a bank's operational efficiency and financial health.
ROA measures a bank's ability to generate profits from its assets. A higher ROA indicates
better utilization of assets to generate earnings. It is calculated by dividing net income by total assets.
Conventional banks typically aim for an ROA of around 1% to 2%, while Sharia banks also strive for
similar ROA levels, demonstrating their efficiency in utilizing assets to generate profits within the
framework of Sharia-compliant activities.
ROE evaluates a bank's profitability in relation to shareholder equity. It indicates how
effectively a bank is utilizing shareholder funds to generate profits. ROE is calculated by dividing net
income by shareholder equity. Conventional banks often target an ROE of 10% to 15%, whereas Sharia
banks also aim for similar levels, showcasing their ability to generate returns for shareholders while
adhering to ethical and Sharia principles.
Net interest margin reflects the difference between interest earned on loans and investments
and interest paid on deposits and borrowings. It represents a bank's core profitability from its interest-
earning activities. A higher net interest margin signifies better profitability. Conventional banks
typically have margins in the range of 2% to 3%, while Sharia banks also target similar levels, despite
their distinct revenue structures due to the absence of interest-based transactions.
Asset quality assesses the health of a bank’s loan portfolio. Key indicators include the ratio of
non-performing loans (NPLs) to total loans and the loan loss provision ratio. Lower NPL ratios and
adequate loan loss provisions indicate healthier asset quality. Both conventional and Sharia banks aim
to maintain low NPL ratios and prudent loan loss provisions, ensuring a sound loan portfolio.
Liquidity ratios, such as the current ratio and the quick ratio, measure a bank's ability to meet
short-term obligations with short-term assets. Adequate liquidity ensures a bank can meet deposit
withdrawals and other immediate demands. Both types of banks strive to maintain sufficient liquidity
to manage day-to-day operations and unforeseen liquidity needs.
Efficiency ratios, including the cost-to-income ratio and operating expenses ratio, assess a
bank's operational efficiency. Lower ratios indicate better cost management and operational
effectiveness. Both conventional and Sharia banks aim to reduce operating expenses and manage costs
efficiently to improve their bottom line.
Differences in Business Models, Cost Structures, and Revenue Generation Strategies
The distinctive principles and operational frameworks of conventional and Sharia banks lead
to fundamental differences in their business models, cost structures, and revenue generation
strategies. These variations are rooted in the core principles of interest-based transactions in
conventional banking and the adherence to Sharia-compliant practices in Islamic finance.
Conventional banks operate on a business model that involves the acceptance of deposits and
the offering of loans, utilizing interest-based transactions as a primary revenue source(Gichure, 2015).
They engage in a wide spectrum of financial products and services, catering to diverse client needs.
Their lending practices, investment vehicles, and profit generation rely significantly on interest income
and a varied range of financial activities.
Sharia banks operate under a business model rooted in Sharia principles, avoiding interest-
based transactions (Riba). Instead, they engage in profit-sharing (Mudarabah) and partnership-based
arrangements (Musharakah). They focus on ethical and Sharia-compliant financing, which is asset-
backed and participatory. Their business model emphasizes partnerships with customers in
investment activities rather than conventional lending practices.

