The economic growth of a country is determined with the performance of its financial
sector. The stability of a country’s banking sector of will highly reflect the economic growth of
the country. Different initiations in the banking industry have been done of late and one of the
Islamic banking. Currently, these banks are run in the whole world. This paper is done for
inspecting the key contrasts between the Islamic and Conventional banks in Kuwait. The test
also involves researching various studies carried out by various scientists on the approval of
Islamic banks in Kuwait. The knowledge obtained from various studies will be used to show how
banks operate and what the banks will expect later.
The capital adequacy, the assets quality, the income and the liquidity of the banks were
the markers used to discover of the execution of the Islamic and Conventional banks. The
Islamic bank has been performing superior to the conventional banks in about every one of the
fields in Kuwait. The mean qualities acquired from the indicators demonstrated that the Islamic
banks were in an enhanced position than the conventional banks.
COMPARISON OF AN ISLAMIC AND A CONVETIONAL BANK 4
The economic growth of a country is determined by the performance of financial sector.
The banking sector is the most influential sector in a country's financial results. The stability of a
country's banking sector would greatly represent the country's economic development. The
banking system connects both excess and deficits and thus determines the growth of the
economy becomes a significant field (Jaffar & Manarvi, 2011). There are recent developments in
the banking system, which are being reshaped and revolutionized by most banks in Kuwait.
Different initiations in the banking industry have been done of late and one of the Islamic
banking. Currently, these banks are run in the whole world. When these banks were launched,
they were designed to meet the needs of Muslims, but are currently accepted in Kuwait and
among the rapidly increasing banking sector. These banks were created to comply with the
Sharia laws in the past, the first was begun in 1963, but was later shut down in 1967.
The Sharia Law founded two Islamic banks in 1975, since more information was
available on Islamic finance and on the expansion of the Islamic Conference Organization. The
Kuwait Islamic Bank and the Bank for Islamic Growth were these banks. Islamic banks have
seen 19% growth over the last four years and bank assets have risen to $1.3 trillion. The Islamic
banking system reported a 50% rise in the total banking sector compared with the other systems
of banking. Nonetheless, over the next 10 years it is anticipated that the bank will be bigger and
that Islamic finance will account for over 50% of its banking assets (Ali et al., 2021).
Various recent research has indicated that Islamic banks in Kuwait are operating more
effectively than traditional banks. Dure banks were found to function more effectively than
traditional banks during the financial crisis witnessed in 2008. The banks' success in a nation
must be monitored closely, because they play a key role in the world economy. A strong and
COMPARISON OF AN ISLAMIC AND A CONVETIONAL BANK 5
efficient financial system would result in effective operations of the banks and other financial
institutions in a nation. Close supervision of the bank is critical because it will guarantee that
bank processes are secured against failure and inadequate financial sector management. The
entire banking system would need a highly efficient bank. The efficient banking system would
be of benefit to the bank stakeholders including investors, the public as well as customers.
There more researches that have been done since the introduction of the banking system
and most of them have been geared at finding out what effects the effective banking will have to
the economy of Kuwait. The same studies are extremely concerned with determining which
factors influence banks' results. There are various metrics for a bank's success to be examined.
These are the same metrics used to assess the efficiency and comparison of various banks based
on the results from the indicators. Both the internal metrics such as the consistency and the
liquidity of assets and microeconomic changes such as annual inflation and GDP growth rate of
Kuwait (Ali et al., 2021).
The aim of the study
This paper is aimed at investigating the key difference between the Islamic and the
conventional banks of Kuwait. On this aspect, the paper will be comparing the performance of
the two types of banks and which one has been highly performing.
The study will be studying the performance of the two types of banks in different
dimensions. As stated earlier, there are different tools that can be used to indicate the
performance of the banks. These analyzed on different platforms. The hypothesis will be used to
test how the indicators will of performance in the banks compare. The hypothesis to be tested
COMPARISON OF AN ISLAMIC AND A CONVETIONAL BANK 6
will include four indicators of measuring the performance of the banks in Kuwait. The capital
adequacy, the assets quality, the earnings and the liquidity of the banks will be used.
The following hypothesis will be tested in identifying which bank performs better than
H1: The capital adequacy in the Islamic banks is better that that of the conventional
H2: The assets quality of the Islamic banks is better than that of the conventional banks.
H3: The earnings of the Islamic banks are better than those of the conventional banks.
H4: The liquidity of the Islamic banks is better than that of the conventional banks.
This study is focused on historical data analysis. Study includes also analyzes of various
studies carried out on the results of Islamic banks by other scholars. The data used in various
research studies can be used to demonstrate the performance of the banks as well as the future
expectation of the banks (Ali et al., 2021). The number of the banks that will be used in the study
will be five and their information about the indicators will be collected for the past five years.
The data will be represented in graphs, pie charts and histograms. The comparison of the banks
will be done based on the hypotheses that were stated in the introduction. The study will use five
conventional banks and five Islamic banks of Kuwait.
The adequacy of capital of the Conventional and Islamic banks.
The capital adequacy between the banks is usually done depending on the ratios of the
debts as well as the capital to risks assets. The capital adequacy measures the financial strength
of a bank and its viability to the capital in relation to the assets and the loans. It can be used to
COMPARISON OF AN ISLAMIC AND A CONVETIONAL BANK 7
tell how the bank will respond to times of crises and how the bank will overcome the crises.
