A comparative study of risk management practices between Islamic and conventional banks in Pakistan
Rehman, Asma Abdul
Cardiff Metropolitan University
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Purpose: The purpose of this research study is to investigate the extent to which banks are using risk management practices in dealing with various risks and to compare risk management practices between Islamic and Conventional banks operating in Pakistan. Methodology: This is an empirical research study which has employed quantitative research methods. This study has used two sources of data, i.e. primary and secondary data. Secondary data is collected by using content analysis through annual reports of five Islamic and conventional banks for the six year time period from 2008 to 2013. The content analysis was performed by using frequency analysis and un-weighted index scoring. And primary data was collected through questionnaire from the senior managers, risk managers and CRO of Islamic and conventional banks. The sample size was consisting of 150 respondents from banks. The data was analysed by using descriptive statistics, regression analysis and Mann-Whitney U test. Findings: Islamic banks are found to be significantly different from their conventional counterparts in risk identification, risk management practices, liquidity risk analysis and risk governance. Moreover, risk identification, risk assessment and analysis, credit risk analysis and risk governance are most influencing and contributing variables in risk management practices of banks operating in Pakistan. Also, credit, liquidity, market and operational risk are found to be the most important risks faced by both conventional and Islamic banks. Practical Implication: Considering the importance of risk management practices in Islamic and conventional banks; Bankers, investors, regulators, and policymakers are likely to benefit from the results of the study as a guide, when developing and reforming the existing risk management practices. Originality: This study has extended the risk management practices model of banks by incorporating two more variables, i.e. liquidity risk analysis and risk governance into the model. Also, it is adding value methodologically, as data triangulation is used to draw a valid inference. So, this study will add value to literature and will be useful for Islamic banks, conventional banks, practitioners as well as for academic point of view.
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