scholarly journals Stress Testing for Credit Risk Exposure in Islamic Banks

2020 ◽  
Vol 6 ◽  
pp. 1
Author(s):  
Fadwa A Mohammed ◽  
Ibrahim A Onour ◽  
◽  
Keyword(s):  
Credit Risk ◽  
Stress Testing ◽  
Banking System ◽  
Risk Exposure ◽  
Probability Of Default ◽  
Islamic Banks ◽  
Macroeconomic Variables ◽  
Credit Risks ◽  
Macroeconomic Indicators ◽  
Design Stress

In this study, we investigate the link between default loans and macroeconomic and bank-specific variables to assess exposure of Islamic banks to credit risks, and then design stress testing scenarios to assess the banking system’s resilience to adverse shocks. The results suggest that credit risk exposure of Islamic banks in Sudan is mainly affected by bank-specific variables, which include changes in total assets, total deposits, and total loans; all of them have a negative and significant impact on the probability of default loans. The study also indicates that the macroeconomic variables, which include growth of domestic product, change in exchange rate premium, and change in money supply, have positive but insignificant effects on the risk of default loans. The study concludes by pointing out that the Islamic banking system in Sudan is more vulnerable to bank-specific risk exposure rather than macroeconomic indicators.

Stress-testing Russian Banking System: Will Banks Need Government Assistance Again?

2010 ◽  
pp. 61-81 ◽  
Author(s):  
O. Solntsev ◽  
A. Pestova ◽  
M. Mamonov
Keyword(s):  
Stress Testing ◽  
Banking Sector ◽  
Stress Test ◽  
Banking System ◽  
Government Assistance ◽  
Methodological Issues ◽  
Loan Portfolio ◽  
Macroeconomic Indicators ◽  
Remote Stress ◽  
Capital Injections

The article analyzes factors that affect growth of the share of non-performing loans in the loan portfolio of Russian banks and proposes approaches for this share forecasting on the basis of dynamics of macroeconomic indicators. It also deals with methodological issues of remote stress-test of lending agencies. Using the results of conducted stress-test of Russian banks the authors assess their perspective capital needs in 2010 and estimate the share of government assistance in capital injections. Furthermore, the authors define the scale of vulnerable banks groups in the Russian banking sector.

Credit risk in dual banking systems: does competition matter? Empirical evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohsin Ali ◽  
Mudeer Ahmed Khattak ◽  
Nafis Alam
Keyword(s):  
Credit Risk ◽  
Banking System ◽  
Islamic Banks ◽  
Content Type ◽  
Panel Data Estimation ◽  
System A ◽  
Size Groups ◽  
Conventional Banks ◽  
Fierce Competition ◽  
Data Estimation

PurposeThe study of credit risk has been of the utmost importance when it comes to measuring the soundness and stability of the banking system. Due to the growing importance of Islamic banking system, a fierce competition between Islamic and conventional banks have started to emerge which in turn is impacting credit riskiness of both banking system.Design/methodology/approachUsing the system GMM technique on 283 conventional banks and 60 Islamic banks for the period of 2006–2017, this paper explores the important impact of size and competition on the credit risk in 15 dual banking economies.FindingsThe authors found that as bank competition increases credit risk seems to be reduced. On the size effect, the authors found that big Islamic banks are less risky than big conventional banks whereas small Islamic banks are riskier than small conventional banks. The results are robust for different panel data estimation models and sub-samples of different size groups. The findings of this paper provide important insights into the competition-credit risk nexus in the dual banking system.Originality/valueThe paper is specifically focused on credit risk in dual banking environment and tries to fill the gap in the literature by studying (1) do the Islamic and conventional banks exhibit a different level of credit risk; (2) does competition in the banking system impact the credit risk of Islamic and conventional banks and finally (3) do the big and small banks exhibit similar levels of credit risk.

scholarly journals PERAN TATA KELOLA PERBANKAN SYARIAH TERHADAP RISIKO PERBANKAN SYARIAH DI INDONESIA

2020 ◽  
Vol 8 (1) ◽  
pp. 45
Author(s):  
Rudy Hartanto
Keyword(s):  
Corporate Governance ◽  
Credit Risk ◽  
Good Governance ◽  
Banking System ◽  
Islamic Banking ◽  
Investment Risk ◽  
Islamic Banks ◽  
Control Variables ◽  
Banking Market ◽  
Banking Business

