Risk and risk management practices

2020 ◽  
Vol 11 (8) ◽  
pp. 1555-1581 ◽  
Author(s):  
Adel Elgharbawy
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Archival Data ◽  
Islamic Banks ◽  
Monitoring And Control ◽  
Content Type ◽  
Different Types ◽  
Conventional Banks ◽  
And Control

Purpose This study aims to compare types and levels of risk and risk management practices (RMPs) including the recognition, identification, assessment, analysis, monitoring and control of risk in both Islamic and conventional banks. Design/methodology/approach A questionnaire survey was conducted among the Islamic and conventional banks in Qatar, together with an analysis of archival data extracted from the Thomson Reuters Eikon database for the period 2009-2018. Data were analysed using descriptive statistics, ANOVA and regression analysis. Findings Islamic banks encounter unique types and levels of risk that are not encountered by conventional banks. In Islamic banks, risks such as those of operation and Sharia non-compliance are perceived to be higher, while in conventional banks other risks such as those of credit and insolvency are higher; other risks, for example, liquidity risk, are faced by both. RMPs are determined by understanding risk and risk management, risk identification, risk monitoring and control and credit risk analysis, but not by risk assessment and analysis. However, the RMPs of the two types of bank are not significantly different, except in the analysis of credit risk. Research limitations/implications The study contributes to the debate in the literature by developing a better understanding of the dynamism of risk management in Qatari banks, which can be extended to similar contexts in the region. However, the relatively small sample size in only one country limits the possibility of generalizing the findings. The survey methodology is based on the perception of bankers rather than their actual actions and does not provide in-depth analysis for each type of risk, especially credit risk. However, using archival data, in addition to those from the survey, minimises the bias that would result from depending on one source of data. Practical implications The study provides valuable insights into the different types and levels of risk, as well as the RMPs in Islamic and conventional banks, which can help in guiding the future development and regulation of risk management in the banking sector of Qatar and its region. Originality/value The study helps to explain the mixed results of previous studies that compare types and levels of risk and RMPs in Islamic and conventional banks. Using different types of data and analysis, it provides evidence from one of the fastest growing economies in the world. It also addresses the concerns over RMPs in banks since the global financial crisis.

Competitive strategies-performance nexus and the mediating role of enterprise risk management practices: a multi-group analysis for fully fledged Islamic banks and conventional banks with Islamic window in Pakistan

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Waqas Ali ◽  
Imran Ibrahim Alasan ◽  
Mushtaq Hussain Khan ◽  
Shujahat Ali ◽  
Jun-Hwa Cheah ◽  
...  
Keyword(s):  
Risk Management ◽  
Management Practices ◽  
Low Cost ◽  
Enterprise Risk Management ◽  
Islamic Banks ◽  
Competitive Strategies ◽  
Content Type ◽  
Differentiation Strategy ◽  
Enterprise Risk ◽  
Conventional Banks

Purpose This paper aims to investigate whether the effect of competitive strategies on the performance is significantly different for fully fledged Islamic banks vis-a-vis conventional banks with Islamic window. Specifically, two competitive strategies namely the low-cost strategy and the differentiation strategy were considered. In addition, we examined further the competitive strategies–performance nexus by introducing enterprise risk management as a mediating factor. Design/methodology/approach This study used structured questionnaires to collect data from 506 respondents (251 from fully fledged Islamic banks and 255 from conventional banks with Islamic window). A disjoint two-stage approach was employed to analyze a hierarchical component model. Construct Level Correction and Measured Latent Marker Variable approaches were employed to assess the common method variance. As a robustness check, two-stage approach was used to explore the curvilinear relationship, and the Gaussian copula approach was adopted to address the endogeneity issue. Findings The findings show the evidence of complementary partial mediation in the relationships between low-cost strategy, differentiation strategy, and performance through enterprise risk management practices in both types of banks. Practical implications Competitive strategies are essential as they send signals to owners, managers, policymakers, and regulatory authorities. On the one hand, fully fledged Islamic banks face dual competition from pure conventional counterparts as well as conventional banks with Islamic window. On the other hand, Islamic window banks also face strong competition from the fully fledged Islamic banks due to their strong Shariah roots. Hence, this competitive pressure on both types of banks calls for more attention to focus on competitive strategies and enterprise risk management practices to accelerate their performance and overcome the bank risk. Moreover, these competitive strategies can be used as a tool to enter into a new market by reducing costs and risks. Besides, banks cannot achieve a competitive advantage without implementing enterprise risk management practices because competitive strategies are significant antecedents of enterprise risk management practices. Therefore, this study recommends both types of banks to focus on enterprise risk management practices to make these strategies successful. Originality/value To the best of our knowledge, this is the first study to examine the competitive strategies–performance nexus and the mediating role of enterprise risk management practices in an unexplored area of Islamic banking.

