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

Author

Listed:
  • Abdelaziz Chazi
  • Lateef A.M. Syed

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.

Suggested Citation

  • Abdelaziz Chazi & Lateef A.M. Syed, 2010. "Risk exposure during the global financial crisis: the case of Islamic banks," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 3(4), pages 321-333, November.
  • Handle: RePEc:eme:imefpp:v:3:y:2010:i:4:p:321-333
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    References listed on IDEAS

    as
    1. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer;Western Finance Association, pages 95-113.
    2. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer;Western Finance Association, pages 95-113.
    3. 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.
    4. Bashir, Abdel-Hameed M., 1999. "Risk And Profitability Measures In Islamic Banks: The Case Of Two Sudanese Banks," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 6, pages 1-24.
    5. 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.
    6. M. Mansoor Khan, 2008. "Islamic banking and finance: on its way to globalization," Managerial Finance, Emerald Group Publishing, vol. 34(10), pages 708-725, August.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:eee:pacfin:v:46:y:2017:i:pa:p:1-13 is not listed on IDEAS
    2. 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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