Asian Social Science; Vol. 11, No. 21; 2015 ISSN 1911-2017 E-ISSN 1911-2025 Published by Canadian Center of Science and Education 248 Comparative Performance Analysis between Conventional and Islamic Banks in Bangladesh- An Application of Binary Logistic Regression Abu Hanifa Md. Noman 1 , Sajeda Pervin 2 , Nazneen Jahan Chowdhury 3 , Md. Amzad Hossain 3 & Hasanul Banna 4 1 Faculty of Business and Accountancy, University of Malaya, Malaysia & Faculty of Business Studies, International Islamic University Chittagong, Bangladesh 2 Institute of Graduate Studies, University of Malaya, Malaysia & Faculty of Business Administration, BGC Trust University Bangladesh, Bangladesh 3 Faculty of Business Studies, International Islamic University Chittagong, Bangladesh 4 Faculty of Business and Accountancy, University of Malaya, Malaysia Correspondence: Abu Hanifa Md. Noman, Faculty of Business and Accountancy, University of Malaya, Jalan Universiti, Kuala Lumpur-50603, Malaysia. E-mail: kosiralam@yahoo.com Received: April 24, 2015 Accepted: May 29, 2015 Online Published: July 6, 2015 doi:10.5539/ass.v11n21p248 URL: http://dx.doi.org/10.5539/ass.v11n21p248 Abstract The study aims to answer the research question of what type of banks between Islamic and Conventional banks are doing well on bank level performance in Bangladesh? In order to answer the research question the study uses binary logistic regression. Using 223 observations of 23 convention banks and 7 Islamic banks of Bangladesh during 2003 to 2013, the study shows an existence of a significant difference between conventional and Islamic bank in Bangladesh on profitability, credit risk, capitalization and bank size. The investigation further finds that profitability, efficiency, liquidity and size of Islamic banks are lower than conventional banks in Bangladesh. However, the results confirm that Islamic banks have higher capitalization and better credit risk management than conventional banks in Bangladesh. The study incorporates some significant policy implications for Islamic banks. Keywords: bank performance, Bangladesh, binary logistic regression, conventional banks, Islamic Banks 1. Introduction Recent global financial crisis, hence forth, GFC put conventional banks (Note 1) in serious difficulties around the world (Choon et al., 2012; Wasiuzzaman & Gunasegavan, 2013). Conversely, Islamic banks (Note 2) successfully survived during the crisis (Willison, 2009; Khediri et al., 2015). This is due to the fact that Islamic banks are highly regulated by Shariah (Note 3) principles which restrict them to invest in the projects which brought conventional banks in distress and stimulated crisis (Hasan & Dridi, 2011). As a result, Islamic finance brings the attention of the investors who were disappointed with conventional banks experiencing GFC in recent years (Johnes et al., 2014). Thus, Islamic banking is not confined only in Muslim countries rather extends its practices to non-muslim countries as well. Now, more than 300 financial institutions including banks, insurance and non-bank financialzs’ institutions are operating under Shariah based financial system in 70 countries (Khediri et al., 2015). Particularly, 5 Islamic banks in United Kingdom and 19 Islamic financial institutions in United States represent the globalization of Islamic banks in recent years. Moreover, many international banks among others Standard Chartered Bank, Citi Bank NA, HSBC have started Islamic wings in different muslim countries in order to meet the extended demand of Shariah complient products. Islamic banking is based on Shariah which does not allow to involve in interest (riba), speculative and dishonest transactions rather it suggests to perform transaction based on risk sharing or profit and loss sharing, henceforth, PLS sharing assuming real economic transaction backed by real property (Beck et al., 2013). This fundamentals make Islamic banks different from conventional banks theoritically. Say for example, interest based contract of conventional banks is replaced with return in Islamic banks where both risk and profit or loss are shared between banks and clients. In addition, they use investment deposit and demand deposit in order to collect fund from depositors which are free from interest and based on risk and PLS and mark up principles (Ho et al., 2014).