Integration of Islamic bank specific risks and their impact on the portfolios of Islamic Banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Alamdar Ali Shah ◽  
Raditya Sukmana ◽  
Bayu Arie Fianto
Keyword(s):  
Risk Management ◽  
Portfolio Diversification ◽  
Islamic Banks ◽  
Content Type ◽  
Management Framework ◽  
Risk Return ◽  
Islamic Bank ◽  
Risk Management Framework ◽  
Impact Risk ◽  
Conventional Banks

Purpose This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings. Design/methodology/approach A unique methodology has been developed first by exploring the dynamics and behaviors of various risks unique to Islamic banks. Second, it integrates them through a series of diagrams that show how they behave, integrate and impact risk, returns and portfolios. Findings This study proposes a unique risk-return relationship framework encompassing specific risks faced by Islamic banks under the ambit of portfolio theory showing how Islamic banks establish a steeper risk-return path under Shariah compliance. By doing so, this study identifies a unique “Islamic risk-return” nexus in Islamic settings as an explanation for the concern of contemporary researchers that Islamic banks are more risky than conventional banks. Originality/value The originality of this study is that it extends the scope of risk management in Islamic banks from individual contract-based to an integrated whole, identifying a unique transmission path of how risks affect portfolio diversification in Islamic banks.

Credit risk in dual banking systems: does competition matter? Empirical evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohsin Ali ◽  
Mudeer Ahmed Khattak ◽  
Nafis Alam
Keyword(s):  
Credit Risk ◽  
Banking System ◽  
Islamic Banks ◽  
Content Type ◽  
Panel Data Estimation ◽  
System A ◽  
Size Groups ◽  
Conventional Banks ◽  
Fierce Competition ◽  
Data Estimation

PurposeThe study of credit risk has been of the utmost importance when it comes to measuring the soundness and stability of the banking system. Due to the growing importance of Islamic banking system, a fierce competition between Islamic and conventional banks have started to emerge which in turn is impacting credit riskiness of both banking system.Design/methodology/approachUsing the system GMM technique on 283 conventional banks and 60 Islamic banks for the period of 2006–2017, this paper explores the important impact of size and competition on the credit risk in 15 dual banking economies.FindingsThe authors found that as bank competition increases credit risk seems to be reduced. On the size effect, the authors found that big Islamic banks are less risky than big conventional banks whereas small Islamic banks are riskier than small conventional banks. The results are robust for different panel data estimation models and sub-samples of different size groups. The findings of this paper provide important insights into the competition-credit risk nexus in the dual banking system.Originality/valueThe paper is specifically focused on credit risk in dual banking environment and tries to fill the gap in the literature by studying (1) do the Islamic and conventional banks exhibit a different level of credit risk; (2) does competition in the banking system impact the credit risk of Islamic and conventional banks and finally (3) do the big and small banks exhibit similar levels of credit risk.

Credit risk management of Ghanaian listed banks

2016 ◽  
Vol 58 (2) ◽  
pp. 162-178 ◽  
Author(s):  
Michelle Ayog-Nying Apanga ◽  
Kingsley Opoku Appiah ◽  
Joseph Arthur
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Banking Sector ◽  
Banking Industry ◽  
Credit Risk Management ◽  
Structured Interviews ◽  
Content Type ◽  
Credit Risks ◽  
Commercial Loans

Purpose – The study aims to assess credit risk management practices within financial institutions in Ghana. Specifically, the study compares credit risk management practices of listed banks in Ghana with Basel II (1999). Design/methodology/approach – The analysis is based on data gathered from varied sources, namely, use of questionnaires, analysis of internal credit policies and procedure manuals and semi-structured interviews and discussions with credit risk managers of the selected banks in May 2007 and October 2014. Findings – Overall, the credit risk management practices within listed banks in Ghana are in line with sound practices. The only dissimilarity, however, is the role of the board of directors in defining acceptable types of loans and maximum maturities for the various types of loans. The listed banks in Ghana are also exposed to credit risks associated with granting both corporate and small business commercial loans and the use of collaterals to mitigate their credit risk exposures. Practical implications – Banks in Ghana should consider developing the skills of all their personnel and appropriately motivating those involved in the credit risk management processes to ensure that they carry out this process efficiently. Originality/value – Research into credit risk management in the banking industry from the Ghanaian perspective remains scant. This study is, therefore, timely, and its findings are invaluable for the efficient management of credit risk in the banking industry. This study provides policy recommendations which will enhance shareholder value and, in this way, contribute to greater stability in the banking sector in developing countries, in particular.