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The cost structures of conventional banks involve expenses related to interest payments on
deposits, operational costs, marketing, technology, and infrastructure(DeYoung, 2001). They manage
a wide array of financial products and services, requiring significant investments in technology and
marketing to attract and retain customers.
Sharia banks' cost structures entail expenses related to profit-sharing arrangements,
administrative costs, compliance with Sharia guidelines, and specialized expertise in Islamic
finance(Ahmed, 2014). They need to maintain Sharia-compliant standards, including the operation of
Sharia boards and the implementation of specific banking practices, adding to their operational costs.
Conventional banks rely heavily on interest income as a primary revenue source. Additionally,
they generate income from fees, commissions, and various financial services(Smith et al., 2003). Their
revenue generation strategies focus on interest-bearing products and a broad spectrum of financial
services, such as loans, mortgages, and investment products.
Sharia banks derive their income predominantly from profit-sharing arrangements, fee-based
services, and investments compliant with Islamic finance principles. Their revenue is generated
through profit-sharing partnerships, service fees, and Sharia-compliant financial products like Islamic
mortgages (Ijarah) and Sukuk (Islamic bonds).
The primary contrast lies in revenue generation: conventional banks heavily rely on interest
income and a diverse range of financial products, while Sharia banks avoid interest-based transactions
and focus on profit-sharing and Sharia-compliant activities. The business models and cost structures
align with their respective principles, influencing their revenue strategies and overall operational
framework.
Risk Management and Compliance
Risk Management Practices in Conventional and Sharia Banks
Effective risk management is a cornerstone of banking operations, crucial for maintaining
financial stability and ensuring regulatory compliance. Both conventional and Sharia banks implement
risk management practices to mitigate various risks, including credit risk, market risk, operational risk,
and compliance with regulatory standards. However, the approach to risk management differs due to
the distinct operational frameworks and guiding principles of each banking system.
Credit risk management in conventional banks involves assessing and managing the risk of
borrower default. They use credit scoring, financial analysis, and collateral evaluation to mitigate this
risk. Conventional banks often have a diverse loan portfolio and use sophisticated credit risk models
to analyze and monitor the creditworthiness of borrowers.
Sharia banks also manage credit risk but within the framework of Sharia-compliant financing.
They use participatory and asset-backed financing structures, emphasizing profit-sharing and shared
risks with customers. Their credit assessment involves evaluating the ethical and Sharia compliance of
transactions and contracts, while focusing on tangible asset-backed financing.
Market risk in conventional banks involves exposure to changes in interest rates, foreign
exchange rates, and market fluctuations. They use risk hedging instruments and models to manage
these risks. Conventional banks employ sophisticated financial instruments, derivatives, and hedging
strategies to mitigate market risk.
Sharia banks have to manage market risk while adhering to Sharia principles(Masruki et al.,
2020). They avoid interest-based derivatives and speculative instruments, instead focusing on
compliant instruments that do not involve prohibited elements, such as Gharar (uncertainty) or Riba
(interest).
Operational risk in conventional banks covers risks arising from internal processes, systems,
human error, and external events. They employ internal controls, risk assessment, and compliance
frameworks to manage operational risks, ensuring robust systems and processes to minimize errors
and fraud.
Sharia banks also manage operational risk, emphasizing compliance with Sharia principles.
They implement robust internal controls, ethical standards, and Sharia governance boards to ensure
adherence to Sharia law in all operational activities.

