Risk Management Practices of Islamic Banks: International Evidence

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1 University Press Scholarship Online You are looking at 1-8 of 8 items for: keywords : risk management Risk Management Practices of Islamic Banks: International Evidence Romzie Rosman and Abdul Rahim Abdul Rahman edinburgh/ This chapter examines risk management in Islamic banking, particularly how risks are measured and what techniques are employed for risk mitigation. Drawing on the results of a questionnaire survey, it looks at the risk management practices of twenty-eight Islamic banks in sixteen countries, including Abu Dhabi Islamic Bank (UAE), Asian Finance Bank (Malaysia), A Ayan Leasing and Investment (Kuwait), Al Rajhi Bank (Saudi Arabia), Al Salam Bank (Bahrain), Arab Finance House (Lebanon), and Arab Islamic Bank (Palestine). The chapter begins with a review of the existing literature on risk management issues in Islamic banks, followed by a discussion of the Islamic Financial Services Board s guiding principles on risk management for institutions (except insurance institutions) offering only Islamic financial services. It then presents the findings of the survey, including management of liquidity risk and the provision for rate of return risk. It shows that many Islamic banks are complacent about risk mitigation. Liquidity Risk Management and Financial Performance of Islamic Banks: Empirical Evidence Noraini Mohd Ariffin and Salina Hj. Kassim edinburgh/ This chapter investigates how Islamic banks manage liquidity risk and handle maturity mismatches, as well as the relationship between liquidity Page 1 of 5

2 risk management and financial performance as measured by return on assets. In particular, it examines the extent of liquidity risk in the Islamic banks in Malaysia, whether the current financial crisis has a significant effect on the liquidity risk of these banks, the extent of liquidity risk management disclosure in the annual report, and whether liquidity risk is correlated with the financial performance of Islamic banks. The chapter first reviews the existing literature on liquidity risk and its management as well as the link between risk and return on equity. It then analyses data from 2006 to 2008 for the leading six Islamic banks in Malaysia. The results show that the banks return on equity declined due to the global crisis, and that investors in the banks with the highest liquidity risk expected and obtained the highest return on their equity. Enhancing Governance, Accountability and Transparency in Islamic Financial Institutions: An Examination into Sharīcah Internal Control Audit Zurina Shafii and Supiah Salleh edinburgh/ This chapter explores corporate governance, accountability and transparency in Islamic financial institutions (IFIs), with emphasis on internal Sharī ah audit practices in Bank Islam Malaysia Berhad and Bahrain Islamic Bank. It first considers risk management in IFIs before proceeding with a discussion of operational risk and comparing an external Sharī ah audit with a Sharī ah compliance audit. It demonstrates the use of the Sharī ah internal control list/questionnaire in Bank Islam Malaysia and Bahrain Islamic Bank to show that it can be adopted by the external Sharī ah auditors to audit the IFIs. Reflecting on Islamic Banking and Financial Crisis: Risks, Reputation and Stability Habib Ahmed, Mehmet Asutay, and Rodney Wilson edinburgh/ Page 2 of 5

3 This book examines whether Islamic banks perform better than their conventional counterparts in times of financial crisis, as well as the extent to which systems for managing risk have to be adapted for Islamic financial institutions given the unique features of their assets and liabilities and the need for Sharī ah compliance. It considers the challenges faced by Islamic financial institutions in an international system that requires banks under Basel III to have more capital and liquidity to cope with future shocks. Aside from risk management and risk mitigation, the book discusses governance issues and their implications for institutional stability and sustainability. Risk Management and Islamic Forward Contracts Sherin Binti Kunhibava edinburgh/ This chapter focuses on risk management and the use of forward contracts in Islamic banks worldwide. It looks at contracts that are currently used in Islamic banks, including bai muajjal and wa d as well as bai al-sarf for currency exchange. The chapter first examines risk in Islamic finance and explains forward contracts as used in conventional finance. It then discusses the problems with conventional forwards from Sharī ah s perspective. It also considers the practice of Islamic derivatives and the need for hedging. It stresses the need for more transparency and clarity regarding the usage of Islamic derivatives. Reshaping the Islamic Finance Industry: Applying the Lessons Learned from the Global Financial Crisis Rafe Haneef and Edib Smolo edinburgh/ This chapter examines the lessons learned from the global financial crisis of 2008 and how they can be applied to reshape the Islamic financial industry. It analyses some of the significant flaws in the current international financial system, with emphasis on how risk transfers result in irrational economic growth and banks excessive lending. Page 3 of 5

4 It considers the inadequate risk management procedures of many financial institutions selling conventional financial products, along with transparency and disclosure issues. It also favours a shift to equity-based finance, which is more compatible with Islamic financial principles. Sharīcah Report: a Potential Tool for Sharīcan Non-Compliant Risk Management Abdou Karim Diaw and Irawan Febianto edinburgh/ This chapter examines the extent to which Sharī ah reports can be used as an effective tool in risk management, with emphasis on noncompliance risks. Drawing on the experience of the ten leading Islamic banks, it considers how banks conform to the guidance issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) on Sharī ah reporting. It shows that the banks differ in terms of conformity to the AAOIFI guidance, from 100 per cent for the Al Baraka Group of Bahrain to 18.2 per cent for the Kuwait Finance House parent company. The chapter argues that the Sharī ah Supervisory Board, which is responsible for the governance structure of Islamic financial institutions, plays a key role in the management of Sharī ah non-compliance risk. Ground Zero Adrian Parr in Deleuze and Memorial Culture: Desire, Singular Memory and the Politics of Trauma Published in print: 2008 Published Online: March 2012 ISBN: eisbn: edinburgh/ This chapter examines how traumatic memory can impact upon the vitality of the urban landscape as in the case of Ground Zero using Gilles Deleuze and Felix Guattari's concepts of smooth and striated space. It investigates what happens to the transcultural movement of an urban context once we begin to reduce that context to a problem of risk management, and discusses the security issues considered in the design of the Freedom Tower. The chapter contends that urban Page 4 of 5

5 design has started turning things inside out a little more to distribute friendliness and imagine places filled with life in all its messiness, colour, taste, smelliness, complexity and restlessness. Page 5 of 5