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In recent years, the fast growth of Islamic banks has generated debate among economists and policy makers about stainability and performance of Islamic banks. This paper aims to analyze the financial performance of Islamic banks as compared to Conventional banks from 2006 to 2014. The paper considers Financial Ratio Analysis (FRA) to analyze and compare the performance of Islamic and Conventional banks in Pakistan. The results show that Islamic banks are better capitalized, less risky and have higher liquidity. In contrast, Islamic banks are less profitable than Conventional banks. Data related to Burj bank, Dubai Islamic Bank and Bank of Khyber in Pakistan for 2006 is not available. Size of Islamic banking industry should be enhanced by merging with Islamic financial institutions to achieve economies of scale and better efficiency. The study assists investors, creditors, debtors and managers in making better decisions. It also provides latest valuable information to regulators and policy makers in making rules and policies for financial industry in Pakistan.