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The Effects of Internal Governance Factors on Lending Portfolio Composition in Islamic Banks

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  • Nizar Yousef Ahmed Naim

    (School of Economics, Finance, and Banking, College of Business, University Utara Malaysia, Sintok 06010, Malaysia
    Accounting and Finance Department, College of Administrative Sciences, Applied Science University, Al Eker 3201, Bahrain)

  • Nora Azureen Abdul Rahman

    (School of Economics, Finance, and Banking, College of Business, University Utara Malaysia, Sintok 06010, Malaysia)

Abstract

Recent studies indicate that lending portfoliocomposition in Islamic banks is concentrated towardsdebt-based lending portfolio; however, the ideal lending portfoliocomposition in Islamic banks should be an equity-based lending portfolio. This article explores the effects of the internal governance factors on lending portfolio compositionofIslamic banks in the GCC Region. The internal governance factors investigated are board of directors’ characteristics (size and independence), Shariah supervisory board attributes (size and cross-membership), and ownership structure (family and government). The generalized least squares (GLS) method is used to examine the relationship between the study variables. The results indicate that two characteristics of the board of directors, size and independence, and two attributes of the Shariah supervisory board, Shariah board size and Shariah board cross-membership, have significant effects on lending portfolio composition of Islamic banks in the GCC Region. However, the rest of the internal governance factors have no effects on lending portfolio composition of Islamic banks in the GCC Region. These significant results add new contributions to the literature in the area of internal corporate governance of Islamic banks. The article concludes with suggestions for regulators and policy makers in the GCC Region with regard to the ideal characteristics of the board of directors and the optimal attributes of the Shariah supervisory board in Islamic banks as well as directions for future studies in this area of research.

Suggested Citation

  • Nizar Yousef Ahmed Naim & Nora Azureen Abdul Rahman, 2023. "The Effects of Internal Governance Factors on Lending Portfolio Composition in Islamic Banks," IJFS, MDPI, vol. 11(3), pages 1-16, June.
    • Handle: RePEc:gam:jijfss:v:11:y:2023:i:3:p:85-:d:1179950
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    References listed on IDEAS

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