Capital Structure and Risk in Islamic Financial Services

Grais, Wafik; Kulathunga, Anoma

doi:10.1002/9781118390443.ch4

Cited by 16 publications

(26 citation statements)

References 12 publications

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“…The literature focusing on Islamic finance from the viewpoint of distress and insolvency is not very abundant. A large body of descriptive literature discusses risks in Islamic banking (Sundararajan and Errico, 2002;Grais and Kulathunga, 2006; Grais and Pellegrini, 2006) but does so in theoretical terms, while empirical papers focus on Islamic and conventional banking efficiency (Yudistira, 2004;Hamim, Naziruddin and Syed, 2006;Abdul-Majid, Saal and Battisti, 2010). The role of Islamic banks in financial stability has been analyzed in a consistent, cross-country, empirical fashion in 16 countries between 1993 and 2004 (Čihák and Hesse, 2010).…”

Section: Introductionmentioning

confidence: 99%

Islamic Banks and Financial Stability: A Comparative Empirical Analysis between MENA and Southeast Asian Countries

Rajhi

2012

SSRN Journal

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The aim of this paper is to investigate whether Islamic banks are more stable than conventional banks. To measure the financial stability, we compute the z-score for a sample of banks in 16 countries where Islamic and conventional banks coexist over the period 2000-2008. We use a robust estimation for analyzing data that are contaminated with outliers and leverage points in the data. We use also a quantile estimation to allow us to address the question whether the factors that cause high fragility are systematically different from the factors that cause medium or low fragility. This empirical analysis explores causes of insolvency risk between Middle East and North Africa and South East Asian countries. Finally, by controlling for various factors and by favoring a comparative analysis between the regions, this article is an extension of the study begun by Čihák and Hesse (2010).

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Section: Introductionmentioning

confidence: 99%

Islamic Banks and Financial Stability: A Comparative Empirical Analysis between MENA and Southeast Asian Countries

Rajhi

2012

SSRN Journal

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“…Standard koji je formulisao Odbor za (Grais & Kulathunga, 2007). By analyzing the structure of regulatory capital in many Islamic banks (Abu Dhabi Islamic Bank, Al Rajhi Bank, Bahrain Islamic Bank, Dubai Islamic Bank, Qatar Islamic Bank), we have concluded that Tier 1 capital, with small deviations, possesses almost identical elements as all the observed Islamic banks.…”

Section: Minimum Capital Requirementsmentioning

confidence: 85%

The applicability of Basel standards in Islamic banking

Lekpek¹

2017

Bankarstvo

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Državni univerzitetu Novom Pazaru alekpek@np.ac.rs Prevod obezbedio autor RezimeS ciljem stabilizacije bankarskog sistema na nacionalnom i globalnom nivou i sprečavanja razornih kriza koje se vrlo brzo sa finansijskog prelivaju na realni sektor, usvojeni su Bazelski standardi adekvatnosti kapitala i upravljanja rizicima, koji su implementirani u izvornoj ili delimično izmenjenoj formi u velikom broju zemalja. Rastuće prisustvo i značaj islamskih banaka uslovili su povećanu pažnju stručne javnosti prema svim aspektima poslovanja ovih finansijskih institucija. Jedan od ključnih aspekata poslovanja islamskih banaka je efikasnost održavanja adekvatnog nivoa kapitala i upravljanja rizicima. Uzimajući u obzir specifičnost islamskog finansijskog posredovanja i poslova koje islamske banke realizuju, postavlja se pitanje da li su Bazelski propisi i praksa konvencionalnih banaka u upravljanju kapitalom i rizicima primenjivi u islamskim bankama. U radu ćemo analizirati mogućnosti islamskih banaka da, ne odstupajući od bazičnih šerijatskih principa, primene Bazelske standarde prilikom strukturiranja kapitala, kontrole ispoštovanosti standarda adekvatnosti kapitala i izveštavanja o uspešnosti upravljanja kapitalom i rizicima.Ključne reči: islam, bankarstvo, Bazelski standardi, adekvatnost kapitala, računovodstveni standardi JEL: G21, M41 Primljen: 18.12.2016. Prihvaćen: 13.03.2017 69 Bankarstvo, 2017, Vol. SummaryWith the goal of stabilizing the banking system at the national and global level and preventing the devastating crises that very swiftly spill over from the financial into the real sector, the Basel standards of capital adequacy and risk management have been adopted and implemented in the original or slightly altered form in many countries. The increasing presence and significance of Islamic banks demand more attention of the professional public focused on all of the business aspects of these financial institutions. One of the key aspects of Islamic bank business is efficiency in maintaining the adequate capital level and risk management. Considering the uniqueness of Islamic financial intermediation and businesses conducted by Islamic banks, the question is raised whether the Basel regulations and practices of conventional banks in capital and risk management are applicable in the Islamic banks. It this paper we will analyze the possibilities of Islamic banks to, apply the Basel standards without deviating from the basic Sharia principles in the process of structuring their capital, monitoring their capital adequacy ratios, and reporting on their success in capital and risk management.Keywords: Islam, banking, Basel standards, capital adequacy, accounting standards JEL: G21, M41 Received: 18.12.2016 Accepted: 13.03.2017 doi: 10.5937/bankarstvo1701068L UvodVisina kapitala banke je jedan od glavnih kriterijuma na osnovu kojeg regulatorne vlasti, deponenti, klijenti, konkurencija i javnost procenjuju poslovne kapacitete i perspektivu banke. Kapital predstavlja finansijsku bazu neophodnu za osnivanje banke, ali i te...

