Financial Risk Management
Determinants of Credit Risk: A Comparative Study of Islamic and Conventional Banks

Article Details
Pub. Date : Sep, 2019
Product Name : The IUP Journal of Financial Risk Management
Product Type : Article
Product Code : IJFRM21909
Author Name : Qurat-ulAin
Availability : YES
Subject/Domain : Finance Management
Download Format : PDF Format
No. of Pages : 12



To examine the impact of the selected bank-specific variables on credit risk of conventional and Islamic banks of Pakistan is the main objective of this study. The investigation of the chosen Islamic and conventional banks is done for the period 2007-2015. These banks are chosen based on their value commitment. Panel data regression, Z-score and NPL ratio are applied to discover the connection between the factors of the chosen banks. The results show that bank-specific factors such as efficiency, ROE and ROA have a significant relationship with credit risk in case of conventional banking system. In case of Islamic banking system, efficiency and solvency have a significant relationship with credit risk. Bank size has no significant influence on credit risk. Additionally, the overall Z-score for conventional banks is less than that of Islamic banks, i.e., the more prominent the value, the lower will be the credit risk. Further, the extended probability of bank obligation demonstrates high NPL proportion.


Handling account sections is assuming an active job of channelizing open funds into valuable speculation and credit. Like all other businesses, banking business is also exposed to risk and perhaps many of the risks are very exceptional considering the nature of functions that the banks performs. Banks are exposed to numerous risks, such as credit, liquidity, operational, Shariah, administrative and reputational. The real risk that banks face is due to non-performing advances that is recognized as a hazard, as the fundamental capacity of banks is to give loan or expand credit.


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