Risk management tools practiced in Islamic banks: evidence in MENA region

Mokni, Rim Ben Selma; Echchabi, Abdelghani; Azouzi, Dhekra; Rachdi, Houssem

doi:10.1108/jiabr-10-2012-0070

Cited by 33 publications

(19 citation statements)

References 9 publications

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“…According to Majdina, Munandar, & Effendi (2019), Islamic banks should manage the strategy of funds' distribution to improve their performance. Mokni et al (2014) who summarize some previous studies about the types of risks that dominate the banking industry, state that the ability to analyze credit risk will affect the ability of the Islamic bank to manage risk efficiently.…”

Section: Figure 2 the Proportion Of Financing In Islamic Banksmentioning

confidence: 99%

“…Credit risk can be seen from the ratio of non-performing loans (NPL) in the conventional bank or non-performing financing (NPF) in the Islamic bank. Many factors influence the occurrence of credit risk in banks, including the types of contracts or financing agreements, weak corporate governance, poor risk management and moral hazard from the debtor itself (Mokni et al, 2014;Siswanti, 2016;Abobakr & Elgiziry, 2017;Soekapdjo et al, 2018).…”

Section: Introductionmentioning

confidence: 99%

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Board of directors and credit risk: An empirical study of Indonesian Islamic banks

Nugraheni

Muhammad

2019

Jurnal Keuangan Dan Perbankan

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Credit risk is the primary risk in the banking industry related to its function in distributing credit to customers. Decreasing credit risk is the main duty of the management of banks. We examine the relationship between the Board of Directors (BOD) characteristics and credit risk in the Indonesian Islamic bank. BOD characteristics consist of BOD size, educational qualification, number of meetings, and expertise. The samples in this study are full-fledged Islamic banks in Indonesia that publish annual reports for the year 2013-2017. The data are processed using panel data regression. We indicate that the number of BOD meetings has a negative influence on credit risk, BOD size has a positive influence on credit risk while educational qualification and expertise do not influence credit risk of Islamic banks in Indonesia. Understanding BOD characteristics and credit risk are useful to mitigate the implementation of corporate governance for Islamic banks in the two-tier board system. The findings are expected to have a contribution to strengthening the BOD's role to encourage the better performance of Islamic banks. AbstrakRisiko kredit merupakan risiko utama dalam industri perbankan terkait dengan peran bank sebagai penyalur kredit kepada masyarakat. Mengurangi risiko kredit menjadi tugas utama manajemen bank. Kami menguji hubungan antara karakteristik dewan direksi (BOD) dan risiko kredit pada bank umum syariah di Indonesia. Karakteristik BOD terdiri dari ukuran BOD, kualifikasi pendidikan, jumlah rapat, dan keahlian. Sampel dalam penelitian ini adalah bank umum syariah di Indonesia yang mempublikasikan laporan tahunan tahun 2013-2017. Data dianalisis menggunakan regresi data panel. Kami menunjukkan bahwa jumlah rapat direksi memiliki pengaruh negatif pada risiko kredit, ukuran direksi berpengaruh positif pada risiko kredit sedangkan kualifikasi pendidikan dan keahlian tidak memengaruhi risiko kredit bank syariah di Indonesia. Memahami karakteristik BOD dan risiko kredit bermanfaat untuk memitigasi penerapan tata kelola di bank umum syariah. Penelitian ini diharapkan dapat berkontribusi dalam memperkuat peran BOD untuk mendorong kinerja bank syariah yang lebih baik.

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Section: Figure 2 the Proportion Of Financing In Islamic Banksmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Board of directors and credit risk: An empirical study of Indonesian Islamic banks

Nugraheni

Muhammad

2019

Jurnal Keuangan Dan Perbankan

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“…For ICBs, there are various studies that highlight the significance of the ROR risk from different perspectives (e.g. Mokni et al, 2014;Fauziah et al, 2011;IFSB, 2005IFSB, , 2010IFSB, , 2011IFSB, , 2014IFSB, , 2015Mohd. Ariffin et al, 2009;Romzie and Abdul Rahim, 2015;and Zainol and Kassim, 2010).…”

Section: Risk Management For Benchmark Rates Risk -Prudential Perspecmentioning

confidence: 99%

Risk Management in Changing Benchmark Rates Regime : Prudential Implications for Islamic Banks and Supervisors

