The Causality between TDRs Returns Of Islamic Banks and Conventional Banks in Pakistan Pre & Post-Crisis

Abstract

The main objective of this study is to determine the connection between Islamic banking and conventional banking term-deposit receipt returns on the rate in the Pakistan economy. Granger Casualty test was used to identify the relationship between Islamic and conventional banking deposit returns. Moreover, VAR estimation was used to examine the interdependencies between Islamic banking and conventional banking deposit rate return. The IRFs were generated from VAR estimation to examine the one-time standard deviation shock impact of conventional on Islamic banks and the second one is Islamic on conventional banks respectively. The finding shows that there is no significant relationship between Islamic and traditional banks in pre-crisis and post-crisis 2008. The results found that Islamic banks offered interest rates the same as conventional banks. In addition, conventional banking is not different from Islamic banking. This study will help investors to understand TDR and the benefits of short and long-term investment. This will be helpful for bankers to make the right decisions. This is the latest and first research to determine Islamic versus conventional banking in the Pakistani economy. This study provides the growing literature on Islamic finance by filling a gap to know about pre and post-returns on term deposit TDRs at Pakistan conventional and Islamic banks.