Credit Risk of Islamic Banks in GCC Countries

Authors

  • Hamid A. H. Al-Wesabi Universiti Utara Malaysia, Malaysia
  • Nor Hayati Ahmad School of Islamic Business, Universiti Utara Malaysia, Malaysia

DOI:

https://doi.org/10.32890/ijbf2013.10.2.5

Keywords:

Credit risk, risk management, Islamic banks, gulf countries, nonperforming loans

Abstract

This paper is about factors affecting credit risk of Islamic banks in the Gulf Cooperation Council countries using website data covering 25 Islamic banks over 2006 to 2010. This study uses non-performing loans as a proxy for credit risk, which is the dependent variable with three macro-economic, and six firm-specific independent variables. We find income is significantly negatively related to credit risk, which is consistent with findings in other countries about credit risk. Some firm-specific variables such as leverage, liquidity are also relevant variables for credit risk, which results are also consistent with bank behaviour reported in other studies. Credit risk is also broadly affected by both macro and firm-specific factors as found in other regions. Inflation and interest rates do not appear to be relevant. These results would suggest non-performing loan is broadly correlated with factors identified in other studies of banks.

 

References

Ahmad, N. H. & Ariff, M. (2007). Multi-country study of bank credit risk determinants. The International Journal of Banking and Finance, 5, 135152.

Ahmad, N. H. & Nizam. A, S. (2004). Key factors influencing credit risk of Islamic bank: A Malaysian case. Review of Financial Economic 2. Al-Wesabi and Ahmad: Credit risk of Islamic banks in GCC countries Jeddah: Islamic Development Bank-Islamic Research and Training Institute.

Ahmed, N., Akhtar, M. F., & Usman, M. (2011). Risk management practices and Islamic banks: An empirical investigation from Pakistan. Interdisciplinary Journal of Research in Business, 1(6), 50-57.

Al-Jarhi, M. & Iqbal M. (2001). Islamic Banking: Answers to some frequently asked questions. Jeddah: Islamic Development Bank-Islamic Research and Training Institute.

Al-Smadi, M. O. M. (2010). Credit risk, macroeconomic and bank specific factors in Jordanian banks. PhD Thesis, Universiti Utara Malaysia.

Chapra, M. U. & Khan, T. (2000). Regulation and supervision of Islamic banks. Jeddah: Islamic Development Bank-Islamic Research and Training Institute.

Das, A. & Ghosh S. (2007). Determinants of credit risk in Indian state-owned banks: An empirical investigation. Economic Issues, 12(2), pp 48-66.

Diamond, D. W. (1984). Financial intermediation and delegated monitoring. The Review of Economic Studies, 51(3), 393–414.

Diamond, D. W. (1996). Financial intermediation as delegated monitoring: A simple example. Federal Reserve Bank of Richmond Economic Quarterly, 82(3), pp 51-66.

Fasano, U. & Iqbal, Z. (2003). GCC countries: From oil dependence to diversification. Washington: International Monetary Fund.

Fleifel, B. A. (2009). Risk management in Islamic banking and finance: The Arab finance house example. An unpublished thesis submitted to the University of North Carolina Wilmington, USA.

Greuning, H.V., & Z. Iqbal. (2008). Risk analysis for Islamic banks. Washington: World Bank.

Hasan, M. & Dridi, J. (2010). The effects of the global crisis on Islamic and conventional banks: A comparative study. IMF Working Paper, WP 10/201.

Iqbal, M., Ahmad, A. & Khan, T. (1998). Challenges facing Islamic banks. Jeddah: Islamic Development Bank-Islamic Research and Training Institute.

Iqbal, Z. (2009). Impact of global financial crisis on IDB member countries: The case of Gulf Cooperation Council and sub-Saharan Africa. The Pakistan Development Review, 47(4), pp. 583-601.

Khan, T. & Ahmed, H. (2001). Risk management: An analysis of issues in Islamic financial industry. Jeddah: Islamic Development Bank-Islamic Research and Training Institute.

Khemraj, T. & Pasha, S. (2009). The determinants of non-performing loans: An econometric case study of Guyana. Paper presented at The Caribbean Centre for Banking and Finance Bi-Annual Conference on Banking and Finance, St. Augustine, Trinidad.

Laabas, B. & Limam I. (2002). Are GCC countries ready for currency union? Kuwait: Arab Planning Institute.

Makiyan, S. N. (2008). Risk management and challenges in Islamic banks. Journal of Islamic Economics, Banking and Finance, 4(3), 45-54.

Matthews, K. & Thompson, J. (2008). The economics of banking. Chichester: John Wiley and Sons.

Saif, I. (2009). The oil boom in the GCC countries, 2002–2008: Old challenges, changing dynamics. Washington: Carnegie Endowment for International Peace.

Thiagarajan, S., Ayyappan, S., & Ramachandran, A. (2011). Credit risk determinants of public and private sector banks in India. European Journal of Economics, Finance and Administrative Sciences, 34, 147154. Al-Wesabi and Ahmad: Credit risk of Islamic banks in GCC countries

Downloads

Published

01-08-2013

Issue

Vol. 10 No. 2 (2013): International Journal of Banking and Finance (IJBF) Vol. 10, No.2, 2013

Section

Articles

How to Cite

Al-Wesabi, H. A. H., & Ahmad, N. H. (2013). Credit Risk of Islamic Banks in GCC Countries. International Journal of Banking and Finance, 10(2), 95-112. https://doi.org/10.32890/ijbf2013.10.2.5

Research impact

Harvested 2026-09-07
9 citations, from OpenAlex — the highest of the sources checked

Counts differ between services because each indexes a different body of literature. None of them is the whole picture.

Identifiers DOI 10.32890/ijbf2013.10.2.5 OpenAlex W109145094

Most read articles by the same author(s)