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Journal ArticleDOI

Risk in Islamic Banking

Pejman Abedifar, +2 more
- 01 Nov 2013 - 
- Vol. 17, Iss: 6, pp 2035-2096
TLDR
In this article, the authors investigated risk and stability features of Islamic banking using a sample of 553 banks from 24 countries between 1999 and 2009 and found that small Islamic banks that are leveraged or based in countries with predominantly Muslim populations have lower credit risk than conventional banks.
Abstract
This paper investigates risk and stability features of Islamic banking using a sample of 553 banks from 24 countries between 1999 and 2009. Small Islamic banks that are leveraged or based in countries with predominantly Muslim populations have lower credit risk than conventional banks. In terms of insolvency risk, small Islamic banks also appear more stable. Moreover, we find little evidence that Islamic banks charge rents to their customers for offering Sharia compliant financial products. Our results also show that loan quality of Islamic banks is less responsive to domestic interest rates compared to conventional banks.

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Citations
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Dissertation

Essays on monetary policy with islamic banks

TL;DR: In this article, the authors present evidence from the ESTIMATION of the non-linear Taylor rule in the EMERNING COUNTRIES: EVIDENCE from the Estimation of Non-LINEAR TAYLOR RULE.
Journal ArticleDOI

Risk, efficiency and financial performance in the GCC banking industry: Islamic versus conventional banks

Abstract: The purpose of this study is to critically evaluate how conventional and Islamic banks trade off risk, efficiency and financial performance in their business models, to investigate how patterns of risk and efficiency vary between conventional and Islamic banks and to critically evaluate how the profitability of conventional and Islamic banks varies following the financial crisis.,This study uses univariate and multivariate statistical techniques by investigating 12 Islamic banks and 34 conventional banks operating in the Gulf Cooperation Council (GCC) region has been studied over the period 2011–2018.,The results suggest that Islamic and conventional banks differ not in the levels of efficiency, risk and profitability, but rather in how risk and efficiency influence banks’ financial performance. Islamic banks are found to be less influenced by the adverse effects of credit risk, which is consistent with the risk-sharing nature of Islamic financing. However, the results only hold for return on assets (ROA) and return on equity (ROE) while the net interest margin is observed to be negatively influenced by credit risk. Lower cost-income efficiency is also found to boost ROA and ROE of Islamic banks which could be attributed to a larger share of non-interest revenues due to Sharīʿah-compliance.,From a theoretical point of view, this study helps to understand the risk, efficiency and financial performance of Islamic banks in comparison with conventional banks.,The results of this study can serve bank managers, regulators and shareholders. Policymakers should encourage a more risk-sharing structure of Islamic financing as it brings less adverse effects of credit risk and increases income sustainability for Islamic banks. The present study may help bank managers to improve the financial performance of their firms by controlling risk and efficiency. The study results also have implications for shareholders and depositors of Islamic and conventional banks as they should have a predetermined position about the level of credit risk and efficiency in each banking system.,The foremost contribution is that this is one of the few studies to compare risk, efficiency and financial performance of Islamic and conventional banks in the GCC region. By using the latest data, this paper hopes that the findings will be more relevant than previous studies to the current situation of the banking industry in the region.
Journal ArticleDOI

Financial stability and bank capital: the case of islamic banks

TL;DR: In this article, a regression analysis is derived on an unbalanced panel data including 405 observations of 81 Islamic banks established in 22 counties during the period of 2010-2014, which consists in assessing the possible relationship between the risk of default and capital ratios while considering specific internal bank determinants.
Journal ArticleDOI

Depositor Characteristics and the Performance of Islamic Banks

TL;DR: In this paper, the authors investigate the reasons for the growing demand for Islamic banking internationally, and examine the relative economic performance of Islamic banks compared with conventional banks in managing financial transactions.
Journal ArticleDOI

Credit risk management in Islamic banking

TL;DR: In this paper, the authors analyzed the conventional credit risk management and mitigation techniques and their applicability in Islamic banking, the credit risks management practices in Islamic banks, the achieved results and factors that influence the emergence and intensity of credit risk in the Islamic banking.
References
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Journal ArticleDOI

Financial Intermediation and Delegated Monitoring

TL;DR: In this paper, the authors developed a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders, and presented a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary.
Journal ArticleDOI

Bank governance, regulation and risk taking

TL;DR: In this paper, the authors conduct an empirical assessment of theories concerning risk taking by banks, their ownership structures, and national bank regulations, and show that bank risk taking varies positively with the comparative power of shareholders within the corporate governance structure of each bank.
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Government Ownership of Banks

TL;DR: In this paper, the authors show that government ownership is large and pervasive and higher in countries with low levels of per capita income, backward financial systems, interventionist and inefficient governments, and poor protection of property rights.
Journal ArticleDOI

Capital Regulation, Risk-Taking and Monetary Policy: A Missing Link in the Transmission Mechanism?

TL;DR: In this paper, the authors argue that insufficient attention has so far been paid to the link between monetary policy and the perception and pricing of risk by economic agents - what might be termed the "risk-taking channel" of monetary policy.
Journal ArticleDOI

Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking

TL;DR: In this paper, a bank with a fragile capital structure, subject to runs, is identified as a potential source of illiquidity in a bank relationship lender, where the relationship lender may demand to liquidate early or require a return premium when she lends directly.
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What are the challenges of sustainability in Islamic banks?

The provided paper does not discuss the challenges of sustainability in Islamic banks.