Risk management practices of Islamic banks of Brunei Darussalam

Abul Hassan

The Journal of Risk Finance · 2009 · 155 citations · 7 references

Concepts

TL;DR

The study evaluates how Islamic banks in Brunei Darussalam employ risk management practices and techniques. A structured questionnaire assessed six risk‑management dimensions and used ordinal scales to gauge methods of risk identification and the risks confronting the banks. Islamic banks face foreign‑exchange, credit, and operating risks, and while they manage risk reasonably well, risk identification and assessment are the key drivers of their practices. The findings are limited to the risk‑management practices of Islamic banks in Brunei Darussalam.

Abstract

Purpose The objective of this paper is to assess the degree to which Islamic banks in Brunei Darussalam use risk management practices (RMPs) and techniques in dealing with different types of risk. Design/methodology/approach The researcher developed a questionnaire which covers six aspects in the first part: understanding risk and risk management, risk assessment and analysis (RAA), risk identification (RI), risk monitoring, credit risk analysis and RMPs. The second part consists of two questions based on an ordinal scale dealing with two topics: methods of RI and risk facing the sample banks. Findings This study found that that the three most important types of risk that the Islamic banks in Brunei Darussalam facing are foreign‐exchange risk, followed by credit risk and then operating risk. It also found that the Islamic banks are somewhat reasonably efficient in managing risk where RI and RAA are the most influencing variables in RMPs. Research limitations/implications The paper's findings are limited to the RMPs of Islamic banks in Brunei Darussalam. Originality/value The paper explores the RMPs of the Islamic banks in Brunei Darussalam. The results can be used as a valuable feed back for improvement of RMPs in the Islamic banks in Brunei and will be of value to those people who are interested in the Islamic banking system.

References

7