Therefore, an effort is made to separate both concepts to avoid suggesting the overhaul of an effective risk management system when it does not get reflected in profitability in the short-run due to the other reasons.
Descriptive statistics show a significant difference in mean. The hypothesis testing is to compare profitability of Islamic and conventional banks. As return on Equity cannot be negative, a one-tail test is performed. Average ROE in Islamic banks is almost half of that of conventional banks.
Based on the above discussion, an effort will be made to decline a conceptual framework among the different concepts discussed thus far. But, they are yet to fully convert their equity base into revenue generating assets.
For Risk Management analysis, the more important statistics are deviation statistics. It is support the null hypothesis that presented the opportunities in the environment; Islamic banks having adequate risk management procedures are able to tap opportunities and be profitable like conventional banks and their risk management procedures are adequate enough to not make them fall too behind conventional banks.
Currently, conventional banks are more profitable due to the learning curve effect, mature product cycles and market share, but Islamic banks are also profitable in their own respect and have the liquidity to turn things around for themselves.
Null hypothesis is Ho: Although, adequate risk management procedures will get reflected in commercial success in the long-run, but the commercial success is not only criterion of risk management procedures.
If the standard deviation are similar, conventional banks are more favourable co-efficient of variation. There are two dependent variables and both are equally important.
It is due to the fact that commercial success depends upon the quality of product, its USPs, its effective marketing, its simplicity and besides the cultural, political and macroeconomic context in which the product is launched and marketed.
This is partly due to the fact that Islamic banks are new entrants in the industry and are booking their preliminary and capital expenditures initially for tax purposes. This is supported by the fact that they have more liquidity than conventional banks.In this paper, we consider the levels of credit risk in Islamic and conventional banks.
One problem with existing studies is the use of accounting information alone to assess credit risk, and this could be especially misleading with Islamic banking.
For evaluating differences in the risk management strategies of conventional and Islamic banks, quantitative research methodology has been chosen. The quantitative research methodology has allowed the researcher to get an empirical evidence of differences in the risk management strategies of conventional and Islamic banks in Pakistan.
Islamic banking is interest-free banking which makes it necessary for Islamic banks to take active part in the operations of the business, i.e. share profits as well as losses.
Banks including Islamic banks prefer to take minimum risk. In a conventional firm (which guarantees returns to its depositors and investors), only the institution bears the risk; no risk is transferred to the fund providers. That means, at least in theory, that an Islamic financial institution’s risks are lower than those faced by its conventional counterpart.
For distinct features of Islamic management in Islamic banking, they are provides financing which is backed by assets - Risk Management in Islamic vs Conventional Banking introduction.
Islamic banks cannot deal in documents and it is due to the asset backed nature results in productive economic activities. Additionally, Islamic banks need to comply with conventional. Distinct Features of Risk Management in Islamic Banking Besides the usual capital adequacy ratios proposed under BASEL, followed both by conventional and Islamic banks, there are some distinct features of risk management under Islamic Banking.Download