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“…For Islamic financial Institutions, IIFS, tier 1 capital is not the same as in CFS and IFS. Grais and Kulathunga (2006) argued that tier 1 capital would be same as in conventional and Islamic financial institutions; they argued that the reserves would include the shareholders' portion of the profit equalization reserve (PER), which is included in the disclosed reserves (tier 1). (Note 25) The tier 2 capital would not be any hybrid capital instruments, subordinated debts as CFS.…”

Section: What Capital Regulation Do Islamic Banks Need?mentioning

confidence: 99%

“…Investment Risk Reserve is retained only from the profits attributed to investment account holders (After deduction of mudarib share). However, the investment risk reserve is needed to cover potential losses on assets invested with investment account holders funds (Archer and Rifaat, 2006;Grais and kulathunga, 2006).…”

Section: Governance Of Reserve: Provisioning Practice To Smooth the Rmentioning

confidence: 99%

“…IIFS consider these funds important to deal with competitive pressure from commercial and Islamic banks. Grais and Kulathunga (2006) argued that the profit equalization reserve and investment risk reserve might be considered in terms of the perspective of dealing with expected and unexpected losses to the extent that funds in these reserves provide cushions equivalent to capital. (Note 52) Investment account holders (UIA) are liable to incur unexpected losses as shareholders because there is effectively no cushion, as provided by equity from the shareholders in conventional institutions.…”

Section: Governance Of Reserve: Provisioning Practice To Smooth the Rmentioning

confidence: 99%

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Capital Structure and Financial Risks in Non-Conventional Banking System

Rajhi¹,

Hassairi²

2012

IJEF

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We discuss issues of capital structure and enforcement in Islamic finance only to the extent that Islamic financial institutions differ from their conventional counterparts. Substantive differences do in fact exist. This paper presents the capital adequacy framework for Islamic banks compared to the setting up of the Basel II capital adequacy framework. We discusses of the risk profile of an Islamic banking and on the relationship between risk management and capital structure, it overviews specific risk categories for Islamic banks as an initial step in risk management, and highlight the differences and similarities in importance of these causes for Islamic banks. We present appropriate risk weights to unrestricted investments in order to defining their own capital requirements with regard to loss tolerance.

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Capital Structure and Risk in Islamic Financial Services

Cited by 16 publications

References 12 publications

Islamic Banks and Financial Stability: A Comparative Empirical Analysis between MENA and Southeast Asian Countries

Islamic Banks and Financial Stability: A Comparative Empirical Analysis between MENA and Southeast Asian Countries

The applicability of Basel standards in Islamic banking

Capital Structure and Financial Risks in Non-Conventional Banking System

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