Using the equity to total assets of the two banks, the performance of the banks in Kuwait was
analyzed. Recent studies that have been done to find out the difference in the debt-to-equity ratio
of the two banks have showed that the adequacy of capital of the conventional banks is higher
than the capital adequacy of the Islamic banks.
The conventional banks of Kuwait have reported that their median value is more than that
of the Islamic banks in the past five years (Thorsten et al., 2013). The mean ratio of the
conventional banks was found to be 1.6 while that of the Islamic banks was found to be 0.4. The
capital to risk assets ratio on the other hand has shown that the Islamic banks are in a better
position than the conventional banks. The mean value of the Islamic banks of Kuwait stands at
0.4 although that of the conventional banks has been confirmed to be 0.1. From the analysis, it is
evident that the banks are strong in protecting their customers in case of disasters.
COMPARISON OF AN ISLAMIC AND A CONVETIONAL BANK 8
Conventional bankIslamic bank
The quality of assets of the Islamic and Conventional banks.
The banks in Kuwait works better when they are giving loans to the clients who will pay
the loans later with interests. The banks will be making money on the loans as well as the normal
transactions. Therefore, the investors and the loaners of the banks are very important factors in
operations of the banks. The superiority of the loans given by different banks will be used to
conclude the performance of the bank over the other banks. The loan average ratio of the two
banks is used to identify the performance of the two banks. The two banks have been showing a
slight difference between the two banks. The Islamic banks of Kuwait have a mean value of
UNCOL ratio that is smaller at a mean of 0.054 while that of the conventional banks is higher at
0.06. The banks with the lower ratio are in a better position to number of the loans that can be
collected is smaller. Therefore, the Islamic banks of Kuwait are better than the conventional
COMPARISON OF AN ISLAMIC AND A CONVETIONAL BANK 9
banks in this field. On the other hand, the loan loss average ratio of the banks showed different
results. The Islamic banks of Kuwait had a loan loss ratio of 0.0026 while the conventional banks
had a ratio of 0.0024. This shows that there was a better loans quality in the conventional banks
than in the Islamic banks.
Quality of assets
Conventional bankIslamic bank
The quality of earnings quality from the Islamic and Conventional banks.
The banks should be in a position to control the costs and increase its productivity
efficiently. The cost of the income ratio is used to measure the performance of the banks and
state which of the two banks is working better. The bank with the lowest value is expected to
have more returns than the bank with the higher ratios. The returns on the assets ratio for the two
banks have revealed a slight difference. The Islamic banks of Kuwait including bank Nizwa have
a superior profit for resources proportion than the conventional banks (Loghod, n.d.). The mean
COMPARISON OF AN ISLAMIC AND A CONVETIONAL BANK 10
estimation of the Islamic banks of Kuwait was observed to be 0.0020 while that of the
conventional banks was observed to be 0.0015. The higher figure of the Islamic banks
demonstrates that these banks are superior in making benefits, speculations choices and the
shareholders when contrasted with the conventional banks.
Islamic bankConventional bank
The Liquidity of Islamic and Conventional banks
The loan to assets ratio was utilized to decide the execution of the two banks. The mean
of the Islamic banks was observed to be lower than that of the conventional banks of Kuwait.
While the mean of the Islamic banks was 0.76, the mean ratio of the conventional banks was
found to be 0.84. The two banks had high loan to assets ratio but the Islamic banks were in a
better position since they had a lower ratio. This indicated that the Islamic banks of Kuwait could
pay less than the conventional banks for loan settlements.
COMPARISON OF AN ISLAMIC AND A CONVETIONAL BANK 11
Conventional bankIslamic bank
There are diverse markers that are utilized to quantify the performance of the banks. This
paper explored on the markers of performance of the Islamic banks of Kuwait and contrasted the
execution with the conventional banks of Kuwait ((Miah & Uddin, 2017). The capital adequacy,
the benefits quality, the nature of the income and the liquidity of the banks was utilized to
distinguish the execution of the two banks. The Islamic bank of Kuwait has been performing
better than the conventional banks in almost all the fields. The mean values obtained from the
indicators showed that the Islamic bank was in a better position than the conventional banks.
COMPARISON OF AN ISLAMIC AND A CONVETIONAL BANK 12
Ali, A., Bashir, M. F., & Afridi, M. A. (2021). Do Islamic banks perform better than
conventional banks? Turkish Journal of Islamic Economics, 8(1), 1-17.
Jaffar, M., & Manarvi, I. (2011). Performance comparison of Islamic and Conventional banks in
Pakistan. Global Journal of Management and Business Research, 11(1), 61-65.
Loghod, H. A. (n.d.). Do Islamic Banks Perform Better than Conventional Banks? Evidence
from Gulf Cooperation Council countries. Arab Planning Institute. Retrieved April 27,
2021, from https://www.arab-api.org/images/publication/pdfs/297/297_wps1011.pdf.
Miah, M. D., & Uddin, H. (2017). Efficiency and stability: A comparative study between Islamic
and conventional banks in GCC countries. Future Business Journal, 3(2), 172-185.
Thorsten, B., Asli, D., & Ouarda, M. (2013). Islamic vs. conventional banking: Business model,
efficiency and stability. Journal of Banking & Finance, 37(2), 433-447.