Performance comparison of Islamic and conventional banks: empirical evidence from Pakistan

2017 ◽  
Vol 10 (3) ◽  
pp. 419-433 ◽  
Author(s):  
Imran Khan ◽  
Mehreen Khan ◽  
Muhammad Tahir
Keyword(s):  
Management Practices ◽  
Operational Efficiency ◽  
Financial Ratios ◽  
Original Research ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Performance Differences ◽  
Conventional Banks ◽  
Asset Quality

Purpose This study aims to investigate the performance differences of Islamic and conventional banks in Pakistan by using financial ratios. Design/methodology/approach This study analyzed 5 Islamic and 19 conventional banks for the periods of 2007-2014. Two types of analyses were performed – sample t-test and logistic regression. Analysis was also performed on sub-sample considering crisis effects. Findings It was found that Islamic banks are relatively better in profitability, efficiency, risk and liquidity management, while conventional banks are superior in asset quality. Higher efficiency of Islamic banks contradicts with previous studies conducted in Pakistan. Probable reasons for this include phenomenal expansion of Islamic banking industry and its broad appeal to customers in Pakistan. Risk management practices of Islamic banks are superior to conventional banks, as Shariah rules restrict pure speculation in monetary terms. Better asset quality of conventional banks is attributed to their recognition and product diversity. During the crisis, Islamic banks were found less profitable than their counterparts. Research limitations/implications This study suggests that high operational efficiency of Islamic banks should be converted into technical efficiency by improving human resource, introducing innovative market-oriented products and prudent resource allocations. As operational efficiency does not promise returns in long term, to sustain ongoing phenomenal growth of Islamic banking, management needs to gain customer trust. Originality/value This is an original research that compares performance differences across Islamic and conventional banks by using financial ratios.

scholarly journals Impact of Credit Risk Transfer Techniques on Lending Behavior of Conventional & Islamic Banks in Pakistan

2017 ◽  
Vol 4 (2) ◽  
pp. 12 ◽  
Author(s):  
Yusra Saeed ◽  
Huma Ayub
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Random Effect ◽  
Random Effect Model ◽  
Policy Implications ◽  
Islamic Banks ◽  
Risk Transfer ◽  
Management Techniques ◽  
Conventional Banks ◽  
The Impact

Application of risk management techniques gain significant importance after the financial crises of 2008. Banks adopt contemporary risk management techniques to eliminate credit risk associated with the enlargement of their lending volume. The present study aims to analyze the impact of credit derivatives on lending/financing behavior of conventional and Islamic banks of Pakistan. The study used comparative analysis by employing random effect model for the sample of 20 conventional banks and pooled OLS regression on sample size of 5 Islamic banks for the period of 2006-2016. Results of the study show that conventional banks effectively increase their lending volumes by utilizing risk transfer techniques. However, Islamic banks are still at its infancy in utilizing risk transfer techniques due to shariah restrictions. The study recommends policy implications for Islamic bank to introduce innovative shariah compliant hedging instruments to boost their financing portfolios.

scholarly journals ANALISIS MANAJEMEN RISIKO KREDIT SEBGAI ALAT UNTUK MEMINIMALISIR RISKO KREDIT PADA BANK NAGARI CABANG PEMBANTU SIMPANG HARU

2020 ◽  
Author(s):  
jhon fernos ◽  
Oriza Satifa
Keyword(s):  
Risk Factors ◽  
Risk Management ◽  
Credit Risk ◽  
Risk Measurement ◽  
Monitoring And Control ◽  
Credit Risk Management ◽  
Measurement Monitoring ◽  
Special Concern ◽  
Credit Risk Measurement ◽  
And Control

This study aims to determine the application of credit risk management and criteria as well as efforts to minimize credit risk in Bank Nagari Simpang Haru Sub-Branch. In implementing credit risk management at Bank Nagari Simpang Haru Sub-Branch, it includes the identification, measurement, monitoring and control of credit risk. Credit risk is the risk of non-performing loans where the debtor must be under special surveillance while the credit measurement must be in accordance with the NPL, Non-perfoming loan (NPL) is very important for credit risk measurement at Bank Nagari Simpang Haru Sub-Branch, because it must be in accordance with the applicable provisions of the Bank Indonesia (BI), by using a non perfoming loan, it will be easy for the Bank to find out the criteria in analyzing credit risk where the Indonesian bank sets a maximum Npl of 5%. Credit collectability is the basis in calculating the level of NPL. Credit Risk Issues that appear at Bank Nagari Simpang Haru Sub-Branch, namely Problem Loans. In this case there are credit risk factors including internal banks, debtors and others. Thus the debtor becomes a factor that often arises and is of special concern.