Chattha

Alhabshi

2017

JIF

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Post-global financial crisis scenario has presented extraordinary challenges to the global economy, in general, and the banking industry, in particular. This has brought the financial industry to a set of new challenges including risk management in changing benchmark rates risk for Islamic banks. Thus, in recent years, the management of benchmark rates (or interest rates) received considerable prominence in the banking sector due to a number of reasons including supervision of banks' benchmark rates under Basel II Pillar II. Taking into account the specific features of Islamic banks, the purpose of the paper is to theoretically and empirically review the possible prudential implications of lowly and increasing benchmark rates risk, and provide a sturdy risk management and regulatory perspective for Islamic banks and supervisors. For low rates perspective, policy rates of 12 central banks were collected and analyzed. However, for increasing rates scenario, we used duration gap and stress testing approaches, with a sample of 50 Islamic banks from 13 countries, for the period 2009-2015. Our empirical results indicate that persistently low benchmark rate regime carries strategic implications for Islamic banks including pressure on profitability, excessive risk taking and distortion in credit allocations. On the other hand, an increasing benchmark rate regime indicates the significant loss of the capital base, emergence of displaced commercial risk causing early withdrawals by the customers due to higher expectations in dual banking systems. This study concludes that implications under both scenarios call for a better risk management with appropriate tools and effective supervisory oversight for Islamic banks.

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“…In addition to those mentioned above the existing literature on risk management practices and tools from an ICB's perspective shows a lot of variation yet seems to focus on general risk management practices without combining institutional and regulatory perspectives. There is a wide range of studies on risk management practices for ICBs in different countries for dealing with different types of risk (Al-Janabi, 2008;Alam and Masukujjaman, 2011;Al-Ajmi and Hameeda, 2012;Al-Tamimi and Al-Mazrooei, 2007;Ben Selma Mokni et al, 2014;Fauziah et al, 2011;Hassan, 2009;Hussain and Naysary, 2014;Mohd. Ariffin et al, 2009;Romzie, 2009;Romzie and Abdul Rahim, 2015;and Usman, Akhtar, and Ahmed, 2011).…”

Section: Risks In Islamic Banking Industry -Key Gapsmentioning

confidence: 99%

“…Ariffin (2005), risk management tools and practices are covered by Alam and Masukujjaman (2011), Chattha and Bacha (2010), Chattha andAlhabshi (2017, 2018), Fauziah et al (2011), Hassan (2009), Khalid and Amjad (2012), Mohd. Ariffin et al (2009), Ben Selma Mokni et al (2014), Romzie (2009), Romzie and Abdul Rahim (2015), Sundararajan (2002) and Zainol (2015). However, no specific study has been conducted to explain time-series and cross-section variations in the ICBs' duration gaps for a longer period.…”

Section: Introductionmentioning

confidence: 99%

Estimation of Duration Gap and its Determinants for Islamic Banks: Empirical Evidence using Two-Step Robust GMM

Chattha

Alhabshi

2021

Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah

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The banking industry is in the business of risk management, which is of significant consideration to banks and their regulators. Islamic commercial banks (ICBs) are no exception as they too deal with a variety of peculiar risks. One specific risk is the rate of return risk (ROR) in the banking book, which is dealt with under Pillar 2 of the Basel Committee on Banking Supervision (BCBS) and the Islamic Financial Services Board (IFSB) standards. The IFSB, similar to the BCBS, provides a detailed framework on the management of ROR risk for the ICBs, including modalities of maturity gap and calculation of precise duration of assets and liabilities. However, existing studies on risk management practices show significant gaps; there are no studies which specifically highlight the assessment of ROR risk with duration gap for ICBs. Therefore, we estimate the duration gap of ICBs and determine the factors influencing the duration gaps in the context of ROR risk. Using Duration Gap Model and Two-Step Robust Generalized Method of Moments (GMM), with a sample of 50 ICBs from 13 countries, for the period 2007-2015, our empirical findings are three-fold: (a) time series and cross-sectional duration gap of ICBs reflecting significant variations across the banks and countries; (b) ICBs have a general tendency of maintaining a higher (more) duration gap compared to their conventional counterparts, and are exposed to increasing ROR risk due to their larger duration gaps and severe liquidity mismatches; and (c) there is significant difference in the estimated coefficients of idiosyncratic factors influencing the duration gaps of ICBs. This study makes profound contributions to the existing corpus of literature and provides direction to the ICBs to reflect upon the significance of liquidity mismatch risk, ROR risk management with the duration gap, factors influencing the duration gaps, and management of the ROR risk under Pillar 2 of the BCBS and the IFSB standards.

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Risk management tools practiced in Islamic banks: evidence in MENA region

Cited by 33 publications

References 9 publications

Board of directors and credit risk: An empirical study of Indonesian Islamic banks

Board of directors and credit risk: An empirical study of Indonesian Islamic banks

Risk Management in Changing Benchmark Rates Regime : Prudential Implications for Islamic Banks and Supervisors

Estimation of Duration Gap and its Determinants for Islamic Banks: Empirical Evidence using Two-Step Robust GMM

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