Risk Management of Full-Fledged Islamic Banks versus Islamic Subsidiaries of Conventional Banks in Malaysia : The Sustainable Growth within Restricted Minimum Requirements

2017 ◽  
Vol 14 (2) ◽  
pp. 1-37 ◽  
Author(s):  
Fauzias Mat Nor ◽  
Amir Shaharuddin ◽  
Norhaziah Nawai
Keyword(s):  
Risk Management ◽  
Sustainable Growth ◽  
Islamic Banks ◽  
Minimum Requirements ◽  
Conventional Banks

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.

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.

scholarly journals Non-Performing Finance in Sharia Financial Institutions in Indonesia: A Case Study Of BPRS Adeco (Aceh Development Corporate)

2019 ◽  
Vol 11 (1) ◽  
Author(s):  
Nur Hidayah ◽  
Tabrani Tabrani
Keyword(s):  
Risk Management ◽  
Financial Institutions ◽  
Islamic Banks ◽  
Structured Interviews ◽  
Financing Risk ◽  
City District ◽  
Conventional Banks ◽  
High Level ◽  
Finance Risk

High level of Non-Performing Finance (NPF) has become one of risks facing intermediary financial institutions including Islamic banks. Indonesia’s Financial Authority found that NPF ratio of Islamic banks is relatively higher (4,12%) that the one of conventional banks (2,96%) (OJK 2017). Literature indicate the influence of bank’s internal and external factors on high NPF. This study aims to analyze the factors that influence the high level of NPF and its settlement and strategies to reduce the level of NPF in Sharia Rural Banking (BPRS/Bank Perkreditan Rakyat Syariah). Taking BPRS Adeco (Aceh Development Corporate) in Langsa City District, Aceh, as a case study, this research takes a qualitative approach. Through a survey to 26 BPRS Adeco employees and semi-structured interviews with 4 employees, this study found three factors leading to an increase in the NPF ratio, namely weak bank’s financing risk management, changing economic conditions and regulations, and the conditions of customers who are vulnerable to socio-economic change. It found that the NPF can be gradually resolved by intensifying the communication to the delinquent customers followed by policies of restructuring the customers’ financing. It also found that the strategies to reduce NPF ratios include improving bank risk financing management, upgrading the quality of human resources in risk management, and providing business mentoring and coaching to the customers. It can be concluded that the strategies made by the BPRS ADECO succeeded in reducing the NPF rate from 15.62% in the June 2012 period to 3.60% in the December 2018 period. The finding implies that Islamic financial institutions, including BPRS, urgently need good finance risk management, particularly in monitoring the financed customers’ business and in mitigating external conditions of the economy and their changing related regulations in order to settle the problem of non-performing finance and to strengthen their finance risk management.

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 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.

Operational Risk Management of Islamic Banks

2020 ◽  
pp. 455-470
Author(s):  
Mahfod Aldoseri ◽  
Andrew C. Worthington
Keyword(s):  
Risk Assessment ◽  
Risk Management ◽  
Saudi Arabia ◽  
Operational Risk ◽  
Islamic Banks ◽  
Operational Risk Management ◽  
Risk Monitoring ◽  
Conventional Banks ◽  
Senior Officers

This chapter investigates the operational risk management and practices of Islamic and conventional banks in Saudi Arabia. Authors employ a sample of four Islamic and eight conventional banks and data gathered through a novel questionnaire administered to senior officers and managers carrying out risk management activity across five aspects of operational risk management: (i) understanding risk, (ii) risk management, (iii) risk assessment analysis, (iv) risk identification, and (v) risk monitoring. The results demonstrate that all of these play an important role in determining the quality of operational risk management. However, risk assessment analysis and risk monitoring are the most influential in determining the overall quality of operational risk management in both conventional and Islamic banks. Overall, conventional banks in Saudi Arabia are better than Islamic banks at operational risk management practices, suggesting the need for careful planning and strategizing, sound recruiting and training policies, and prudent monitoring of capital adequacy by regulators.