The increased penetration of the Islamic banking market in Indonesia is one of the highest in ASIA. The enhancement in the market has an impact on increasing the risk complexity of Islamic banking business activities. Sharia banking risks need to be managed and controlled properly in order to prevent banking failures. Bank governance (corporate governance) is indicated as one of the things that plays an important role in determining the level of risk faced by banks. The purpose of this study is to examine whether good governance can reduce the risk of Islamic banking. This study uses the population of Islamic banking from 2014-2018. The samples obtained in this study are 58 Islamic banks. The results showed that good governance can reduce the banking risk. In addition, the testing using control variables showed that the greater the size of the banking system that is proxied by the total assets, the higher the risk received by banks both from credit risk to investment risk.

scholarly journals MURABAHA-RELATED CREDIT RISK AND FINANCIAL PERFORMANCE OF ISLAMIC BANKS IN AFRICA

2021 ◽  
pp. 60-69
Keyword(s):  
Credit Risk ◽  
Financial Performance ◽  
Annual Reports ◽  
Risk Exposure ◽  
Islamic Banks ◽  
Return On Assets ◽  
Positive Effects ◽  
Risk Effect ◽  
Effect Regression ◽  
Level Of Significance

The uniqueness of Murabaha (cost-plus) financing has suggested another theoretical relationship between credit risk and the financial performance of banks. While studies from Asian countries supported this assertion, empirical analyses from Africa reported conventional findings on the credit risk effect on performance. These conflicting reports were partly due to the exclusion of factors specific to Murabaha financing in past studies in Africa. This study was conducted to assess the effect of credit risk on the financial performance of Islamic banks in Africa. Data were collected from annual reports of the selected Islamic banks for nine years from 2012 to 2020. A fixed-effect regression model was estimated after conducting the preliminary tests of Breusch Pagan Lagrange Multiplier (BP/LM) and Hausman. The study found that non-performing Murabaha (0.0220) and provision for impairment of Murabaha financing (0.3506) have positive effects on return on assets. The results were found to be significant at a 5% level of significance. Based on this finding, it was concluded that credit risk exposure that arises from Murabaha (transactions) financing tends to improve the financial performance of the banks. Therefore, the study recommends that Islamic banks increase their financing of Murabaha transactions to boost their profitability and compensate for high credit risk exposure.

Determinants of bank margins in a dual banking system

2017 ◽  
Vol 43 (6) ◽  
pp. 630-645 ◽  
Author(s):  
Siew Peng Lee ◽  
Mansor Isa
Keyword(s):  
Credit Risk ◽  
Market Share ◽  
Emerging Market ◽  
Banking System ◽  
Operating Costs ◽  
Islamic Banks ◽  
Content Type ◽  
Conventional Banks ◽  
Interest Payments ◽  
Conventional And Islamic Banks

Purpose The purpose of this paper is to determine of bank margins for conventional and Islamic banks in the dual banking system in Malaysia. Design/methodology/approach The study uses unbalanced panel data for 20 conventional banks and 16 Islamic banks over the period 2008-2014. The dynamic two-step GMM estimator technique introduced by Arellano and Bond (1991) is applied. Findings The results suggest that there are significant similarities with minor differences in terms of factors determining bank margins between conventional and Islamic banks in Malaysia. The margins for conventional banks are influenced by operating costs, efficiency, credit risk, degree of risk aversion, market share, size of operation, implicit interest payments and funding costs. For Islamic banks, the margin determinants are found to be operating costs, efficiency, credit risk, market share and implicit interest payments. This means that more factors influence the margins in conventional banks compared to Islamic banks. Although bank diversification activities have increased in recent years, their impact on bank margins is minimal. Practical implications The results suggest that improving operational costs, operational efficiency and credit risk management, and minimising implicit interest payments would be the best strategy to enhance the bank margins for both conventional and Islamic banks. The results also have important policy implications on the necessity to expand the size of Islamic banking in Malaysia. Originality/value There are relatively few studies concerning determinants of bank margins in emerging markets. The present study adds to the literature by presenting evidence from Malaysia, an emerging market with a dual banking system. This allows us to explore the similarities and differences between conventional and Islamic banks in Malaysia in respect of determinants of the margins.

