40 © 2019 Conscientia Beam. All Rights Reserved. DETERMINANTS OF BANKS PROFITABILITY & LIQUIDITY AND THE ROLE OF BASEL III IN ISLAMIC & CONVENTIONAL BANKING SECTOR OF PAKISTAN: A CASE STUDY OF NBP Sitara Bibi 1 Fatima Mazhar 2+ 1,2 Department of Management Sciences, Govt Sadiq College Women University Bahawalpur, Pakistan. (+Corresponding author) ABSTRACT Article History Received: 11 December 2018 Revised: 22 January 2019 Accepted: 28 February 2019 Published: 6 May 2019 Keywords Islamic banks Conventional banks Profitability Liquidity BASEL accord Comparative analysis Pakistan. JEL Classification G00; G21; G29. This study aimed to examine and compare the performance of Islamic and Conventional banking sector of Pakistan in terms of the impact of BASEL III reforms on the profitability and liquidity of Islamic and conventional banks of Pakistan. For this purpose, National bank of Pakistan has been taken as a unit of analysis and eight year’s financial data has been collected from the official website of NBP. BASEL III standard’s ratios including CAR, CER and LCR have been used as an independent variable while the bank’s profitability and liquidity have been taken as a dependent variable. Descriptive statistics have been performed first to examine and compare the performance of both Islamic and conventional banking sector before and after the induction of BASEL III. After that T-Test has been performed to investigate the differences between the impact of BASEL III on the profitability and liquidity of Islamic and conventional banking sector. The regression analysis has been performed to examine whether BASEL III has a strong relationship with Islamic or conventional banking sector. The results found that BASEL III has a significant positive relationship with the profitability and liquidity of the Islamic sector. Islamic banks are higher in terms of the impact of BASEL III on profitability and liquidity. They are more profitable, more liquid and highly capitalized with BASEL III standards. While Conventional banking sector needs to redesign their policies and make them more compliant with BASEL III to generate more profit and be more liquid as Islamic banks are. Contribution/Originality: This study is one of the very few studies which have investigated the impact of BASEL III on the profitability and liquidity of Islamic and Conventional banking sector through comparative analysis. The results reveal that Islamic banks are more profitable, more liquid, more compliant and highly capitalized with BASEL III standards. 1. INTRODUCTION The concept of BASEL accord came into being in 1988 when banking regulators of G10 countries and Basel committee of banking supervision (BCBS) decided to introduce a regulatory framework for all internationally active banks. 1 This framework was named as BASEL accord I and according to this, it was necessary for all internationally 1 The backdrop abolition of Breton Woods International Monetary System of fixed exchange rates and the bankruptcy of Bankhaus Herstatt caused a domino effect of collapses in the financial markets and caused the creation of the committee. The committee of Basel was established in 1974 by the group of G10 countries. The The Economics and Finance Letters 2019 Vol. 6, No. 1, pp. 40-56 ISSN(e): 2312-430X ISSN(p): 2312-6310 DOI: 10.18488/journal.29.2019.61.40.56 © 2019 Conscientia Beam. All Rights Reserved.