scholarly journals Developments in Risk Management in Islamic Finance: A Review

2019 ◽  
Vol 12 (1) ◽  
pp. 37 ◽  
Author(s):  
Naseem Al Rahahleh ◽  
M. Ishaq Bhatti ◽  
Faridah Najuna Misman
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Negative Impact ◽  
Risk Mitigation ◽  
Risk Level ◽  
Islamic Banks ◽  
Bank Capital ◽  
Weak Support ◽  
Governance Practices ◽  
Contract Structure

The purpose of this study is to review recent developments pertaining to risk management in Islamic banking and finance literature. The study explores the fundamental features of risks associated with Islamic banks (IBs) as compared to those associated with conventional banks (CBs) in order to determine the extent to which IBs engage in effective risk mitigation. The study includes a consideration of the major studies in which the fundamental features of Islamic banks and finance (IBF) and the main characteristics of risk management in IBs are analyzed in comparison with those of CBs. Specifically, these two kinds of banks are compared in relation to the types of risks faced, the characteristics of those risks, and the nature and extent of exposure to those risks. A tabular methodology approach is used in concert with a comparative literature review approach for the analysis. The results show that there is weak support for Shariah-based product development due to the lack of risk mitigation expertise in IBs. The conclusion presented is that in comparison with CBs, IBs are more risk-sensitive due to the nature of their products, contract structure, legal costing, governance practices, and liquidity infrastructure. Furthermore, the determinants of the credit risk of Islamic banks in Malaysia (MIBs) are examined. Overall, bank capital and financing expansion have a significant negative impact on the credit risk level of IBs in Malaysia.

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.

Credit risk management: a case differentiating Islamic and non‐Islamic banks in UAE

2012 ◽  
Vol 4 (2/3) ◽  
pp. 197-205 ◽  
Author(s):  
Omar Masood ◽  
Hasan Al Suwaidi ◽  
Priya Darshini Pun Thapa
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Islamic Banks ◽  
Credit Risk Management

scholarly journals Risk management of Islamic banks: A search for empirical evidences

2017 ◽  
Vol 14 (2) ◽  
pp. 8-16
Author(s):  
Sayed M. Fadel ◽  
Jasim Al-Ajmi
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Management Practices ◽  
Global Financial Crisis ◽  
Risk Mitigation ◽  
Balance Sheet ◽  
Islamic Banks ◽  
Risk Levels ◽  
Management Techniques ◽  
The Global Financial Crisis

The objectives of this study are to determine 1) the effect of global economic and financial crisis on risk management, 2) the severity of different types of risk facing Islamic banks, 3) the risk levels of Islamic financial modes, 4) risk assessment techniques, and 5) risk management techniques. The structure of the balance sheet, the nature of Islamic finance instruments and funding sources have a great impact on the level of risk exposure of banks and the instruments. Credit risk is found to be the most serious risk, followed by liquidity risk, market risk and operational risk, in descending order of importance. As for the riskiness of Islamic financing modes, mudarabah is perceived to be the riskiest, followed by musharakah, while murabahah ranked as the least risky mode. Moreover, Islamic banks are found to use traditional risk management techniques more than sophisticated measurements. They also adopt risk mitigation techniques that are used by conventional banks in preference to techniques that are considered to be unique to Islamic banks. This paper is the first to study the risk management practices of Islamic banks operating in Bahrain. It also provides evidence about these practices after the global financial crisis that affected all countries, including Bahrain.

Credit Risk Management of Commercial Banks in Nepal

2019 ◽  
Vol 4 (1) ◽  
pp. 27-37
Author(s):  
Shreya Pradhan ◽  
Ajay K. Shah
Keyword(s):  
Risk Assessment ◽  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Management Practices ◽  
Risk Mitigation ◽  
Mitigation Measures ◽  
Credit Risk Management ◽  
Loan Repayment ◽  
Credit Risk Assessment

The study is primarily focused on credit risk assessment practices in commercial banks on the basis of their internal efficiency, assessment of assets and borrower. The model of the study is based on the analysis of relationship between credit risk management practices, credit risk mitigation measures and obstacles and loan repayment. Based on a descriptive research approach the study has used survey-based primary data and performed a correlation analysis on them. It discovered that credit risk management practices and credit risk mitigation measures have a positive relationship with loan repayment, while obstacles faced by borrowers have no significant relationship with loan repayment. The study findings can provide good insights to commercial bank managers in analysing their model of credit risk management system, policies and practices, and in establishing a profitable and sustainable model for credit risk assessment, by setting a risk tolerance level and managing credit risks vis-a-vis the prevailing market competition.

