Is credit risk really higher in Islamic banks?

Purpose-The Objective of this study is to investigate the moderating role of Intellectual Capital between the relationship of Bank internal factor and Credit Risk in Islamic banks of Pakistan. Design/Methodology-Panel data are obtained from annual reports of 4 Islamic banks of Pakistan from the period 2006 to 2017. These are analyzed using hierarchical regression techniques, via Eviews 9 software. Findings-The results showed that intellectual capital significantly moderates the relationship of bank internal variable and credit risk in Islamic banks in Pakistan. Practical Implications-The study found that Intellectual Capital is a very important driver for credit risk. The investment in Intellectual Capital may lower the credit risk which will further help in the growth and sustainability of the bank and hence the growth in the economy. The results of the study will be useful for bank management, policy maker, and regulator and academia for future research.

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

International Journal of Emerging Markets ◽

10.1108/ijoem-01-2020-0035 ◽

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.

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Financial Risk of Conventional and Islamic Banks: Does Institutional Quality Matter?

Turkish Journal of Computer and Mathematics Education (TURCOMAT) ◽

10.17762/turcomat.v12i3.757 ◽

2021 ◽

Vol 12 (3) ◽

pp. 510-524

Author(s):

Normaizatul Akma Saidi Et.al

Keyword(s):

Credit Risk ◽

Financial Risk ◽

Liquidity Risk ◽

Islamic Banks ◽

Government Effectiveness ◽

Regulatory Quality ◽

Level Data ◽

Conventional Banks ◽

The Relationship ◽

Conventional And Islamic Banks

Banks play a significant role in financing the economy and take on risky financial activities based on information and trust as they specialized companies with their own specificities. This study was propelled to unravel the determinants that affect financial risk (liquidity risk and credit risk) for conventional and Islamic banks. The bank-level data of conventional and Islamic banks in the regions of Middle East, Southeast Asia, and South Asia between 2006 and 2014 were collected from the Bankscope, which is a commercial database produced by the Bureau van Dijk. Thus, for conventional banks the obtained results exhibited significantly positive relationship between regulatory quality towards liquidity risk. Then, the relationship between regulatory quality towards credit risk was negatively significant for conventional banks. Meanwhile, as for Islamic banks, the relationship between government effectiveness and regulatory quality towards financial risk was insignificant. Hence, the regulators or policymakers are able to identify specific mechanism to improve the risk management of these banks as well through this study.

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Risk and risk management practices

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-06-2018-0080 ◽

2020 ◽

Vol 11 (8) ◽

pp. 1555-1581 ◽

Cited By ~ 1

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.

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The Determinants of Credit Risk of Islamic Banks in Malaysia: A Panel Study

10.5176/2251-1997_af13.31 ◽

2013 ◽

Cited By ~ 2

Author(s):

Faridah Najuna Misman ◽

Weifang Lou ◽

Ishaq Bhatti

Keyword(s):

Credit Risk ◽

Panel Study ◽

Islamic Banks

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How Efficient is the Islamic Banking Model in Pakistan?

Lahore Journal of Business ◽

10.35536/ljb.2017.v6.i1.a6 ◽

2017 ◽

Vol 6 (1) ◽

pp. 111-125

Author(s):

Tahseen Mohsan Khan ◽

Mohsan Khan Rizwan ◽

Saima Akhtar ◽

Syed Waqar Azeem Naqvi

Keyword(s):

Credit Risk ◽

Asset Management ◽

Capital Adequacy ◽

Islamic Banking ◽

Islamic Banks ◽

Return On Assets ◽

Management Capability ◽

Conventional Banks ◽

Conventional And Islamic Banks

The purpose of this study is to analyze the conventional and Islamic banking in Pakistan. For this study, a sample of 19 conventional banks and five Islamic banks was selected. The CAMEL approach is used to evaluate the performance of both conventional and Islamic banks. Ten ratios were used to measure profitability, liquidity and credit risk. Our findings suggest that Islamic banks are less efficient than conventional banks in asset management, management capability and liquidity. Conventional banks have better earning capability in terms of return on assets and overhead ratios. The analysis also shows that Islamic banks have better capital adequacy than conventional banks.

