IOSR Journal of Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume 11, Issue 5 Ser. VI (Sep. – Oct. 2020), PP 06-13 www.iosrjournals.org DOI: 10.9790/5933-1105060613 www.iosrjournals.org 6 | Page Impact of CAMELIndexes onthe Profitability of Banks in Bangladesh: Islamic Banks Vs Conventional Banks. Aslam Mahmud 1 and Md. Habibur Rahman 2 Abstract: This paper analyzed the impact of CAMEL indexes on bank performance and how this impact varies between Islamic private commercial banks (PCBs) and conventional private commercial banks (PCBs). The size of the sample was 23 banks listed with the Dhaka Stock exchange(DSE) including 17 conventional PCBs and 6 Islamic PCBs in Bangladesh with 125 observations from 2015 to 2019. In analyzing the impact of CAMEL on profitability, Capital adequacy was measured by the ratio of total capital to risk-weighted assets, asset quality was measured by non-performing loan ratio, management quality was measured by the cost to income ratio, earnings quality was measured by net interest margin and liquidity by loan to total deposit ratio. Five CAMEL parameters along with bank size as a control variable were regressed against profitability. A dummy variable (Bank Type) was created to moderate the relationship of CAMEL parameters and profitability between conventional and Islamic banks. The analysis was conducted using descriptive analysis, correlation analysis, and multiple regression analysis. The findings of descriptive analysis showed that on average Islamic banks are better in asset quality and management quality while conventional banks in capital adequacy, earnings quality, and liquidity. The results of the regression analysis revealed that asset quality and management quality had a significant negative impact on profitability while earnings quality had a significant positive impact on profitability. The other two CAMEL parameters capital adequacy and liquidity hada negative but insignificant impact on profitability. The study also revealed that profitability measured by return on asset (ROA) was significantly higher for conventional banks. The study suggested that Islamic banks should focus on increasing net investment income to increase profitability and stay competitive with conventional banks. Keywords: CAMEL, Moderator, ROA, Profitability, Control variable. --------------------------------------------------------------------------------------------------------------------------------------- Date of Submission: 09-10-2020 Date of Acceptance: 25-10-2020 --------------------------------------------------------------------------------------------------------------------------------------- I. Introduction: The banking sector of Bangladesh includes 60 scheduled banks. There are 6 State-owned commercial banks(SOCBs), 3 Development finance institutions(DFIs), 9 foreign commercial banks (FCBs), and 42 Private commercial banks (PCBs). The PCBs can be divided into two groups: Islamic PCBs and conventional PCBs. Currently, there are a total of 10 Islamic PCBs including two recently converted from conventional PCBs. Islamic banking is different from conventional banking mainly in the following ways: i. Islamic banks are free from interest or riba. They strictly prohibittheir involvement in any transactions based on interest. ii. Islamic banks can participate in only businesses and industrial entrepreneurship approved by Islamic Shariah. iii. The profit-loss sharing (PLS) system is considered as the ideal mode of transactions for Islamic banking (Mahmood and Rahman,2017). iv. Islamic banks avoid speculation in any form of the financial transaction. v. Purchase and sale must be on a spot basis. Forward or futures are not approved in Islamic banking. vi. Simply money cannot create money. All financial transactions of Islamic banks are asset-backed. vii. There is an Islamic Shariah Supervisory Board in every Islamic bank that oversees whether the activities of the bank comply with Islamic Shariah. Islamic Banking in Bangladesh is growing fast and is of high public demand. The total number of branches in the Islamic banking sector reached 1252 including the Islamic banking branches/windows of conventional 1 Lecturer, Department of Finance and Banking, Faculty of Business Administration, JatiyaKabiKaziNazrul Islam University, Trishal, Mymensingh-2220, Bangladesh; Email ID: aslammahmudknu@gmail.com 2 Assistant Professor, Department of Finance and Banking, Faculty of Business Administration, JatiyaKabiKaziNazrul Islam University, Trishal, Mymensingh-2220, Bangladesh;Email ID: habibur_ru09@yahoo.com