Impact of Credit Risk Management on the Performance of Islamic and Commercial Banks in Saudi Arabia (original) (raw)
Related papers
2018
Like their conventional counterparts, Islamic banks face a variety of risks when conducting business, including operational, credit, liquidity, foreign exchange, interest rate, and market risk. To address these risks, banks of all types employ risk management practices as a way of improving bank performance and reducing any potential damage. The purpose of this thesis is to examine the risk management practices implemented in both Islamic and conventional banks in Saudi Arabia, the primary focus being the analysis of the relationship between risk management practices and financial performance, concentrating on the operational, credit and liquidity risks prevalent in Saudi Arabia, and the effectiveness of current risk-management strategies and practices. There is particular attention on the differences in risk management practice in both types of banks and the implications this may have for their performance and sustainability. The empirical analysis employs a sample of 12 banks oper...
Assessment of Credit risk Management of Saudi Banks
Academy of Accounting and Financial Studies Journal, 2019
Banks are exposed to different types of risks, which can affect their financial performance and can even lead to failure of banks. The collapse of any bank is possible to happen due to the increase in non-performing loans which is a part of credit risk. Credit risk is one of the most significant risks that banks face, in view of granting credit is the main source of income for commercial banks. The research paper pursues to assess the credit risk of Saudi banks by doing financial ratio analysis from 2013-2017. Financial ratio analysis was conducted based on secondary data of 12 Saudi banks licenced by SAMA to find out the NPL/ total loans ratio, NPL/ total assets ratio, and Basel III Capital Standards ratios. Analysis showed that Saudi banks are in a good stage of Basel III implementation and have achieved more than the minimum requirements related to Common Equity Ratio, Tier I Capital Ratio, and Capital Adequacy Ratio regarding Basel III requirements. Saudi banks are also performi...
This study is an empirical investigation into the quantitative effect of credit risk management on the performance of Nigeria's Deposit Money Banks (DMBs) and Bank lending growth over the period of 17 years (1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014). Secondary data for empirical analysis was obtained from CBN Statistical bulletin 2014 and World Bank (WDI) 2015. The study employed multiple linear regression model to analyze the time series data. The result showed that sound credit management strategies can boost investors and savers confidence in banks and lead to a growth in funds for loans and advances which leads to increased bank profitability.. The findings revealed that credit risk management has an insignificant impact on the growth of total loans and advances by Nigerian Deposit money banks. The study therefore recommends that DMBs in Nigeria should strictly adhere to their credit appraisal policies which ensures that only credit worthy borrowers have access to loanable funds. Banks are to ensure that funds are allocated to borrowers with decent to high credit ratings.
Risk Management of Islamic Banks: A Search for Empirical Evidences
Corporate Ownership and Control, 2017
The objectives of this study are to determine 1) the effect of global economic and financial crisis on risk management, 2) the severity of different types of risk facing Islamic banks, 3) the risk levels of Islamic financial modes, 4) risk assessment techniques, and 5) risk management techniques. The structure of the balance sheet, the nature of Islamic finance instruments and funding sources have a great impact on the level of risk exposure of banks and the instruments. Credit risk is found to be the most serious risk, followed by liquidity risk, market risk and operational risk, in descending order of importance. As for the riskiness of Islamic financing modes, mudarabah is perceived to be the riskiest, followed by musharakah, while murabahah ranked as the least risky mode. Moreover, Islamic banks are found to use traditional risk management techniques more than sophisticated measurements. They also adopt risk mitigation techniques that are used by conventional banks in preference to techniques that are considered to be unique to Islamic banks. This paper is the first to study the risk management practices of Islamic banks operating in Bahrain. It also provides evidence about these practices after the global financial crisis that affected all countries, including Bahrain.
Impact of Financial Risk Management Practices on Islamic Banks Performance in Pakistan
2021
In current era, an effective risk management process is the basic requirement to perform better financial performances. Once the risk has been recognized, then organizing the risk is one of the main objectives to be done. The relationship between risk and return is associated with each other. In Islamic finance, reward cannot be obtained without risks i.e., more risks more rewards and vice versa. The key objective of the current study is to investigate the impact of the financial risk management practices (RMPs) on the Islamic banks (IBs) financial performance in Pakistan. To achieve the main objectives, this research measures the existing RMPs of the IBs and associate these RMPs with the IBs financial performance. This is a dynamic study that has researched both primary and secondary data. To proxy the IBs financial performance, return on assets (ROA) stood average for six years (2014-2019). An adapted questionnaire is distributing among the IBs risk managers for measuring the financial risk management practices of IBs. The methodology of this study comprises on the analysis of data using the analysis of multiple regression and correlation analysis. The results are display in tabulated form and mathematical regression equations. The current study identifies that practices of IBs in Pakistan indicates better financial risk management, resultantly these RMPs discloses the optimistic relationship with IBs financial performance. The study on financial performance recommends that IBs should plan and attempt the advanced techniques and process of risk measurement in IBs. To mitigate the financial risk, the current study proposes to trained the IBs managers with modern techniques which will be very useful and valuable for the IBs financial performance.