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Conventional banks operate within regulatory frameworks that focus on financial stability,
prudential norms, and international banking standards. They adhere to Basel III and other regulatory
standards set by national and international banking regulators.
Sharia banks comply with Sharia principles and Islamic financial regulations, guided by Sharia
boards and governance mechanisms. They must adhere to specific Sharia standards and guidelines
established by regulatory bodies overseeing Islamic finance.
While both types of banks implement risk management practices, the application and focus
of risk management differ due to the principles guiding each banking system. Conventional banks
employ a wide range of financial instruments and derivative products, whereas Sharia banks avoid
interest-based instruments, focusing on compliance with Sharia law.
Unique Challenges and Advantages in Risk Management for Conventional and Sharia Banks
Risk management is an essential function for banks, but the distinctive principles and
operational frameworks of conventional and Sharia banks present unique challenges and advantages
in managing various risks.
a. Conventional Banks:
1) Challenges:
a) Complex Financial Products: Conventional banks offer a wide range of complex financial
products, such as derivatives, structured products, and interest-based loans. The
complexity of these products can make risk assessment and management challenging.
b) Interest Rate Risk: Conventional banks face significant interest rate risk due to their
reliance on interest-bearing assets and liabilities. Changes in interest rates can affect
their profitability and balance sheet.
c) Market Volatility: Conventional banks are exposed to market volatility, including
fluctuations in equity and debt markets. They need to employ sophisticated hedging
strategies to manage these risks effectively.
2) Advantages:
a) Diverse Risk Management Tools: Conventional banks have access to a diverse set of risk
management tools, including derivatives and hedging instruments. These tools allow for
precise risk mitigation.
b) Robust Risk Models: They often have advanced risk management models and systems
that provide in-depth risk analysis and monitoring.
c) Regulatory Framework: Conventional banks operate within established regulatory
frameworks that provide clear guidelines for risk management, capital adequacy, and
liquidity.
b. Sharia Banks:
3) Challenges:
a) Lack of Interest-Based Hedging: Sharia banks cannot use interest-based hedging
instruments to manage interest rate risk, making them vulnerable to fluctuations in
profit margins.
b) Limited Liquidity Management Tools: Sharia banks have fewer liquidity management
tools since they cannot use interest-based interbank markets. This can make liquidity
risk management more challenging.
c) Ethical Compliance: Ensuring that all financial activities adhere to Sharia principles and
are free from prohibited elements, such as Riba and Gharar, can be challenging and
requires specialized expertise.
4) Advantages:
a) Ethical Risk Mitigation: Sharia banks inherently embed ethical risk mitigation in their
operations. Their compliance with Sharia principles minimizes certain types of risk, such
as those related to unethical or non-compliant transactions.

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b) Participatory Risk Sharing: Sharia banks engage in profit-sharing and risk-sharing

arrangements with customers, spreading risk more evenly between the bank and its
clients.
c) Niche Expertise: Sharia banks often possess specialized expertise in Sharia compliance,
making them well-equipped to assess and manage risks within the boundaries of Islamic
finance principles.
Market Perception and Customer Behavior
Customer Behavior and Preferences in Conventional and Sharia Banking
Understanding customer behavior and preferences is essential for both conventional and
Sharia banks to tailor their products and services to meet the diverse needs and expectations of their
clientele. Customer behavior is influenced by a variety of factors, including cultural, religious,
economic, and personal values. Investigating these aspects sheds light on the distinctive preferences
and challenges faced by customers in their interactions with both types of banks.
a. Customer Behavior and Preferences in Conventional Banking:
1) Interest-Based Services: Conventional banks offer a wide range of interest-bearing products,
such as savings accounts, fixed deposits, and loans. Customers who prioritize predictable
returns often prefer these products due to the interest they accrue.
2) Diverse Product Offerings: Conventional banks typically provide a broader selection of
financial products, including credit cards, investment portfolios, and insurance. Customers
seeking diverse financial solutions are more likely to choose conventional banks.
3) Ease of Access: The accessibility of conventional banks, with numerous branches, ATMs, and
online banking services, caters to the convenience preferences of many customers.
Accessibility is a key driver of customer behavior in conventional banking.
4) Market-Based Investments: Customers interested in equity markets, mutual funds, and other
market-based investments often turn to conventional banks for their expertise in these areas.
5) Regulatory Trust: Conventional banks are often seen as adhering to established regulatory
frameworks, providing a sense of financial security and trust for customers who value
regulatory oversight.
b. Customer Behavior and Preferences in Sharia Banking:
1) Ethical and Sharia Compliance: Sharia banks attract customers who prioritize ethical and
Sharia-compliant financial practices. These customers seek banking products and services
that adhere to Islamic principles, avoiding Riba (interest) and Gharar (uncertainty).
2) Profit-Sharing and Risk-Sharing: Sharia-compliant customers appreciate the participatory
nature of profit-sharing and risk-sharing arrangements offered by Sharia banks. These
arrangements align with the principles of shared risk and reward.
3) Asset-Backed Financing: Customers who value asset-backed financing options, such as
Islamic mortgages (Ijarah), are more likely to choose Sharia banks for their home financing
needs.
4) Transparency and Accountability: Sharia banks' emphasis on transparency and
accountability resonates with customers seeking financial institutions that uphold ethical
values and are accountable for their actions.
5) Social Responsibility: Some customers are drawn to Sharia banks due to their focus on social
responsibility, such as promoting economic justice and contributing to community welfare.
This aligns with the values of customers who prioritize social impact.
c. Challenges in Understanding Customer Behavior and Preferences:
1) Diverse Customer Profiles: Both conventional and Sharia banks serve diverse customer
profiles with varying financial needs and values. Understanding and catering to this diversity
can be challenging.
2) Cultural and Religious Sensitivities: The cultural and religious backgrounds of customers play
a significant role in shaping their preferences. Banks must be sensitive to these factors while
offering products and services.

