Classification and Management of Non–performing Loans of Islamic Banks and Conventional Banks: A Comparative Study

Abstract

Artikel ini membandingkan klasifikasi dan pengurusan pinjaman tak–berbayar antara bank Islam di Malaysia dengan bank–bank konvensional di United Kingdom (UK) dan Jepun. Objektif kajian adalah untuk menyelidik sama ada terdapat perbezaan dalam klasifikasi dan pengurusan pinjaman tak–berbayar yang dipratikkan oleh bank Islam hasil dari kewujudan Akaun Deposit Pelaburan (IAD) di bank berkenaan. Peruntukan perkongsian untung rugi seperti mana yang terdapat dalam IAD di bank Islam adalah sesuatu yang unik. Keunikan ini, walau bagaimanapun mempunyai risiko di mana dalam kes bank mengalami kerugian, maka IAD akan turut sama menanggung kerugian tersebut. Ini menjadikan pelaburan dalam IAD sangat berisiko dan tertakluk kepada maklumat asimetri. Kertas ini mendapati bank Islam mendefinisikan dan mengurus pinjaman tak–berbayarnya secara berbeza berbanding dengan bank-bank konvensional di UK dan Jepun. Analisis menunjukkan walaupun bank Islam mempunyai ciri–ciri khas tapi klasifikasi dan pengurusan pinjaman tak–berbayarnya adalah lebih longgar. Ini dibuktikan melalui cara di mana pinjaman tak–berbayar dan cara peruntukan kerugiannya didefinisikan dan juga tahap pendedahan maklumat kewangan yang dilakukan oleh bank Islam. Kata kunci: Bank Islam; pinjaman tak–berbayar; peruntukan kerugian; tahap pendedahan maklumat kewangan This paper compares the classification and management of non-performing loans between Islamic banks in Malaysia and conventional banks in the UK and Japan. The objective of this paper is to investigate if there are differences in the classification and management of non–performing loans in Islamic banks as a result of the existence of the Investment Account Depositors (IADs). The nature of profit and sharing loss agreement has made the position of IADs in an Islamic bank unique. This uniqueness, however, has posed some degree of risk where in case the bank incurs a loss, the IADs are liable to share this loss. This has made the investment of IADs very risky and is subject to the potential problem of asymmetric information. This paper finds that the Islamic banks define and manage their non–performing loans differently from the conventional banks in the UK and Japan. The analysis shows that even though Islamic banks have special characteristics, the classification and management of its non–performing loans are quite lenient. This is evidenced in the way non–performing loans are defined, the way loss provision is made and the level of disclosure made by an Islamic bank. Key words: Islamic banks; non–performing loans; loss provision; level of disclosure