Risk Management, Shariah Compliance Governance and Sustainable Growth of Islamic Banks in Malaysia

2017 ◽  
Vol 23 (5) ◽  
pp. 5011-5015 ◽  
Author(s):  
Fauzias Mat Nor ◽  
Amir Shaharuddin ◽  
Ainulashikin Marzuki ◽  
Norhaziah Nawai ◽  
W. Muhammad Zainuddin
Keyword(s):  
Risk Management ◽  
Sustainable Growth ◽  
Islamic Banks

scholarly journals Liquidity Risk Management: A Comparative Study between Conventional and Islamic Banks in Bangladesh

2016 ◽  
Vol 10 (2) ◽  
pp. 18-35 ◽  
Author(s):  
Md Lutfor Rahman ◽  
SM Hasanul Banna
Keyword(s):  
Risk Management ◽  
Liquidity Risk ◽  
Equity Capital ◽  
Capital Adequacy ◽  
Annual Reports ◽  
Islamic Banks ◽  
Working Capital ◽  
Return On Assets ◽  
Conventional Banks ◽  
Conventional And Islamic Banks

Liquidity risk may arise from diverse operations of financial intermediaries, facilitators and supporters as they are fully liable to make available liquidity when required by the third party. Incase of Islamic Banks additional efforts are required for scaling liquidity management due to their unique characteristics and conformity with Shariah principles. The objective of this study is to look into the liquidity risk associated with the solvency of the financial institutions, with a purpose to evaluate liquidity risk management (LRM) through a comparative analysis between conventional and Islamic banks of Bangladesh. This paper investigates the significance of Size of the Firm, Net Working Capital, Return on Equity, Capital Adequacy and Return on Assets (ROA), on Liquidity Risk Management in conventional and Islamic banks in Bangladesh. The study has taken six mid-size banks- three conventional and three Islamic banks as samples. It is based on secondary data which are collected from the selected banks’ annual reports, covering a period of 2007-2011. Independent variables that have positive but insignificant relation are; size of the bank and net working capital to liquidity risk in Islamic banks and in case of conventional banks size of bank is negatively related with the liquidity risk. Only return on assets is positively affecting the liquidity risk at 10% level in case of conventional banks, but in Islamic banks the relationship is insignificant. The other variables are found to be insignificant in affecting the liquidity risk for both the conventional and Islamic banks in BangladeshJournal of Business and Technology (Dhaka) Vol.10(2) 2015; 18-35

scholarly journals Risks Faced by Islamic Banks: A Study on the Compliance Between Theory and Practice

2019 ◽  
Vol 10 (2) ◽  
pp. 137
Author(s):  
Salma Rhanoui ◽  
Khalid Belkhoutout
Keyword(s):  
Risk Management ◽  
Financial System ◽  
Qualitative Approach ◽  
Theory And Practice ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Conventional Banks ◽  
Methods Of Operation ◽  
Global Financial System

Risk management is an active field where applications are reconsidered after each obstacle. Islamic banks are not excluded from this rule, particularly when they operate in a global financial system, in which they are occasionally forced to follow conventional banking rules. Nevertheless, Islamic banks are part of a less-advanced industry and face many challenges when handling risk. In theory, Islamic banks are confronted with two categories of risk: common risks, which are similar to the risks faced by conventional banks and risks specific to Islamic banks, due to their specificities and methods of operation. However, practice does not necessarily reflect this dichotomy. Therefore, the purpose of this paper is to make a compliance study between the theory and practice of Islamic banking risks. More precisely, it will compare all the risks fully recognized by the theory to the risks that are actually managed by the Islamic banks in their activities, using a sample of these institutions. The results of this qualitative approach, demonstrate that practice can be quite different from theory.

scholarly journals Risk Management of Islamic Banking: An Islamic Perspective

2017 ◽  
Vol 1 (1) ◽  
pp. 25-28
Author(s):  
K. M. Anwarul Islam ◽  
Orobah Ali Barghouthi
Keyword(s):  
Risk Management ◽  
Financial Services ◽  
Insurance Companies ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Vast Number ◽  
Investment Companies ◽  
Operational Problem ◽  
Mutual Insurance ◽  
Conventional Banks

The financial services industry of Islam consists of an increasingly vast number of institutions, such as investment and commercial banks, investment companies and mutual insurance companies. In Islamic banks effective risk management deserves special attention. However, it has numerous drawbacks that are required to be understood better. Risk management is about the attitude towards paying off and the strategies in dealing with them and the risks associated with it in relation to modern banking. As an operational problem, risk management is about the classification and identification of methods, processes and risks in banks to supervise, monitor and measure them.In comparison to conventional banks, Islamic banks face big difficulties in identifying and managing risks due to bigger complexities emerging from the profit loss sharing concept and nature of particular risks of Islamic financing. This research investigates in detail the need for risk management in Islamic bank (Ilias, S. E. B. 2012).

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