Islamic banking is a banking system that is based on the principles of Islamic law, also referred to as Shariah law, and guided by Islamic economics. Financial transactions within Islamic banking are a culturally distinct form of ethical investing. On the other hand, Conventional Banking is an Un-Ethical Banking system based on Man-Made Laws. It is profit-oriented and its purpose is to make money through interest. This study analyzes the financial performance of Banking Sector in Pakistan. The aim of this study is to compare the financial performance of conventional banking sector and Islamic banking sector. For this purpose all banks in Pakistan selected for this study and most of data has been collected from financial statements of sampled banks over the period of 2007 to 2016.
CAMEL model is used to analysis the performance of both types of banks in tem of Capital adequacy, Asset quality, Management and Liquidity. I have constructed the financial performance index (FPI) which based on CAMEL ratios and banks performance ranked according to FPI. Result show that Conventional Banks were on the top of list. Progress ratio showed that Islamic banks had better performance than Conventional Banks in 2016 as compared to 2007.