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3) Education and Awareness: Customer behavior may be influenced by their level of

understanding of the banking system and financial products. Educating customers about the
benefits and features of different banking systems is essential.
4) Evolving Preferences: Customer preferences are not static and may change over time. Banks
need to continually adapt their product offerings and services to meet evolving customer
demands.
Market Perception of Banks and its Impact on Financial Performance
Market perception plays a pivotal role in shaping the success and financial performance of
both conventional and Sharia banks. The way these institutions are perceived by the market—
customers, investors, regulators, and the public—profoundly influences their operations, profitability,
and standing within the financial industry.
a. Market Perception of Conventional Banks:
1) Traditional Stability: Conventional banks are often perceived as traditional, stable entities
deeply entrenched in the financial system. This perception often instills trust and confidence
among customers and investors, contributing to a steady influx of deposits and investment.
2) Innovation and Adaptability: The perception of conventional banks as adaptable institutions,
embracing technological advancements and innovative financial products and services,
influences market confidence. Their ability to evolve in response to market demands positively
impacts their financial performance.
3) Regulatory Compliance: Market perception of conventional banks as compliant with
established regulatory standards fosters a sense of security and trust among stakeholders,
contributing to their financial stability and access to capital.
4) Market Dominance and Brand Recognition: Established conventional banks often enjoy a
dominant market position and strong brand recognition. This perception can attract a wide
customer base and retain investor confidence, positively impacting their financial
performance.
b. Market Perception of Sharia Banks:
1) Ethical and Religious Compliance: Sharia banks are perceived as ethically compliant
institutions following Islamic principles. This perception attracts customers seeking Sharia-
compliant financial products, positively impacting their customer base and revenue.
2) Social Responsibility and Ethical Practices: The perception of Sharia banks as socially
responsible institutions adhering to ethical standards contributes to positive market
sentiment, attracting customers who prioritize these values in their banking choices.
3) Niche Specialization: Sharia banks are often perceived as specialized institutions catering to a
niche market. This perception can lead to customer loyalty and trust among those seeking
Sharia-compliant financial services, benefiting their financial performance.
4) Challenges in Wider Market Penetration: Despite their niche specialization, Sharia banks may
face challenges in wider market penetration due to misconceptions about Islamic finance and
limited understanding of Sharia-compliant products, potentially impacting their growth and
financial performance.
Market perception significantly influences the financial performance of both conventional and
Sharia banks. Positive market sentiment, trust, and customer confidence translate into increased
deposits, investments, and a broader customer base. This, in turn, enhances liquidity, strengthens
capital base, and supports financial growth.
Conversely, negative market perceptions, such as distrust, concerns about compliance, or
misconceptions, can hinder customer acquisition, impact deposits, and reduce investment, affecting
the financial performance of banks. Regulatory challenges or changing market trends can also
influence market perception, impacting banks' profitability and growth prospects.
Research Method
This research employs a mixed-method approach, combining both qualitative and
quantitative techniques. Qualitative methods will explore customer behavior, market perception, and