The relationship between credit risk management and non-performing assets of commercial banks in India

2019 ◽  
Vol 45 (3) ◽  
pp. 399-412 ◽  
Author(s):  
Sirus Sharifi ◽  
Arunima Haldar ◽  
S.V.D. Nageswara Rao
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Management Practices ◽  
Primary Data ◽  
Credit Risk Management ◽  
Content Type ◽  
Indian Economy ◽  
Indian Banks ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of credit risk components on the performance of credit risk management and the growth in non-performing assets (NPAs) of commercial banks in India. Design/methodology/approach The data are obtained from primary and secondary sources. The primary data are collected by administering questionnaire among risk managers of Indian banks. The secondary data on NPAs of Indian banks are from annual reports and Prowess database compiled by the Centre for Monitoring Indian Economy. Multiple linear regression is used to estimate the models for the study. Findings The results suggest that the identification of credit risk significantly affects the credit risk performance. The results are robust as credit risk identification is negatively related to annual growth in NPAs or loans. There is evidence in support of a priori expectation of better credit risk performance of private banks compared to that of government banks. Practical implications The study has implications for Indian banks suffering from a high level of losses due to bad loans. In addition, it will have implications for the implementation of new Basel Accord norms (Basel III) by the Reserve Bank of India. Social implications The high and rising level of NPAs will have adverse consequences for credit flow in the economy in the absence of appropriate intervention by government and central bank in the form of changes in institutional and regulatory infrastructure. The problems in banking and financial services sector will lead to lower industrial and aggregate economic growth, and lower (or negative) growth in employment. Originality/value There is little evidence on credit risk management practices of Indian banks, and its relationship with credit risk performance and NPA growth. The need for an effective risk management system to manage credit risk assumes importance and urgency in the context of high and rising NPAs of Indian banks, and the consequences for the Indian economy.

Credit risk in Islamic banking: evidence from the GCC

2020 ◽  
Vol 11 (5) ◽  
pp. 1055-1081
Author(s):  
Trevor Chamberlain ◽  
Sutan Hidayat ◽  
Abdul Rahman Khokhar
Keyword(s):  
Credit Risk ◽  
Fixed Effects ◽  
Ordinary Least Squares ◽  
Islamic Banks ◽  
Gulf Region ◽  
Content Type ◽  
Multivariate Tests ◽  
Interaction Variables ◽  
Cost Inefficiency ◽  
Conventional Banks

Purpose This study aims to investigate the differences in the credit profiles of Islamic and conventional banks in the Gulf Cooperation Council (GCC) region and attempts to identify the factors responsible for those differences. Design/methodology/approach Financial data sourced from the Bankscope database for a sample of 25 Islamic and 56 conventional banks headquartered in the GCC region between 1987 and 2014 are used. The credit risk of Islamic versus conventional banks is compared using a variety of univariate (mean difference test and correlation analysis) and multivariate tests (pooled ordinary least squares (OLS) regressions with robust standard errors and year fixed effects, regressions with interaction variables and logistic regressions). Findings Pooled OLS regressions find that Islamic banks have lower credit risk than conventional banks. Robustness checks using logistic functions and interaction variables confirm this result. Using multiple econometric specifications, we also find that higher capitalization, greater liquidity and cost inefficiency contribute to the lower risk profile of Islamic banks. Research limitations/implications The study is unable to disaggregate data for banks offering both Islamic and conventional banking services and hence does not include conventional banks with Islamic windows. In addition, there are differences across countries even within the GCC region as to what is considered Sharia’h-compliant and what is not. Practical implications The results are of potential interest to not only researchers, but also market participants, regulators and legislators. The methods used in this study could be extended to other two-tiered banking systems and, in the case of Islamic and conventional banking, to other markets. Originality/value The authors use a unique sample of banks headquartered in the GCC countries, whose banking markets are similar, if not homogeneous, thus excluding operations of multinational banks. By focusing on the Gulf region, differences in the credit profiles of Islamic and conventional banks can be examined without the confounding effects of unobserved factors like culture, accounting regime or regulatory environment.

scholarly journals Islamic Versus Conventional Banks in Lebanon: An Empirical Study of Credit Risk Management

2018 ◽  
Vol 10 (8) ◽  
pp. 53
Author(s):  
Boutheina Hachem ◽  
Hiyam Sujud
Keyword(s):  
Risk Management ◽  
Empirical Study ◽  
Credit Risk ◽  
Risk Mitigation ◽  
Islamic Banks ◽  
Credit Risk Management ◽  
Credit Management ◽  
Management Processes ◽  
Conventional Banks ◽  
Conventional And Islamic Banks

The aim of this research is to compare conventional and Islamic banks in various aspects of credit risk management processes. The study used 200 questionnaires, collected from 21 traditional banks and 4 Islamic banks in Lebanon. The results found that differences in the various issues of credit management between Islamic and conventional banks. Islamic banks are more understanding, aware, and cautious in their approach than traditional banks. Islamic banks are more efficient in assessing and analyzing credit risk than conventional banks. Lastly, Islamic banks are more used to credit risk mitigation than traditional banks.

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