scholarly journals Risks in bank lending activity

2018 ◽  
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Banking Sector ◽  
Banking System ◽  
Bank Lending ◽  
Point Of View ◽  
External Control ◽  
Positive Trend ◽  
Credit Risks ◽  
Banking Institutions

This study focuses on the risks in banking. Today, commercial banks have a powerful management system, high-level automation tools, a rigid system of external control and developed risk-management. Management of credit risk lately has a special methodological interest. The purpose of the bank is to maximize profit, so it must pay particular attention to possible losses in conducting its operations. Specific types of risks that the bank most often encounters determine its performance. Since the income from lending activities makes up the most share of all revenues in the bank, the article focuses specifically on credit risk. The purpose of the research is to reveal trends in changes of the amount of credit risk of banking institutions and their influence on the stability of the banking system of Ukraine. The research of existing theoretical studies in the field of credit risk of banks, analysis of the current situation in the banking sector and solution of the following tasks: the author’s point of view on the essence of bank credit risk; improvement of the classification of credit risks of bank institutions, presentation and argumentation of the new view that takes into account the interests of both lenders and borrowers; justification of the main features of credit risks; improvement of risk management mechanism of banking institutions in lending operations as well as examination of economic standards of credit risks of Ukrainian banking institutions contributed to reaching the planned objective. The study undertaken allowed drawing a conclusion about the compliance of standards established by the National bank of Ukraine with the requirements and determining a positive trend towards stability and capitalization of the banking system on the whole. Potential directions for further researches were outlined.

scholarly journals The Determinants of Credit Risk Under Dual Banking System: Indonesian Experience Based on Bank Specific Variables

Al-Muzara ah ◽  
2021 ◽  
Vol 9 (2) ◽  
pp. 215-229
Author(s):  
Muhammad Nur Faaiz F. Achsani ◽  
Salina Kassim
Keyword(s):  
Credit Risk ◽  
Negative Relationship ◽  
Banking System ◽  
Dynamic Panel Data ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Independent Variables ◽  
Operating Side ◽  
Conventional Banks ◽  
Risk Determinants

In Indonesian banking system, conventional banks are operating side by side with Islamic banking in a dual banking system. In terms of the credit risk determinants, Islamic banks should be affected by the different factors as conventional banks. However, the similarity of Islamic banks and the conventional bank in terms of contracts might lead to the opinion the same variables are affecting the performance of Islamic and conventional banks. The objective of the study is to examine and obtain an understanding on how the credit and financing in Indonesian dual banking system responses to changes in bank-specific variables. The main approach to fit the model used in this study is the dynamic panel data. Based on the result of the combined model, there are some independent variables that significantly affect credit risk. Profitability significantly affects credit risk with a negative relationship. While size significantly affects credit risk with a positive relationship. When it comes to the dummy variable, it can be said that the type of bank doesn’t play a significant role in determining the credit risk. In other word, there is no difference between Islamic bank and conventional banks in terms of credit risk. To analyze the crisis effect deeper, we compare the result of conventional banking model 2016-2020 and Islamic banking model 2016-2020. There is no independent variable that significantly affect the credit risk in the conventional banking model 2016-2020, three out of four independent variables affect credit risk significantly in the Islamic banking model 2016-2020. This is because conventional banks tend to play safe by avoiding the disbursement of credit and focusing on derivatives. However, this strategy is not suitable for Islamic banking as they are not allowed to do speculative activities. Islamic banking are still focusing on traditional banking activity.

scholarly journals Increase of banks’ credit risks forecasting power by the usage of the set of alternative models

2018 ◽  
Vol 4 (2) ◽  
pp. 155-174
Author(s):  
Alexander M. Karminsky ◽  
Ella Khromova
Keyword(s):  
Credit Risk ◽  
Probability Of Default ◽  
Risk Models ◽  
Alternative Models ◽  
Default Model ◽  
Optimal Weights ◽  
Credit Risks ◽  
Rating Model ◽  
Synergic Model

The paper is aimed at comparing the divergence of existing credit risk models and creating a synergic model with superior forecasting power based on a rating model and probability of default model of Russian banks. The paper demonstrates that rating models, if applied alone, tend to overestimate an instability of a bank, whereas probability of default models give underestimated results. As a result of the assigning of optimal weights and monotonic transformations to these models, the new synergic model of banks’ credit risks with higher forecasting power (predicted 44% of precise estimates) was obtained.

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