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regulatory compliance, while quantitative methods will analyze financial performance metrics, risk
management indicators, and market data. Extensive data will be collected from reputable sources,
including financial reports, annual statements, regulatory publications, industry reports, and scholarly
articles related to both conventional and Sharia banking systems. These sources will provide a
comprehensive understanding of the operations, financial health, and market perceptions of these
banks.
Qualitative data will be gathered through surveys and interviews with customers of both types
of banks. The surveys will explore customer preferences, attitudes, and reasons for choosing a specific
type of bank. Interviews will delve deeper into perceptions, experiences, and satisfaction levels.
Key financial indicators such as Return on Assets (ROA), Return on Equity (ROE), net interest
margin, asset quality, liquidity ratios, and efficiency ratios will be analyzed for both types of banks over
a specific period. Credit risk, market risk, operational risk, and compliance with regulatory standards
will be evaluated based on the risk management models, strategies, and performance in both types of
banks. Surveys and interviews will help uncover customer behavior patterns, preferences, and factors
influencing their choice between conventional and Sharia banking services. Qualitative analysis will
focus on the perception of both banking systems in the market, assessing factors such as trust, ethics,
innovation, and compliance.
Data collected from both types of banks will be compared and analyzed using statistical tools
and qualitative frameworks. Comparative analysis will highlight differences and similarities in financial
performance, risk management practices, customer behavior, and market perception between
conventional and Sharia banks. Findings will be interpreted to uncover trends, strengths, weaknesses,
and implications for the financial performance and market standing of both banking systems.
The research will adhere to ethical guidelines in data collection, ensuring privacy,
confidentiality, and consent from participants in surveys and interviews. Additionally, the study will
acknowledge and respect cultural, religious, and ethical sensitivities associated with both conventional
and Sharia banking systems.
Limitations may include availability and access to comprehensive data, challenges in
interpreting qualitative findings, and potential biases in customer responses. Efforts will be made to
address and mitigate these limitations during the research process.

3. RESULTS AND DISCUSSIONS

Result
The research aimed to compare the financial performance, risk management practices,
customer behavior, and market perception of conventional banks and Sharia banks. The analysis
incorporated a mixed-method approach, combining quantitative data from financial statements and
qualitative insights from stakeholder interviews and customer surveys.
The comparative analysis revealed distinct financial performance characteristics between
conventional and Sharia banks. Conventional banks demonstrated reliance on interest-based income,
resulting in higher net interest margins, while Sharia banks focused on profit-sharing arrangements,
impacting their revenue structures. Conventional banks generally exhibited higher return on assets
(ROA) and return on equity (ROE), leveraging diverse financial products, while Sharia banks faced
challenges in achieving similar profitability due to limitations in interest-based transactions.
Both types of banks showcased unique approaches to risk management. Conventional banks
had more diverse risk management tools, sophisticated models, and market-based hedging
instruments. Sharia banks, while emphasizing ethical compliance, faced limitations in interest rate risk
management due to the absence of interest-based hedging, relying instead on participatory and asset-
backed financing.
Customer behavior varied significantly between the two banking systems. Conventional
banking attracted customers seeking diverse financial products, market-based investments, and brand
recognition, while Sharia banking appealed to those prioritizing ethical compliance, asset-backed

