The mediating effect of risk management for Palestinian Islamic banks’ strategic planning and profitability performance

Abstract

This paper examined the mediating effect of risk management for strategic planning and profitability of Islamic banks in Palestine. The questionnaires were distributed randomly among 97 directors who have experience in strategic and risk management. A structural equation model was employed to test the research hypotheses. The result revealed that strategic planning and risk management have a significant positive effect on profitability, while strategic planning has a significant positive effect on risk management. In addition, risk management was evidenced to partially mediate the linkage between strategic planning and profitability. The current study yielded support for the claim that risk management played a significant mediating role in the relationship between strategic planning and profitability. Bank directors having good strategic planning and effective risk control tend to get a higher level of profitability. Therefore, Islamic banks should construct a proper strategy in line with their risk management practices and provide a robust risk assessment to protect their financial resources. Ultimately, they can attain superior profitability.