Regulation and Supervision of Islamic Banks

Mejia, Aledjandro Lopez; Aljabrin, Suliman; Awad, Rachid; Norat, Mohamed; Song, In W

doi:10.5089/9781498361590.001

Cited by 31 publications

(29 citation statements)

References 12 publications

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“…Instead, they rely on shareholders to monitor management behavior and performance. However, equity holders absorb losses on the asset‐backed securities, raising concerns about transparency and disclosure (Mejía, Aljabrin, Awad, Norat, & Song, ). Moreover, transparency in corporate governance disclosures still need to be improved significantly (Abdullah, Percy, & Stewart, ).…”

Section: Literature and Hypotheses Developmentmentioning

confidence: 99%

“…Consequently, since members of the SSB come from different Islamic schools of thought, these differences may exacerbate disagreements regarding Shari'ah ‐compliant transactions and interpretations of Shari'ah principles. This could largely reflect variations in financial reporting, auditing, and accounting treatments (Mejía et al, ), creating more pressure on IBs to adopt prudential accounting practices. The conservative and ethical inclinations of IBs can thus mitigate fraudulent financial reporting and, therefore, may have important accounting and economic implications.…”

Section: Literature and Hypotheses Developmentmentioning

confidence: 99%

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Corporate governance and accounting conservatism in Islamic banks

Almutairi

Quttainah

2019

Thunderbird Intl Bus Rev

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We examine whether Islamic banks are more likely to be conservative in their financial reporting than conventional banks, as well as how Islamic banks' unique corporate governance system affects accounting conservatism behaviors. Using a large sample of Islamic banks and their matched non‐Islamic banks; based on total assets and geographic location, in 15 countries, we find Islamic banks are more likely to deploy accounting conservatism as measured by loss avoidance, abnormal loan loss provisions, and C‐score, respectively. Islamic banks are about 95% more likely to be more conservative in accounting practices than their counterparts, depending on different model specifications. In addition, we report several board characteristics, such as size, independence, reputation, tenure, and diversity, are important determinants of accounting conservatism in Islamic banks. This relationship indicates certain board traits lead to greater monitoring roles, consequently reducing unethical behavior and increasing the degree of conservatism in accounting practices.

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Section: Literature and Hypotheses Developmentmentioning

confidence: 99%

Section: Literature and Hypotheses Developmentmentioning

confidence: 99%

Corporate governance and accounting conservatism in Islamic banks

Almutairi

Quttainah

2019

Thunderbird Intl Bus Rev

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“…Our study adds to the growing literature on regulation and risk management in IBs (Archer et al, 2010;Archer and Karim, 2009;Daher et al, 2015;El-Hawary et al, 2007;Farook et al, 2012;Fiennes, 2007;Mejia et al, 2014;Toumi et al, 2011) and makes a number of important contributions. First, our paper differs from the previous descriptive theoretical studies that exploring PSIA U as a unique nature of liabilities in the Islamic banking industry and highlightening the necessity to pay sufficient attention in manage risks arising from it.…”

Section: Introductionmentioning

confidence: 85%

“…Return smoothing using reserves could be conducted under regulatory pressure in addition to commercial pressure. In several jurisdictions, regulators take the view that IBs should not allow PSIA U holders to suffer from a loss or a major fall in their returns (Archer and Karim, 2009;El-Hawary et al, 2007;Mejia et al, 2014). The regulator could assimilate PSIA holders as conventional depositors who bear no risk or as partially risk absorbent depositors (instead of being investors who bear all risks of losses) (Toumi and Viviani, 2013).…”

