Bahrain, a key Gulf financial hub, operates a dual banking system comprising conventional and Islamic banks. Though both aim to support economic growth, they follow distinct frameworks. This study compares their performance and assesses their respective impacts on Bahrain’s GDP growth. Using panel data from 2013–2023 and regression techniques including Fixed Effects, Random Effects, and Generalized Least Squares, it evaluates seven financial indicators: ROA, ROE, total loans, total deposits, total assets, net interest margin, and bank investments, alongside gross fixed capital formation. Results show that while profitability indicators like ROA and ROE positively influence GDP growth, total loans and capital formation surprisingly have negative effects, suggesting capital misallocation. Islamic banks, though less aggressive in profitability, offer stable, ethically aligned outcomes potentially supportive of long-term growth. The study underscores the importance of investment quality over volume and provides recommendations for banks and policymakers. It adds to limited literature on dual banking systems in emerging economies. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2026.

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