Determinants of Islamic Bank Credit Risk in ASEAN Countries
Keywords:
ASEAN, Islamic Banking, Credit Risk, Management EfficiencyAbstract
Ialamic banking system have been establish more than 30 years ago around the world. However, until today it still facing a lot of obstacles especially in term of credit risk. Thus, the aims of this study is to examine the external (macroeconomic) and internal economic factors that influencing Islamic bank credit risk in ASEAN countries. By using 29 of Islamic banking data in ASEAN from years 2011 until 2018, panel data model was applied in this study. The results from the long run regression of FLOMS, DLOS and PMG suggest management efficiency (MGT) and capital ratio (CR) are the internal factors affects the credit risk of ASEAN Islamic bank. Economic growth, inflation and interest rates are external factors that also found could influencing the Islamic bank credit risk. More research ought to be carried out so that one can understand how credit risk is created in Islamic banking. The finding obtained will provide the further understanding of how Islamic banks should tackle the obstacles they face in order to manage their credit risk.
References
Ahmad, N. H. & Ahmad, Shahrul Nizam (2004). Key Factors Influencing Credit Risk of Islamic Bank : a Malaysian Case N. The Journal of Muamalat and Islamic Finance Research, 1.1, 65–80.
Ahmad, N. H. & Ariff, M. (2007). Multi-Country Study of Bank Credit Risk Determinants. The International Journal of Banking and Finance, 5, 135-152.
Ahmed, N., Akhtar, M. F., & Usman, M. (2001). Risk management practices and Islamic banks: An empirical investigation from Pakistan. Interdisciplinary Journal of Research in Business , 1(6), 50-57.
Ali A & Daly K, (2010). Modelling Credit Risk: A comparison of Australia and the USA, Journal of International Finance and Economics, 10(1),123-131.
Al-wesabi, H. A. H., Al-wesabi, H. A. H., & Ahmad, N. H. (2013). Credit risk of Islamic banks in GCC countries. The International Journal of Banking and Finance, 10(2), 1-24.
Ariffin et. al (2009). Risks in Islamic banks: Evidence from empirical research. Journal of Banking Regulation 10(2):153-163. DOI: 10.1057/jbr.2008.27
Berger, A. N. & DeYoung, R. (1997). Problem Loans and Cost Efficiency in Commercial Banks. Journal of Banking and Finance 21: 849-870.
Breitung, J. (1999) The Local Power of Some Unit Root Tests for Panel Data. Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes, No. 1999, 69, Humboldt University Berlin.
Breitung, Jörg and Pesaran, M. Hashem. (2005). Unit Roots and Cointegration in Panels. IEPR Working Paper No. 05.32, CESifo Working Paper Series No. 1565, Available at SSRN: https://ssrn.com/abstract=796190
Brewer, E.III, Jackson, W. E.III & Mondschean, T.S., (1996). Risk, regulation, and S & L diversification into nontraditional assets. Journal of Banking and Finance 20: 723-744.
Catherine Soke Fun Ho, and Nurul Izza Yusoff. (2009). A preliminary study on credit risk management strategies of selected financial institutions in Malaysia. Jurnal Pengurusan, 28, 45-65. ISSN 0127-2713
Chowdhury, M. (2015). Why Islamic finance is different? A Short Review of Islamic Jurisprudential Interpretation about Usury, Ambiguity (Gharar), Gambling (Maysir) and Exploitative Commercial Arbitrage (Talaqi alRukban). Journal Of Emerging Economies And Islamic Research, 3(3), 69-83. doi:10.24191/jeeir.v3i3.9069
Chusaini, A. and Ismal, R. (2013). Credit Risk Management in Indonesian Islamic Banking. Afro Eurasian Studies, Vol. 2 No. 1 & 2, pp. 41–55.
Corsetti, G. P. P. & N. Roubini. (1998). Fundamental Determinants of the Asian Crisis: a preliminary empirical assessment. Paper prepared for the JIMF-Fordham University Conference on “Perspectives on the Financial Crisis in Asia”.
Chamberlain, Hidayat & Khokhar. (2019). Credit risk in Islamic banking: evidence from the GCC. Journal of Islamic Accounting and Business Research,1759-0817.
Demirguc-Kunt, A., & Detragiache, E. (1998). The Determinants of Banking Crises in Developing and Developed Countries. IMF Staff Papers. http://doi.org/10.2307/3867330
Elgari, M. A. L. I. (2003). Credit Risk in Islamic Banking and Finance. Islamic Economic Studies Vol. 10, No. 2.
Ferhi. (2017). Credit risk and banking stability: a comparative study between Islamic and conventional banks. International Journal of Law and Management. 60(4),1009-1019.
Haron, S., & Yamirudeng, K. (2003). Islamic Banking in Thailand: Prospects and Challenges, 5(2).
