The effect of financial risks on the performance of Islamic and commercial banks in UAE (original) (raw)
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In terms of operational risks, Islamic banks have certain similarities with the conventional banking system since they function within a similar financial environment. However, the challenges are more complex for Islamic banks owing to their particular contractual and financial transactions. For this reason, it is understood that operational risks in Islamic banks are perceived to be significantly higher. This is one of the main building blocks from which the paper is developed. The theoretical analysis offered by this paper starts with presenting the arguments as to why Islamic banks have a distinct operational risk aspect, as compared to conventional banks. It also examines operational risk exposures in Islamic banks by mapping such risks. In addition, the paper also sheds light upon operational risk issues from a regulatory point of view, namely Basel and the Islamic Financial Services Board (IFSB). Lastly, the analysis in this paper suggests the need for maintaining capital spec...
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Financial Risk and Islamic Banks’ Performance in the Gulf Cooperation Council Countries
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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...