Cost Efficiency and Credit Risk:  A Comparative Study between Islamic and Conventional Banks in the GCC Countries

Ghroubi, Mohamed; Teber, Ines Ben; Ayachi, Kais

doi:10.24940/theijbm/2019/v7/i8/bm1908-017

Cited by 1 publication

(4 citation statements)

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“…Islamic banks generate a significant amount of income from their credit business (Muneer et al , 2020; Shaikh et al , 2020). Contemporary research on credit risk mainly deals with its determinants or its relation with monetary policies, whether it relates to an Islamic or a conventional bank (Ali et al , 2021; Bougatef and Korbi, 2019; Dione, 2020; Rosli et al , 2019). However, there is more to credit risk in Islamic banks because when Islamic banks finance their customers, they have to deal with the issue of compliance with Shariah as well (Bougatef and Korbi, 2019; Rosli et al , 2019; Sobarsyah et al , 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Contemporary research on credit risk mainly deals with its determinants or its relation with monetary policies, whether it relates to an Islamic or a conventional bank (Ali et al , 2021; Bougatef and Korbi, 2019; Dione, 2020; Rosli et al , 2019). However, there is more to credit risk in Islamic banks because when Islamic banks finance their customers, they have to deal with the issue of compliance with Shariah as well (Bougatef and Korbi, 2019; Rosli et al , 2019; Sobarsyah et al , 2020). The borrowers who are primarily concerned with seeking funds try to maneuver their profile information to meet the requirements of Islamic banks, an issue that is known as the problem of adverse selection in the case of conventional financial institutions.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Prefinancing risk assessment is also a scenario where the problem of “Adverse selection” matters the most (Kartika et al , 2019; Rosli et al , 2019; Saeed and Ayub, 2017; Syamlan et al , 2019). The studies suggest that Islamic banks have more information regarding Shariah parameters because they have institutionalized resources (Ajmi et al , 2019; Masih, 2017).…”

Section: Literature Reviewmentioning

confidence: 99%

“…For financing customers sign a variety of contracts that enable Islamic banks to investigate a variety of information about their activities before and during the process of financing (Kartika et al , 2019; Rosli et al , 2019; Saeed and Ayub, 2017; Syamlan et al , 2019). In various countries, there is a different degree of involvement of fintech for obtaining such facilities.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan

Shah

Fianto

Sheikh

et al. 2023

JSTPM

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Purpose The purpose of this study aims to examine the effect of fintech on pre- and post-financing credit risks faced by the Islamic banks. Design/methodology/approach This research uses primary data for fintech awareness and adoption and secondary data of various financial and economic variables from 2009 to 2021. It uses baseline regression to identify moderation of fintech controlling gross domestic products, size, return on assets and leverage. The findings are confirmed using robustness against key variable bias. It also uses a dynamic panel two-stage generalized method of moments for endogeneity. Findings The study finds that the fintech awareness and adoption are not the same across all Islamic countries. The Asia Pacific region is far ahead of the other two regions where Indonesia is ahead in terms of fintech awareness and adoption, and Malaysia is ahead in terms of reaping its benefits in credit risk management. Fintech affects prefinancing credit risk significantly more than postfinancing credit risk. Also, the study finds that Islamic banks suffer from the problem of “Adverse selection under Shariah compliance.” Practical implications This research invites regulators to introduce fintech in Islamic banks on war footing. Similar studies can be conducted on the role of other risks such as operational and market risks. Fintech will also help in improving the risk profile and stability of Islamic banks against systemic risks and financial crises. Originality/value This research has variety of originalities. First, it is the pioneering study that addresses the effect of fintech pre- and post-financing credit risks in Islamic banks. Second, it identifies “Adverse selection under Shariah compliance” for Islamic banks. Third, it helps identify how fintech can be useful in reducing credit risk that will help in reducing capital charge for regulatory capital.

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