Noraini Mohd Ariffin

Macroprudential Analysis of Financial Crisis Impacts on Banks’ Soundness: Evidence from Pakistan

The global financial crisis not only affected the US financial system, but due to contagion effects and global economic interdependence of regions, it has become the global phenomenon for developed as well as developing countries. Pakistan financial sector was also affected by the shocks of global financial crisis; particularly, its banking industry suffered the most. The objective of this paper is to examine the impact of 2007–2008 global financial crisis shocks on the soundness of banks operating in Pakistan with the application of macroprudential tool “stress test.” Macroprudential analysis uses a variety of stress-testing techniques to gauge the financial system’s resilience to shocks, and Credit Lyonnais Securities Asia (CLSA)-stress test is one of them. This study applies a strict Pass/Fail test system called the CLSA-stress test. The results show that global financial crisis has shown adverse effect on banks’ soundness during the crisis period (2007–2009) as compared to postcrisis period (2009–2012).

Factors Affecting Credit Risk in Indonesian Islamic Banks

This study uses dynamic panel data methods to examine the factors affecting credit risk in Indonesian Islamic banks. The panel data is collected from 11 full-fledged Islamic banks and 22 Islamic business units (windows) in conventional banks from 2004-2012, taking into account both macroeconomic variables and bank-specific variables. The Generalized Method of Moments (GMM), as proposed by Arellano and Bond (1991), is utilized to estimate the model. The results show that the GDP growth rate and the unemployment rate with a one-year lag have a strong effect on the level of the non-performing financing. Moreover, bank-specific variables such as bank’s diversification and financing structure have a positive effect on the problem financing although its direction is not as expected. It is hoped that the findings could draw attention to factors affecting credit risk in Islamic banks so that credit risk can be properly managed.

RISK MANAGEMENT PRACTICES OF SELECTED ISLAMIC BANKS IN MALAYSIA

Abstract: This study explores the risk management practices of major Islamic banks in Malaysia with the objective of having deeper understanding of the practices and identifying ways for further improvements. Various aspects of risk management practices are assessed through survey questionnaires, particularly those relevant and specific to the case of the Islamic banks. The study finds that the Islamic banks adopt good risk management practices with few areas of improvements include the use of computerised support systems and more sophisticated approaches to measure risks and the use of Shari’ah compliance techniques to mitigate risks. By assessing their current risk management practices, the study hopes to contribute in terms of recommending strategies to strengthen the risk management practices of the Islamic banks so as to increase the overall competitiveness in the Islamic banking industry. Keywords: risk management; Islamic banks; competitiveness