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Analisis Tingkat Kesehatan Bank Syariah Menggunakan Rasio Permodalan, Profitabilitas, Pembiayaan, dan Risiko Kredit

JURNAL ILMIAH EKONOMI ISLAM ◽

10.29040/jiei.v6i2.1169 ◽

2020 ◽

Vol 6 (2) ◽

pp. 367

Author(s):

Slamet Santosa ◽

Muhammad Tho'in ◽

Sumadi Sumadi

Keyword(s):

Credit Risk ◽

Financial Institutions ◽

Financial Statements ◽

Islamic Banking ◽

Islamic Banks ◽

Short Term ◽

Good Level ◽

Quantitative Descriptive ◽

Good Rating

The aims of the research is to find out the soundness level of Islamic banks seen from the capital ratio, profitability, financing, and credit. Islamic banking financial institutions which are to be the focus of this research are Bank Syariah Mandiri (BSM). This research uses quantitative descriptive methods. The data used are the 2014-2018 financial statements. The results of this study indicate that Bank Syariah Mandiri in terms of capital using the CAR ratio shows an average CAR ratio of 14.75%. This means that BSM in terms of capital is ranked very well. Bank Syariah Mandiri in terms of profitability using the ROA and ROE ratio shows an average ROA of 0.53% and ROE of 6%. This means that BSM's ability to generate profits is ranked quite well. Bank Syariah Mandiri in terms of financing using the FDR ratio shows an average FDR ratio of 79.81%. This means that BSM's ability to repay short-term loans and meet agreed financing is at a healthy rating. Bank Syariah Mandiri in terms of credit risk using the NPF ratio shows an average NPF ratio of 3.18%. This means that there is very little credit provided by BSM and the bank is viewed from the aspect of credit risk, including in a good rating. From the results of these research, indicate that the the soundness level of Bank Syariah Mandiri is in a good level of soundness.

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Risk management in conventional and Islamic banks in Palestine: A comparative analysis

Banks and Bank Systems ◽

10.21511/bbs.16(2).2021.17 ◽

2021 ◽

Vol 16 (2) ◽

pp. 182-189

Author(s):

Othman Sawafta

Keyword(s):

Risk Management ◽

Credit Risk ◽

Commercial Banks ◽

Banking Sector ◽

Probability Distributions ◽

Research Question ◽

Islamic Banks ◽

Management Skills ◽

Operational Systems ◽

Customer Services

The aim of the study is to compare credit risk between commercial and Islamic banks in Palestine. The study uses five commercial banks and two Islamic banks, so the Merton model is used to test the hypothesis regarding the research question. Also, cumulative logistic probability distributions are used to derive the probability of default from distance to default. The findings show that commercial banks encompass less credit risk than Islamic banks. Thus, the study recommends that financial institutions in Palestine master management skills and operational systems to cope with the financial environment. They need to increase research and training programs in risk management. Besides, there is a need to reduce lending to public sector (government). There is also a need for a focus on mergers, especially for smaller banks, to increase their capital, so that there are banking units that can compete in providing better customer services and contributing to the stability of the banking sector. AcknowledgmentThe author is thankful to Palestine Technical University – Kadoorie for funding this research.

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The The Impact of Liquidity, Credit, and Financial Leverage Risks on Financial Performance of Islamic Banks: A Case of Sudanese Banking Sector

Risk and Financial Management ◽

10.30560/rfm.v2n2p59 ◽

2020 ◽

Vol 2 (2) ◽

pp. p59

Author(s):

Ahmed Nourrein Ahmed Mennawi

Keyword(s):

Credit Risk ◽

Financial Performance ◽

Banking Sector ◽

Negative Impact ◽

Liquidity Risk ◽

Positive Influence ◽

Islamic Banks ◽

Financial Leverage ◽

Loan Financing ◽

The Impact

This study aims to investigate the impact of liquidity, credit, and financial leverage risks on the financial performance of Islam banks in Sudan during the period of 2008 - 2018. Panel dataset of 143 observations from (13) banks has been used in this study. Two models of ROA and NPM have been constructed using robust random effects estimates for testing the study hypotheses. The independent variables consist of liquidity and credit risks plus the financial Leverage ratio. Credit risk that measured by nonperformance of loan (financing) and provision of loan (financing) loss ratios; while the liquidity risk measured by cash to deposits ratio, liquid assets to total assets ratio and total loan (financing) to total deposits ratio. The financial performance of Islamic banks in Sudan measured by the ratios of return on assets and net profit margin. The results reveal that the credit risk and financial leverage have significant and negative impact on the financial performance of Islamic banks in Sudan, whereas the liquidity risk generally found to be insignificant. Despite that, the liquidity risk in term of liquid assets to total assets ratio provides a significant and positive influence on the financial performance of Sudanese banks. Finally, the importance of this study is that it touches the most significant types of risks that Sudanese Islamic banks face during their operational cycles.

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