Abstract
The great depression of the 20th century raised serious concerns and had
undisputable impacts over the management of the world financial system. The
recent past 2008 financial meltdown in the U.S and 2010 Eurozone financial
crisis was not just a reminiscence of the great depression, but exposes the risks
associated with the conventional financial system. Policymakers, financial
experts and nonprofessionals are grappling with how best to mitigate the risks or
develop a less-risky system to complement the conventional banking system,
which in turn could save the world from further unforeseen global financial
trauma. The current study paves the way to gauge the propensity of credit risk
especially after the world financial crisis-2008 in Islamic and conventional
banks of Pakistan. Methodologically, the research employs Z-Score, Altman’s
Z-Score, NPL ratio, Distance to Default and Default Probabilities to gauge the
magnitude and the enormity of the credit risk. The findings of the study
postulate the conventional banking in Pakistan felt more credit risk in realization
with Islamic banking. However, the chances to go into bankruptcy prevails both
banking systems but the conventional banks have more sound financial position
to absorb trauma in near future. The more integrated paradigm of conventional
banks of Pakistan with the world banking system needs to curb more risk over
the passion to earn more profit.
Muhammad Kashif Khan, Tahir Saeed, Waqar Alam. (2018) The Relentlessness of Credit Risk in Islamic and Conventional Banking of Pakistan, Abasyn Journal of Social Sciences, Volume-11, Issue-1.
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