Vol. 2, Issue 9, Part E (2016)

Abstract
Islamic banking is the system of banking consistent with principles of Islamic law (Shari’ah) and guided by Islamic economics. Islamic banking, the more general term is expected not only to avoid interest based transactions, prohibited in the Islamic Shari’ah, but also to avoid unethical practices and participate actively in achieving the goals and objectives of an Islamic economy. On the other hand, conventional banks are operating on the man-made principles where the predetermined rate of interest is the core activity. This research study analyses the performance of Islamic banks versus conventional banks in Bangladesh over the period of 2013-2014. The objectives of this research work is to compares the profitability and liquidity of Islamic banks to conventional banks in Bangladesh. The study includes as profitability ratios: Return on average assets (ROAA), Return on average equity (ROAE), and Profit expense ratio (PEM). Also includes as liquidity ratios: Current Ratio (CR), Current Asset Ratio (CAR), Loan Deposit Ratio (LDR) and Net Loan/ Total Asset Ratio (NLTA).The results of the study indicate that Islamic banks in Bangladesh have better financial performance than Conventional banks. Performance of interest-free Islamic banks in business development, profitability, liquidity and solvency is superior to that of interest-based conventional bank. That is comparatively Islamic banks are superior in financial performance to that of interest-based conventional banks.