The main objective of this research is to explain credit risk management practices. Furthermore, this research evaluates credit risk management practices in Pakistani banks. It compares and evaluates the techniques used by Islamic and public commercial banks. Quantitative research methods were used in the present study. A total of 400 self-administrated questionnaires have been distributed among Pakistani employees of selected banks. SPSS version 24 has been used to analyze responses using correlation, regression, and t-tests. Study results showed that all variables are significantly correlated. Moreover, this study found a significant difference (p<0.5) of credit risk management practices include credit risk understanding, credit risk identification, credit risk assessment, credit risk monitoring and credit risk analysis, among Islamic and public commercial banks of Pakistan. It is concluded that this study results may help the banks to find the solutions that enable quality loan creation and growth as well as to determine the relationship among the theories, concepts, of credit score and credit policies both at country level and regional level. Hence, this study is assumed to be significant in indicating best practices and concept for practical lending to enhance the performance of credit management to all mangers and policy makers of the banks as well as to all financial institutions and banks.
Financial Risk and Islamic Banks’ Performance in the Gulf Cooperation Council Countries
ERN: Asia, 2015
ABSTRACTThis study examines the relationship between financial risk and performance of Gulf Cooperation Council Islamic banks and the relative importance of the most common types of risk. The study covers 11 of the 47 Islamic banks of the Gulf Cooperation Council region from 2000 to 2012, based on the availability of data. Data were obtained from the Bankscope database. For bank performance, the two most common measures, ROA and ROE, were alternatively used and for risk measures. Four types of financial risk were used, namely credit risk, liquidity risk, operational risk, and capital risk. Regression analysis indicate there exists a significant negative relationship between the Gulf Cooperation Council Islamic banks' performance, capital risk and operational risk. The results also confirm a significant negative relationship between Gulf Cooperation Council Islamic banks' performance. Furthermore, the results indicate that the most important type of risk is capital risk, foll...
The results of the analysis revealed that factors, such as the level of understanding risk management, risk assessment and analysis, risk control, and monitoring, feature more prominently in Malaysian Islamic Banks than in their Jordanian counterparts. However, Jordan's IBs are ahead in terms of the level of risk management practices. Both countries are similar in their risk identification. It is also found that Islamic Banks in Malaysia and Jordan are somewhat reasonably efficient in managing risk where risk assessment and analysis (RAA), and risk control and monitoring (RCM) are the most influencing variables in RMPs in Malaysia; whilst understanding risk management (URM) and risk control and monitoring (RCM) are good predictors of RMPs in Jordan.
Financial risk and Islamic banks' performance in the GCC countries
2015
This study examines the relationship between financial risk and performance of Gulf Cooperation Council Islamic banks and the relative importance of the most common types of risk. The study covers 11 of the 47 Islamic banks of the Gulf Cooperation Council region from 2000 to 2012, based on the availability of data. Data were obtained from the Bankscope database. For bank performance, the two most common measures, ROA and ROE, were alternatively used and for risk measures. Four types of financial risk were used, namely credit risk, liquidity risk, operational risk, and capital risk. Regression analysis indicate there exists a significant negative relationship between the Gulf Cooperation Council Islamic banks' performance, capital risk and operational risk. The results also confirm a significant negative relationship between Gulf Cooperation Council Islamic banks' performance. Furthermore, the results indicate that the most important type of risk is capital risk, followed by operational risk.
Journal of Applied Business Research (JABR), 2014
The results of the analysis revealed that factors, such as the level of understanding risk management, risk assessment and analysis, risk control, and monitoring, feature more prominently in Malaysian Islamic Banks than in their Jordanian counterparts. However, Jordans IBs are ahead in terms of the level of risk management practices. Both countries are similar in their risk identification. It is also found that Islamic Banks in Malaysia and Jordan are somewhat reasonably efficient in managing risk where risk assessment and analysis (RAA), and risk control and monitoring (RCM) are the most influencing variables in RMPs in Malaysia; whilst understanding risk management (URM) and risk control and monitoring (RCM) are good predictors of RMPs in Jordan.