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Risk exposure during the global financial crisis: the case of Islamic banks

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  • Abdelaziz Chazi
  • Lateef A.M. Syed
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    Abstract

    Purpose – The purpose of this paper is to examine the way Islamic financial institutions dealt with the recent financial problems in terms of risk management. Design/methodology/approach – In total, 27 Islamic banks and the same number of conventional banks selected from a wide range of countries around the world were analyzed. The capital ratios, based on the Basel Committee, are the primary tools used to analyze the riskiness of the Islamic and conventional banks. The focus on capital ratios is relevant in light of changes in banks' balance sheets due to significant write offs that caused a huge credit crunch in the western world. Capital ratios are considered as a reliable source in predicting potential bankruptcies. Findings – The paper shows that Islamic banks are maintaining better capital ratios than to their conventional counterparts. Originality/value – The paper presents a new approach to the comparative performance of Islamic and conventional banks in terms of risk management. The research design as well as the findings can be very useful to academicians and banking professionals alike.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal International Journal of Islamic and Middle Eastern Finance and Management.

    Volume (Year): 3 (2010)
    Issue (Month): 4 (November)
    Pages: 321-333

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    Handle: RePEc:eme:imefpp:v:3:y:2010:i:4:p:321-333

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    Web page: http://www.emeraldinsight.com

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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    Related research

    Keywords: Banks; Capital; Economic depression; Financial risk; Islam;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Kuran, Timur, 2005. "The logic of financial westernization in the Middle East," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 593-615, April.
    2. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer, vol. 38(2), pages 95-113, December.
    3. M. Mansoor Khan & M. Ishaq Bhatti, 2008. "Islamic banking and finance: on its way to globalization," Managerial Finance, Emerald Group Publishing, vol. 34(10), pages 708-725.
    4. Arturo Estrella & Sangkyun Park & Stavros Peristiani, 2000. "Capital ratios as predictors of bank failure," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 33-52.
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    Cited by:
    1. Sing Tien Foo & Loh Kok Weng, 2014. "Predictability of Shariah-Compliant Stock and Real Estate Investments," International Real Estate Review, Asian Real Estate Society, vol. 17(1), pages 23-46.

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