Impact of Credit Risk Transfer Techniques on Lending Behavior of Conventional &amp; Islamic Banks in Pakistan

Sukmana

2021

JISEL

The purpose of this research is to test Shariah compliant duration models on Islamic banks in Indonesia. This will be achieved using data of earning assets and risk bearing liabilities of Indonesian Islamic banks from 2009 to 2019. Using multiple regressions the results suggest that Shariah compliant duration models are robust to calculate duration of earning assets, return bearing liabilities and Islamic banks. This research adds to the previous research of testing Shariah compliant duration model. Ultimately, it will improve profitability, risk efficiency and Shariah efficiency by improved Shariah compliant measures of risk management. This will ultimately improve market capitalization and returns stability in the long run. A major limitation of the study is very short length of data of Islamic banks. Still another limitation is difference in commencement of business of various Islamic banks that makes length of data unequal.

Section: Literature Review Literature On Islamic Banksmentioning

confidence: 98%

Shariah Compliant Macaulay’s Duration Model Testing: Evidence from Islamic banks in Indonesia

Sukmana

2021

JISEL

“…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%

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

Sheikh

et al. 2023

JSTPM

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.

“…Hamza and Saadaoui (2018) in their work on Islamic banks report that changes in interest rates negatively affect financing of Islamic banks. Although results in performance analysis of Islamic and conventional banks are similar but discussing the usage of credit risk transfer techniques it has been discovered that implementation of credit risk management techniques is not similar in both contexts rather there exist Shariah compliance constraints in the case of Islamic banks (Saeed and Ayub, 2017).…”

Section: Risk Management In Islamic Banksmentioning

confidence: 99%

Duration model for maturity gap risk management in Islamic banks

Sukmana

2020

JM2

Purpose The purpose of this paper is to propose models of duration for maturity gap risk management in Islamic banks. Design/methodology/approach A thorough review of literature on duration modeling, duration measurement in Islamic banks and Shariah compliance has been conducted to set parameters to develop Shariah-compliant maturity gap risk management mechanism. Findings Models based on durations of earning assets and return bearing liabilities using various rates of return earned and paid, benchmark rates and industry standards commonly used by Islamic and conventional banks. Practical implications Increased Shariah compliance has threefold impact. Firstly, it will increase trust of customers. Secondly, it will help improve profitability by reducing non-Shariah compliance penalties from the regulators. And finally, it will enhance market capitalization and returns stability to investors because of enhanced customer base, increased level of trust and increased profitability. Originality/value This research proposes Shariah-compliant maturity gap risk management models based on the concept of duration according to recommendations of Bank for International Settlements. As there is no such maturity gap risk management mechanism that meets the requirements of Shariah using benchmarks that are common between Islamic and conventional banks; therefore, this research presents risk management solutions that can be applied simultaneously in the entire banking sector.