Risk and risk management practices

Abstract

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.

Does capital adequacy ratio influence risk-taking behaviour of conventional and Islamic banks differently? Empirical evidence from dual banking system of Malaysia

“…This can be attributed to the fact that CBs, in the after math of the 2008 crisis, have been urged to increase their equity and monitor derivatives usage more closely. To comparatively investigate the types and levels of risk and risk management practices of both IBs and CBs, Elgharbawy (2020) used a panel of banks operating in Qatar over the 2009–2018 period. Questionnaire survey was used in the study along with bank-level data that was used to measure risk for both types of banks.…”

Effective risk management practice in Somalia Islamic banks

“…The lack of consistency in financial reporting, the absence of suitable quantitative indicators, and the inadequate risk monitoring methods make it extremely difficult to establish an RM framework for Islamic banks. Additionally, the Sharia-derived principles at the core of the Islamic business model have changed how risks are handled in Islamic banks (Elgharbawy, 2020). The findings imply that the three most significant categories of risk that these Islamic banks face are foreign exchange risk, credit risk, and operating risk (Elgharbawy, 2020).…”

“…Additionally, the Sharia-derived principles at the core of the Islamic business model have changed how risks are handled in Islamic banks (Elgharbawy, 2020). The findings imply that the three most significant categories of risk that these Islamic banks face are foreign exchange risk, credit risk, and operating risk (Elgharbawy, 2020). The level of risk in Islamic banks varies depending on the funding strategy, according to another study that surveyed RMPs in Islamic banks operating in the MENA region (Mudharba, Murabaha, etc.)…”

“…Risk management plays a crucial role in business strategic decision-making (Kulchmanov, Hassan, & Rashid, 2016). Many believe that risk management (RM) is essential to the banking system in particular and the financial sector as a whole (Elgharbawy, 2020). These environmental changes necessitate ongoing attention to risk identification and risk management.…”

“…Islamic banks should prioritize risk management methods since being aware of risk and using modern risk management strategies is a crucial component (Hassan & Dicle, 2005). Numerous theoretical and empirical studies on risk management have been published in numerous nations throughout the world (Abu Hussain & Al-Ajmi, 2012;Elgharbawy, 2020;Noory & Ismail, 2021).…”