Hassan, Khan & Paltrinieri. (2019). Liquidity risk,credit risk and stability in Islamic and conventional banks. Research in International Business and Finance. 48,17–31.
James Stock and Mark Watson, (1993). A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems. Econometrica, 61, (4), 783-82.
Kabir, Worthington & Gupta. (2015). Comparative credit risk in Islamic and conventional bank. Pacific-Basin Finance Journal. 34, 327–353.
Kao , C. & Chiang , M.-H. (2000). On the estimation and inference of a cointegrated regression in panel data. In: Baltagi , B. ed. Nonstationary Panels, Panel Cointegration, and Dynamic Panels. Advances in Econometrics , Vol. 15 , Amsterdam , JAI Press , 161 – 178.
Khan, T. and Ahmed, H. (2001). Risk Management –An Analysis of Issues in Islamic Financial Industry. Islamic Development Bank-Islamic Research and Training Institute, Occasional Paper ( No.5), Jeddah.
Kyung So Im; M Pesaran and Yongcheol Shin, (2003), Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, (1), 53-74.
Lazarus Angbazo. (1997). Commercial bank net interest margins, default risk, interest-rate risk, and off-balance sheet banking, Journal of Banking & Finance, 21 (1), 55-87.
Lassoued (2018). Comparative study on credit risk in Islamic banking institutions: The case of Malaysia. The Quarterly Review of Economics and Finance. 70, 267–278.
Levin, A., & Lin, C.-F. (1992). Unit root tests in panel data: asymptotic and finite-sample properties. University of California San Diego Working Paper.
Levin, A., Lin, C. & Chu, C. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. J. Econ. 108 : 1 – 24 .
Makiyan,S.N. (2003). Role of Rate of Return on Loans in the Islamic Banking System of Iran. Managerial Finance, 25 (7).
Misman. F.N, Bhattib, Lou, Samsudin & A.Rahman. (2015). Islamic Banks Credit Risk: A Panel study. Procedia Economics and Finance, 31, 75 – 82.
Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 61: 653–670.
Pert Jakubik (2007). Macroeconomic environment and credit risk. Czech Journal of Economics and Finance (Finance a uver), 57(1-2), 60-78.
Regulatory, T. H. E., & Dimension, I. (2011). Islamic Banking in Indonesia : Directorate of Islamic Bankiing.
Rose, Peter S. (1996). “Commercial Bank Management”, McGraw Hill Cos. Inc. USA:196-190.
Roy, S. K., Balaji, M. S., Kesharwani, A., & Sekhon, H. (2017). Predicting Internet banking adoption in India: a perceived risk perspective. Journal of Strategic Marketing. https://doi.org/10.1080/0965254X.2016.1148771
Setiawan, C., Hasan, T., & Hassan, M. K. (2019). Non-Performing Loans and Bank Efficiency of Conventional and Islamic Banks in the Organization of Islamic Cooperation (OIC) Countries. Journal of Islamic Economics Banking and Finance. https://doi.org/10.12816/0051000
Salma, H., & Abdul, H. (1993). Islamic Banking in Brunei and The Future Role of Centre for Islamic Banking , Finance and Management ( CIBFM ).
Samad, A. and Hasan, M.K. (1999). The Performance of Malaysian Islamic Bank During 1984-1997: An Exploratory Study. International Journal of Islamic Financial Services, 1 (3).
Safiullah & Shamsuddin. (2018). Risk in Islamic banking and corporate governance. Pacific-Basin Finance Journal, 47, 129–149.
Sobarsyaha, Soedarmonob, Yudhib, Trinugrohoc, Warokkad & Pramonoe. (2020). Loan growth, capitalization, and credit risk in Islamic banking. International Economics, 1-8.
Srairi (2019). Transparency and bank risk-taking in GCC Islamic banking. Borsa Istanbul Review, 19, S64-S74.
S Thiagarajan, S Ayyappan, & A Ramachandran (2011). Credit Risk Determinants of Public and Private Sector Banks in India. European Journal of Economics, Finance and Administrative Sciences, 34, 147 – 154.
Tabash, M., & Dhankar, R. (2014). Islamic Financial Development and Economic Growth-- Empirical Evidence from United Arab Emirates. Journal Of Emerging Economies And Islamic Research, 2(3), 15-31. doi:10.24191/jeeir.v2i3.9630
Warnindaa, Ekaputraa & Rokhima (2019). Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently? Research in International Business and Finance, 49, 166–175.
Waemustafa, W., Sukri, S. (2015). Bank Specific and Macroeconomics Dynamic Determinants of Credit Risk in Islamic Banks and Conventional Banks. International Journal of Economics and Financial Issues, 5(2), 476-481.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2020 Kamarudin Othman, Jamilah Laidin, Shahiszan Ismail, Nor Azira Ismail
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