Section: Dcr Measurement Frameworkmentioning

confidence: 99%

Measurement of the displaced commercial risk in Islamic Banks

Toumi

Viviani

Chayeh

2019

The Quarterly Review of Economics and Finance

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HighlightsWe identify the displaced commercial risk DCR exposure of Islamic banks. We identify the scenarios of displaced commercial risk exposure to compute the DCR Profits and Losses to Islamic banks shareholders. Scenarios of risk depend on the actual rate of return on investment accounts, the benchmark rate of return and level of existing reserves to mitigate the DCR. We assess the capital charge needed to cover the displaced commercial risk using the Value-at-risk measure of risk, DCR-VaR. We assess the coefficient alpha α CAR-VaR for the capital adequacy ratio for Islamic banks.We consider three methods, the Historical non-parametric VaR, the parametric-VaR and the Extreme Value Theory-VaR. AbstractThe objective of the research is to quantify the displaced commercial risk (DCR) based on quantitative finance techniques. We develop an internal model based on the Value-at-risk (VaR) measure of risk to assess the DCR-VaR and the alpha coefficient in the capital adequacy ratio of Islamic banks. We identify first the scenarios of exposure of Islamic banks to DCR that depend on the actual return on unrestricted profit sharing investment accounts (PSIA U ), the benchmark return as well as the level of the existing profit equalization reserve (PER) and investment risk reserve (IRR). Second, we quantify the DCR-VaR and the alpha coefficient for a given holding period and for given confidence level. We illustrate the DCR-VaR model on selected Islamic banks from Bahrain. Our model helps to better assess the needed equity to cover the DCR and an accurate capital adequacy ratio for Islamic banks. The model has also policy implications for regulators and the IFSB to develop better guidance on good practices in managing this risk.

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“…In line with IFSB guidelines, the supervision and governance structure in Islamic Banks is expected to include a Sharia Supervisory Board (SSB), composed of qualified scholars in Fiqh al Muamalat appointed by shareholders and reporting to the board of directors, with the responsibility of certifying and monitoring financial contracts, transactions, and activities of a Islamic bank on behalf of stakeholders and clients to ensure that they are compliant with the Sharia; an internal Sharia review process, carried out by an independent department to monitor, evaluate and produce reports on sharia compliance; and; periodic Sharia reviews covering policies and transactions, which form the basis of the report of the Sharia Supervisory Board. (Mejia et al, 2014). Garas and Pierce (2010) commenting on the sharia supervision in Islamic financial institutions (IFI), observed that it can assume different forms at macro and micro levels in different countries.…”

Section: Literature Reviewmentioning

confidence: 99%

Composition and Working of the Sharia Supervisory Boards in Bahrain’s Islamic Banks

Kasi

Mahmood

2019

Economy

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The global Islamic finance industry has grown rapidly in the last ten years recording an average growth of over 10 percent and is expected to touch USD 3 trillion by 2020. The Gulf Cooperation Council Countries, Iran and Malaysia; have been central to the success story of the global Islamic finance industry accounting for 83 percent of the market size. Even though Islamic finance covers a wide range of financial service segments, 75 percent of the global Islamic financial assets are held by Islamic Banks, which explains the general notion of equating Islamic finance with Islamic banking. Islamic banking refers to a system of banking, which is consistent and in compliance with Islamic law, also known as Sharia. It is seen as an alternative to western-based banking in Islamic countries. Even though many Islamic countries have in place a Sharia supervisory and governance framework for Islamic banks, it has often been commented that these frameworks are inadequate when it comes to addressing the issues and challenges confronting Islamic banks today. Previous researchers have specifically identified issues concerning the membership and workings of the Sharia Boards as one of the major challenges confronting growth of Islamic banks. The purpose of this paper is to examine and comment on the constitution, composition and functioning of Sharia Boards within Islamic banks based in the Kingdom of Bahrain.

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Regulation and Supervision of Islamic Banks

Cited by 31 publications

References 12 publications

Corporate governance and accounting conservatism in Islamic banks

Corporate governance and accounting conservatism in Islamic banks

Measurement of the displaced commercial risk in Islamic Banks

Composition and Working of the Sharia Supervisory Boards in Bahrain’s Islamic Banks

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