Risk management tools practiced in Islamic banks: evidence in MENA region

Abstract

Purpose – The main purpose of this study is to investigate in detail the way each risk is being measured and managed by Islamic banks in the MENA region. Design/methodology/approach – This research attempts to examine the perceptions of Islamic bankers about the importance of transparency and public disclosure in the understanding of the bank's risk profile. It covers 23 Islamic banks located in the MENA region using self-administered questionnaire. Findings – The results show that there are differences in the level of risk perception across funding modes. Also Islamic banks use extensively the traditional tools in mitigating risk. Practical implications – The paper discusses and analyses the current practices employed in the risk management of Islamic banks. It identifies the tools and methods used in managing credit risk, market risk, liquidity risk and operational risk by Islamic banks. Originality/value – This study aims to extend the existing literature in two ways. First, this paper contributes to the dearth of studies on examination of tools practiced in the risk management by Islamic banks located in the MENA region. Next, this work integrates the methods used in the management of liquidity risk that have not been studied earlier.