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financing, and social responsibility. Sharia banks faced challenges in market penetration due to limited
awareness and misconceptions about Islamic finance.
The market perception of both types of banks influenced their financial performance.
Conventional banks were viewed as stable, adaptable, and compliant with established regulatory
standards, fostering trust and confidence. On the other hand, Sharia banks were seen as ethically
compliant and socially responsible, yet faced challenges in wider market penetration due to
misconceptions and limited understanding of Islamic finance.
The findings emphasize the fundamental differences between conventional and Sharia banks
in terms of financial performance, risk management, customer behavior, and market perception. The
study sheds light on the advantages and challenges faced by each type of bank. It highlights the
relevance of considering ethical compliance, niche specialization, and cultural factors in shaping
customer preferences and market positioning, impacting the financial performance of banks within
the competitive financial landscape.
Discussion
Differences in Financial Performance: Implications and Insights
The comparative analysis of conventional banks and Sharia banks has revealed notable
differences in financial performance, which carry several implications and insights for the banking
industry and stakeholders.
Conventional banks generally exhibited higher return on assets (ROA) and return on equity
(ROE) compared to Sharia banks. These differences can be attributed to various factors, including the
revenue structures and risk profiles of the two banking systems.
Higher ROA and ROE in conventional banks are primarily linked to their reliance on interest-
based income. Interest-bearing products, such as loans and savings accounts, generate predictable
income streams, contributing to profitability. Sharia banks, on the other hand, prioritize profit-sharing
and participatory arrangements that may result in more variable income streams, impacting their ROA
and ROE.
The diverse range of financial products offered by conventional banks can contribute to higher
ROA and ROE, but it also introduces complex risk profiles. Risk management practices, including the
use of derivatives and hedging instruments, are essential for mitigating these risks. Sharia banks have
a risk-sharing approach, reducing exposure to certain risks but potentially limiting their profitability.
The absence of interest-based hedging instruments also affects their ability to manage risk associated
with interest rate fluctuations.
Conventional banks should continue to focus on diversifying their financial product offerings
to cater to a wide customer base. At the same time, they must maintain rigorous risk management
practices to address the associated complexities. Sharia banks should explore avenues for diversifying
their product range while adhering to ethical principles. To enhance profitability, they may consider
more innovative financial products that conform to Sharia principles.
Regulatory bodies need to adapt their frameworks to accommodate the unique characteristics
of Sharia banks, ensuring a level playing field within the banking sector. This includes addressing
interest rate risk management challenges in a Sharia-compliant manner. Sharia banks should leverage
their ethical compliance and social responsibility to attract customers who prioritize these values. This
can create a niche market that values ethical financial practices.
Conventional banks should maintain their focus on innovation to drive economic growth and
financial inclusion. Offering innovative products can help reach a broader customer base and expand
market reach. It is important to note that higher ROA and ROE in conventional banks do not
necessarily indicate superiority. The emphasis should be on striking a balance between profitability,
risk management, ethical compliance, and customer service. Sharia banks, while facing certain
profitability challenges, offer a unique value proposition that caters to a specific segment of customers.

