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The Roles of Risk Governance on Islamic Banking Systems

Author

Listed:
  • Fauziah Mahat

    (Universiti Putra Malaysia)

  • Noor Azman Ali

    (Universiti Putra Malaysia)

Abstract

The role financial institutions sector in economic activities with higher capitalization ratio have the impact to alleviate credit and market risks including measuring in loan-to-deposit ratio. Good risk governance cannot be denied when the failure of financial systems does not exempt the Islamic financial institutions. Some of the recent examples for the collapses of Ihlas Finance House of Turkey, the Islamic Bank of Africa, Dubai Islamic Bank and Investment Companies of Egypt. The failure of financial market in OECD countries demonstrate Islamic banks are not much different from conventional banks. Another issues raised in this paper is the financial crisis which reveals risk-related issues resulted from mismanagement of risk at organizational level including various stakeholders. The aim of this paper is to discuss the significant roles of risk governance as the mediating variables between the risk management initiatives and the banks corporate performance. Early empirical study define risk management as a process which managers capabilities identifying and mitigate risk. There are vast reason of explaining the necesity of governance to avoid risk-related failure of financial marketis due to systems complexity and high risk exposures. The risk governance concept is founded from the agency theory, stakeholder-based governance theory, and delegated monitoring theory. The stakeholder based governance present the ideas whereby banks need to provide multiple benefits relationship include customer, supplier, distributors and employees. This research explores the secondary data relevant to analyze the risk governance effects of the 50 international Islamic banks between the periods of 2008-2013. The necessary statistical testing was explained for hypothesis testing and the model development. The expected outcome from the analysis is to tightened the construct to ensure level of risk monitoring is sufficient, minimizing moral hazard and prompt corrective action framework by incorporating the elements of corporate governance.

Suggested Citation

  • Fauziah Mahat & Noor Azman Ali, 2015. "The Roles of Risk Governance on Islamic Banking Systems," Proceedings of International Academic Conferences 2705187, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:2705187
    as

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    File URL: https://iises.net/proceedings/18th-international-academic-conference-london/table-of-content/detail?cid=27&iid=077&rid=5187
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    References listed on IDEAS

    as
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    7. Hennie Van Greuning & Zamir Iqbal, 2008. "Risk Analysis for Islamic Banks," World Bank Publications - Books, The World Bank Group, number 6923, December.
    8. Hamadi Matoussi & Rihab Grassa, 2012. "Is Corporate Governance Different for Islamic Banks? A Comparative Analysis between the Gulf Cooperation Council Context and the Southeast Asia Context," Working Papers 734, Economic Research Forum, revised 2012.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Financial Risk Management; Corporate Governance; Risk Governance; Islamic Banking;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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