Evaluation and Ranking of Pakistani Islamic Banks: Using CAMELS Model with GRA

Abstract

Islamic Banking (IB) is one of the growing constituents of banking sector. This research article aims to evaluate and rank Islamic banks in Pakistan using CAMELS model in combination with Grey Relational Analysis (GRA) to examine the efficiency and soundness of banks. Overall design of the study is comprised of review of literature, data collection and analysis. Using archival research strategy, cross-sectional secondary data for the year 2017 has been obtained from official websites of banks, Pakistan Banks' Association (PBA) and State Bank of Pakistan (SBP). This study follows the philosophy of realism and uses unique mathematical methodology model and assigns a distinct consolidated rank to every Islamic bank. To investigate the issue, the study has employed CAMELS rating system theory, grey system theory and GRA. The results of the empirical analyses show that MCB Islamic Bank Limited (MCB-IBL) occupies first position in terms of efficiency and soundness whereas Bank Islami Limited (BIL), Meezan Bank Limited (MBL), Dubai Islamic Bank Limited (DIBL) and Bank Albaraka Limited (BAL) are second, third, fourth and fifth respectively. Plethora of published research is available on measuring and comparing the performance of Islamic and conventional (i.e. traditional) banks but hardly any research is found that ranks the Islamic banks. The findings reveal significant implications for the management of banks, regulators and customers, as it provides clear understanding of banks' efficiency and soundness