Bank capital and portfolio risk among Islamic banks

Basher, Syed Abul; Kessler, Lori A.; Munkin, Murat K.

doi:10.1016/j.rfe.2017.03.004

Cited by 21 publications

(14 citation statements)

References 33 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…He provides evidence that banks tend to raise their capital buffers following an increase in credit risk. Applying the Markov Chain Monte Carlo to a data set of 22 Islamic banks, Basher et al () find that an increase in total capital leads to an increase in the levels of asset risks.…”

Section: Literature Reviewmentioning

confidence: 99%

“…This article makes two main contributions to the existing literature. First, unlike previous studies on Islamic banks (Basher, Kessler, & Munkin, ; Daher et al, ; Ghosh, ), this article uses simultaneous equations approach to analyze the bidirectional relationship between capital buffer and credit risk. Second, we investigate the impact of the financial crisis and the presence of deposit insurance on the adjustment process.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Capital buffer and credit‐risk adjustments in Islamic and conventional banks

Bougatef

Korbi²

2018

Thunderbird Intl Bus Rev

View full text Add to dashboard Cite

The main purpose of this article is to empirically investigate the interactions between changes in capital buffer and changes in credit risk, using panel data of Islamic and conventional banks located in the Middle East and North Africa (MENA) region over the period 1999–2016. A negative two‐way relationship between the changes in capital buffer and the changes in credit risk is found for the two types of banks, that is, banks tend to decrease their capital buffers in response to an increase in risk exposure and limit their risky activities in response to an increase in their capital buffers. Dividing our period of study into three subperiods to assess the effect of the last financial crisis 2007–08 on the adjustment process, we point out the negative bidirectional relationship between the changes in capital buffer and the changes in credit risk of the two types of banks is present for the three subperiods except the case of conventional banks during the precrisis period. Moreover, we provide evidence that Islamic banks adjust their capital buffer in response to the changes in credit risk regardless of the existence or not of a deposit insurance scheme. In contrast, the negative two‐way relationship between the changes in capital buffer and the changes in credit risk in conventional banks is found only in countries without deposit insurance schemes.

show abstract

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Capital buffer and credit‐risk adjustments in Islamic and conventional banks

Bougatef

Korbi²

2018

Thunderbird Intl Bus Rev

View full text Add to dashboard Cite

show abstract

“…For financing, as an example, products with the profit-sharing system is more relevant and more in accordance with sharia, but this financing system requires high monitoring costs. As a result, there is a decrease in expected future profits, so that Islamic banks tend to disburse riskier loan to increase profit (Basher, Kessler, & Munkin, 2017).…”

Section: Kata Kunci: Tingkat Kesehatan Bank; Camel; Maqasid Syariah; mentioning

confidence: 99%

Determinants of Profit Sharing Financing and Zakat Distribution Based on CAMEL Analysis

Murni

Astuti

Nisa

2018

Jurnal Keuangan Dan Perbankan

View full text Add to dashboard Cite

The rapid development of Islamic banking has many positive impacts, but on the other hand, the development also demands the readiness of sharia banking in meeting the soundness level standard set by the regulator. This study aimed to integrate the two methods of measurement of Islamic financial institutions, the CAMEL method and maqasidsharia method. How far the ability of CAMEL, macro and general measurement, in measuring the variables on the maqasid sharia. This research used panel data model and analyzed four regressions model which welfare model for Sharia Commercial Bank and Sharia Business Unit and affordable product model for Sharia Commercial Bank and Sharia Business Unit. This research used the quantitative descriptive method. We found that only affordable product in Sharia Business Unit can explain independent variable. Other than that, earning component in CAMEL (ROA) had a positive and significant relationship with profit sharing scheme loan. From the results of research conducted, in general, CAMEL and maqasid sharia did not have a relationship except for Sharia Business Unit. This condition can happen because of many things. Among the greater was risks and in terms of better profitability. Therefore, Sharia Commercial Bank and Sharia Business Unit, generally still run a relatively low-risk financing scheme such as murabahah.

show abstract

“…This result was supported by Bouheni and Rachdi [6] for Tunisian banks. However, an investigation, done by Basher et al [7], of the same relationship for Islamic banks provided a disputing result. In their study of Islamic banking industry in the GCC region, they provided evidence of increased levels of asset risk as a consequence of the increased capital.…”

Section: Introductionmentioning

confidence: 99%

“…Zheng et al [15] investigated the effect of ownership structure on capital and risk and found a positive association. Basher et al [7] studied the effect of increased capital of Islamic banks in the GCC region on risk and stability. They found some evidence of the effect of the increased capital on the level of assets risks.…”

Section: Introductionmentioning

confidence: 99%

Effects of Banks’ Free Capital on Performance in Light of the 2008 Financial Crisis: Evidence from the GCC Region

Aldeehani¹,

Tt²

2017

J Bus Fin Aff

View full text Add to dashboard Cite

how it affected the various performance indicators before and after the crisis should add an important contribution to the existing body of knowledge, especially for this region.In the next section, we review the relevant literature on capital adequacy with the objectives of identifying the proper variables to be investigated and developing the research hypotheses. This should be the proper end of the literature discussion before moving forward to the methodology section where we discuss the scope of the research, the nature of the data selected and methodology. That is followed by a section on the results discussion where we present and discuss the outcomes of our tests and model estimations. The paper ends with the conclusion section where we summarize the study and findings then discuss the possible implications and recommendations. Literature ReviewEver since the introduction of Basel I accord in 1988, consultants and researchers have been busy investigating the validity of CAR as an indicator of bank solvency. Like any business organization, banks exist to maximize the value of their shareholders. This goal is always related to two main elements; profit which is the driver of value maximization and risk which is a driver of solvency when low and a driver of higher returns when high. The main concern of the capital adequacy regulation is to monitor the level of risk which should not exceed a certain limit. This regulation suggests that banks face credit solvency risk when they fail to satisfy the capital adequacy ratio. Given the risk Keywords: Capital adequacy; Basel accords; Financial solvency; Financial crisis; GCC banks IntroductionInternational and national regulators consider bank capital as the first defensive shelter against insolvency in case of financial downturns. Since the Basel I accord in 1988, capital adequacy ratio (CAR), defined, as the percentage of capital to risky assets, has been a subject of utmost concern to practitioners and researchers. Ever since that time, regulators were concerned that CAR may not be enough to provide the proper protection against credit risk, hence, the propositions of Basel II accord in 2004 and Basel III accord introduced in 2013-2105. Major financial downturns (i.e., the Asia financial crisis in 1997 and the latest global financial crisis in 2008) have proved the seriousness of that concern.Acknowledging the importance of capital, researchers have strived to investigate the validity of CAR as a measure to guard against bank insolvency. Different causal models were proposed. Some, used CAR as a dependent variable affected by various explanatory variables. Others, albeit more, have used it as the explanatory variable explaining the variability in some independent variables representing riskiness, profitability, etc. Some research attempts questioned the validity of the ratio to serve its purpose. The research outcome has been inconclusive. Fitch Ratings [1] argued that although banks may meet the minimum required CAR, they may well be undercapitalized due to man...

show abstract

Bank capital and portfolio risk among Islamic banks

Cited by 21 publications

References 33 publications

Capital buffer and credit‐risk adjustments in Islamic and conventional banks

Capital buffer and credit‐risk adjustments in Islamic and conventional banks

Determinants of Profit Sharing Financing and Zakat Distribution Based on CAMEL Analysis

Effects of Banks’ Free Capital on Performance in Light of the 2008 Financial Crisis: Evidence from the GCC Region

Contact Info

Product

Resources

About