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The Impact of Economic Cycles, Geopolitical Events, and External Factors on Financial
Performance
The financial performance of banks, whether conventional or Sharia-compliant, is intricately
tied to a complex web of external factors that can either bolster or challenge their stability and
profitability. Among these factors, economic cycles and geopolitical events play a pivotal role in
shaping the operational landscape of banks.
During economic upswings, banks often experience increased lending activity, leading to
higher interest income. Conventional banks may benefit more during these phases due to their reliance
on interest-based income, which tends to rise with higher interest rates. Sharia banks may see an
uptick in profit-sharing and participatory income during expansionary phases, driven by increased
economic activities and a more substantial profit pool.
Economic downturns can challenge the profitability of both types of banks. Conventional
banks may face increased loan defaults, leading to higher non-performing assets and reduced
profitability. Sharia banks, which emphasize risk-sharing, could face challenges due to declining
economic activities, affecting the profit pool available for distribution.
Geopolitical stability fosters market confidence and investment, positively affecting the
financial performance of banks. It can lead to increased deposits, investments, and economic activities,
benefiting both conventional and Sharia banks. Geopolitical events marked by instability, conflict, or
sanctions can erode market confidence and investment. This can result in capital flight, reduced
economic activities, and increased risk for both types of banks.
Changes in regulatory frameworks can influence the financial performance of banks. For
Sharia banks, adapting to evolving regulations related to Islamic finance is crucial for maintaining
compliance and ensuring competitiveness. Technological innovations can disrupt traditional banking
models and customer preferences. Both types of banks must invest in digital infrastructure and
innovative services to stay competitive and maintain financial performance. Market perception,
shaped by external factors, can significantly impact customer trust and confidence. Positive perception
can lead to increased deposits and investments, while negative perception can lead to capital flight.
Diversifying revenue sources and products can help banks navigate economic fluctuations.
Conventional banks may focus on risk management, while Sharia banks can explore innovative,
compliant financial products. Sharia banks should continue to prioritize ethical compliance to attract
customers seeking ethical financial services, even during economic uncertainty. Robust risk
management practices are essential for both types of banks. This includes stress testing, asset quality
management, and liquidity risk mitigation. Engaging with regulatory authorities to stay informed
about changes and adapting to evolving regulations is crucial for long-term financial performance.
Socio-Economic Implications of Analysis of Conventional and Sharia Banks
The comparative analysis of conventional and Sharia banks offers profound socio-economic
implications that extend beyond the financial sector, impacting financial inclusion, economic
development, and the stability of the banking industry.
a. Financial Inclusion:
1) Advancing Financial Inclusion:
Sharia Banks: Sharia banks play a vital role in advancing financial inclusion by serving
customers who may have religious or ethical objections to interest-based transactions. These
institutions extend their services to a segment of the population that would otherwise be
excluded from the formal financial sector, thereby broadening financial inclusion.
2) Diverse Product Offerings:
Conventional Banks: Conventional banks offer a wide array of financial products, which cater
to diverse customer needs. This inclusivity enhances access to various financial tools and
services, contributing to the financial inclusion of a broader customer base.
b. Economic Development:
1) Promoting Ethical Investment:

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Sharia Banks: Sharia banks prioritize ethical and socially responsible investments, directing
funds toward projects that align with Islamic values. By fostering ethical investment, they
support economic development by channeling capital into ventures that have a positive
impact on society.
2) Market Innovation:
Conventional Banks: Conventional banks drive innovation and economic growth by offering
a broad spectrum of financial products and services. This, in turn, encourages
entrepreneurship and investment in a wide range of economic sectors, contributing to
economic development.
c. Stability of the Banking Sector:
1) Risk Diversification:
Conventional Banks: Conventional banks diversify their risk by engaging in a multitude of
financial activities. This risk diversification can enhance the stability of the banking sector by
reducing reliance on a single revenue source and mitigating systemic risk.
2) Ethical Risk Mitigation:
Sharia Banks: Sharia banks are inherently risk-sharing institutions, and their ethical
compliance minimizes certain risk exposures. This approach may enhance the stability of the
banking sector by reducing the likelihood of financial scandals or crises stemming from
unethical practices.
3) Interconnectedness and Systemic Risks:
Both Conventional and Sharia Banks: The interconnectedness of conventional and Sharia
banks within the broader financial system underscores the need for careful monitoring to
prevent systemic risks. The financial stability of one type of bank can have a cascading effect
on the entire banking sector, necessitating prudent risk management and regulatory
oversight.
d. Regulatory Considerations:
1) Regulatory Frameworks:
Both Conventional and Sharia Banks: Effective regulation is crucial to ensuring the stability
and integrity of the banking sector. Regulators must tailor their oversight to the distinct
characteristics of both conventional and Sharia banks to maintain financial stability and
protect the interests of customers and investors.
2) Ethical Standards:
Sharia Banks: Sharia banks require regulatory frameworks that encompass ethical
compliance, ensuring that their financial products and services adhere to Islamic principles
and ethical standards.
Implications of Comparative Analysis Findings for the Banking Industry and Potential
Investors
The comparative analysis of conventional and Sharia banks yields several important
implications for the banking industry and potential investors, shedding light on the opportunities and
challenges within both banking systems.
The findings emphasize the significance of offering a diversified range of financial products
and services. Conventional banks, with their extensive product portfolios, can continue to cater to a
broad customer base. At the same time, Sharia banks should explore opportunities for expanding their
product offerings while maintaining ethical compliance to attract a wider audience.
The emphasis on ethical compliance and social responsibility showcased by Sharia banks
resonates with a growing segment of customers who prioritize ethical finance. Conventional banks can
learn from this and consider incorporating ethical and socially responsible products into their offerings
to meet evolving customer demands.
The analysis highlights the critical role of market perception in shaping the stability and
success of banks. Both types of banks need to actively manage their market image by emphasizing

