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Islamic Banking and Financial CrisisReputation, Stability and Risks$
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Habib Ahmed, Mehmet Asutay, and Rodney Wilson

Print publication date: 2013

Print ISBN-13: 9780748647613

Published to Edinburgh Scholarship Online: May 2014

DOI: 10.3366/edinburgh/9780748647613.001.0001

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Risk Management Practices of Islamic Banks: International Evidence

Risk Management Practices of Islamic Banks: International Evidence

Chapter:
(p.106) 6 Risk Management Practices of Islamic Banks: International Evidence
Source:
Islamic Banking and Financial Crisis
Author(s):

Romzie Rosman

Abdul Rahim Abdul Rahman

Publisher:
Edinburgh University Press
DOI:10.3366/edinburgh/9780748647613.003.0006

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.

Keywords:   risk management, banking, Islamic banks, Islamic Financial Services Board, financial services, liquidity, rate of return

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