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

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.

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

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.

scholarly journals AN ANALYSIS OF THE EFFECT OF CREDIT RISK MANAGEMENT ON PROFITABILITY OF COMMERCIAL BANKS IN KENYA

2016 ◽  
Vol 1 (3) ◽  
pp. 38
Author(s):  
ANTHONY WANJOHI ◽  
MR. BERNARD BAIMWERA
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Secondary Data ◽  
Risk Governance ◽  
Credit Risk Management ◽  
Governance Practices ◽  
Collection Practices ◽  
Debt Collection ◽  
Finance Department

Purpose: The purpose of this study was to analyse the effect of credit risk management on profitability of commercial banks in Kenya.Methodology: This study adopted a descriptive design. The study targeted a population of all the 44 commercial banks with the exception of Charterhouse bank which is under statutory management. The sample of this study was 86 employees out of a possible 30,056 employees from the 43 commercial banks. The sample of 86 was generated by purposively sampling two employees from each bank.  One employee was a manager from the finance department while the other employee was a manager from the credit risk department. The questionnaire comprised of closed ended questions. Secondary data for ROA was identified. SPSS was used to produce frequencies, descriptive and inferential statistics which was used to derive conclusions and generalizations regarding the population. Regression analysis was also used to show the sensitivity of profitability, ROA to various independent variables.Results: The study findings indicated that credit department had various checks during loan credit review. The credit department always checked at the character of the borrower, collateral of the borrower, capacity of the borrower, capital of the borrower, conditions and controls during credit review. Results indicated that the banks had credit appraisal practices, credit monitoring practices, debt collection practices and credit risk governance practices in place. Regression results indicated that there was a positive and significant relationship between credit appraisal, credit monitoring, debt collection and credit risk governance practices and profitability of commercial banks.Unique contribution to theory, practice and policy: The study concluded that credit appraisal, credit monitoring, debt collection and credit risk governance practices had a positive effect on the profitability of commercial banks. The study recommends that the banks should continue emphasizing on the effective credit appraisal, credit monitoring, debt collection and credit risk governance practices so as to enhance maximum profits in banks.

scholarly journals Assessing the Impact of Operational Flaws on the Performance of Microfinance Institutions in Ghana

2020 ◽  
Vol 7 (1) ◽  
pp. 37
Author(s):  
Adjei Gyamfi Gyimah ◽  
Annette Serwaa Agyeman ◽  
Solomon Adu-Asare
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Interest Rates ◽  
Negative Impact ◽  
Microfinance Institutions ◽  
Credit Risk Management ◽  
Overall Performance ◽  
The Impact ◽  
And Training ◽  
Regulatory Challenges

Microfinance institutions contribute significantly to the development of a country, and many of these institutions are found in most developing countries including Ghana. However, many challenges have been alleged to stifle the efforts of microfinance companies in their attempt to make their all-important contribution to the development of nations. This study explored the effect of operational flaws on the performance of microfinance institutions in Ghana. The results discovered flaws and challenges associated with the operations of the MFIs in many areas including corporate governance, credit risk management, credit administration, regulatory challenges, and training programs. The study also revealed that such flaws and challenges do harm the overall performance of the MFIs. Based on the findings, it is recommended that MFIs put in place a well-composed and resourceful credit committee to perform the duty of credit risk management in the institutions. The institutions could also reduce their interest rates to encourage their clients to apply for more loans. Lastly, it is recommended that the MFIs take all necessary steps to ensure that they reduce the flaws and challenges they face to mitigate the negative impact of such deficiencies on their performance.

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.

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