Credit Risk Management: A Comparative Study between Islamic and Conventional Banks in Turkey

Year 2019, Volume: 5 Issue: 3, 45 - 64, 30.11.2019

Mohammed Alkhawaja Şakir Görmüş

https://doi.org/10.25272/ijisef.634607

Abstract

This study aims to
identify variables which determine credit risk in Islamic and Conventional
banks. Panel data fixed effect model employed to analyze which belongs to three
Islamic Banks in Turkey for the period 2008 Q1 to 2017 Q4. While for
conventional banks, previous studies that has been conducted in Turkey used to
compare Islamic to Conventional banks (CB). Non-performing Loans (NPL) ratio
was used as a proxy for credit risk. Result from fixed effect model showed that
NPL in Islamic Banks is positively affected by Loan Loss Provision and
Proportion of Loans to Deposits, and it is negatively affected by Assets Size.
While literature showed that conventional bank’s credit risk is positively affected
by Net Interest Margin, Loan Loss Provision, and Capital Adequacy Ratio and it
is negatively affected by Proportion of Loan to Deposits, Proportion of Loans
to Assets and Size. There were clear differences between both Islamic and
Conventional banks related to all variables of study except Loan Loss Provision
and Proportion of Loan to Assets ratios.

Keywords

Credit Risk, Non-performing Loans, Islamic Banks, Conventional Banks

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