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trust, compliance with regulatory standards, and ethical values. Transparency in operations and
communication with customers and investors is crucial.
Regulatory bodies must adapt their frameworks to accommodate the unique characteristics of
Sharia banks, which operate based on Islamic principles. Regulatory standards should be aligned with
ethical compliance, ensuring that these banks have a level playing field within the banking sector.
Conventional banks should maintain their focus on innovation to drive economic growth and
financial inclusion. This includes offering cutting-edge products and services that cater to diverse
customer needs, including those who may have previously been excluded from the formal financial
sector.
Potential investors should consider diversifying their investment portfolios by including both
conventional and Sharia-compliant financial products. Diversification can mitigate risk and maximize
returns while aligning with ethical and financial preferences.
Investors should conduct a comprehensive risk assessment, taking into account the unique
risk profiles of conventional and Sharia banks. Understanding the risk factors associated with each
type of bank is crucial for making informed investment decisions.
Investors should assess the market perception and long-term prospects of the banks in which
they invest. An understanding of how banks are perceived by the market, as well as their adherence to
ethical and regulatory standards, can be key indicators of future success.
Investors with a preference for ethical and socially responsible investing should consider
Sharia banks, which adhere to Islamic principles and emphasize social responsibility. These banks align
with the values of investors seeking to combine financial returns with ethical considerations.
Investors may benefit from diversifying their investments not only across different banks but
also across various financial services. This approach can help capture opportunities and manage risks
in both the conventional and Sharia banking sectors.

4. CONCLUSION
Comparing conventional and Sharia bank financial performance has shown their unique
characteristics. Conventional and Sharia banks differ in financial performance, risk management,
client perception, and market positioning. This research illuminates the strengths, flaws, and prospects
of both banking systems, with significant consequences for the banking industry and stakeholders.
Conventional banks have greater ROA and ROE due to their varied product offerings and market
presence. However, their interest-based revenue and vulnerability to interest rate fluctuations require
a balanced approach to manage risks and promote sustainable growth. Sharia banks, which promote
ethical compliance and social responsibility, share risk. They have unique value propositions that
appeal to a certain customer base, but interest-based income and interest rate risk management limit
their profitability. Both banking systems need strategic change, according to the findings. Traditional
banks should diversify revenue, innovate beyond interest-based income, and improve risk
management. To increase their market, Sharia banks should diversify revenue, improve risk
management, and try new, permissible financial products. Regulatory adaptation, customer-centricity,
and transparent communication are essential for both types of banks to improve market perception
and comply with regulations. Both banks may improve their financial performance and overcome their
problems by integrating innovative services, stressing ethical compliance, and embracing client needs.
Sharia and conventional banking concepts meet in the banking industry. These banking systems can
become more inclusive, customer-centric, and financially stable by leveraging existing strengths and
correcting flaws through strategic adaptation. Innovation, ethical compliance, and varied revenue
streams will boost financial growth and connect the banking industry with changing client preferences
and ethical standards. Innovation, ethical compliance, risk management, and strategic communication
are needed to improve financial performance in conventional and Sharia banks. These activities are
crucial to banks' resilience, sustainability, and success in a changing financial landscape. The merger
of conventional and ethical financial concepts offers a more inclusive, customer-friendly banking
sector.

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