The governance,risk-taking,and performance of Islamic banks

We examine whether the difference in governance structures influences the risk taking and performance of Islamic banks compared to conventional banks. Using a sample of 52 Islamic banks and 104 conventional banks in 14 countries for the period from 2005 to 2013, we conclude that the governance structure in Islamic banks plays a crucial role in risk taking as well as financial performance that is distinct from conventional banks. Particularly, we show that the governance structure in Islamic banks allows them to take higher risks and achieve better performance because of product complexities and transaction mechanisms. However, Islamic banks maintain a higher capitalization compared to conventional banks. These results support the research on Islamic investment and risk taking. Our results add a new dimension to the governance research that could be a valuable source of knowledge for policy makers and regulators in the financial services sector.     

Social reporting by islamic banks

The last thirty years have witnessed the appearance and rapid expansion of Islamic banking both inside and outside the Islamic world. Islamic banks provide financial products that do not violate Sharia , the Islamic law of human conduct. The Islamic principles upon which the banks claim to operate give an important role to social issues. Applying these principles, we develop a benchmark set of social disclosures appropriate to Islamic banks. These are then compared, using a disclosure index approach, the actual social disclosures contained in the annual reports of twenty-nine Islamic banks (located in sixteen countries) to this benchmark. In addition, content analysis is undertaken to measure the volume of social disclosures. Our analysis suggests that social reporting by Islamic banks falls significantly short of our expectations. The results of the analysis also suggest that banks required to pay the Islamic religious tax Zakah provide more social disclosures than banks not subject to Zakah .     

伊斯兰银行业公司治理:理论与实践

伊斯兰银行业公司治理由于其自身不同的经营特点而与传统银行业治理存在较大的差异,其治理结构、代理关系较为复杂,成为英美、德日模式之外较具代表性的一种模式。本文从伊斯兰银行的治理结构及其复杂的委托代理关系出发,论述了其面临的代理问题,并就其代理问题介绍了伊斯兰银行业的公司治理实践,以期为我国的银行业治理提供一定的借鉴。     

Risk governance and financial stability: A comparative study of conventional and Islamic banks in the GCC

While the linkage between bank governance and financial stability has been discussed widely, empirical explorations of the strength of this relationship are scant. This paper examines the specific role of risk governance in promoting financial stability in banks. Using hand-collected data, it develops a Risk Governance Index (RGI) to measure the strength of risk governance structures and then examines its impact on four main indicators of financial stability for conventional and Islamic banks in the countries of Gulf Cooperation Council (GCC). The results from the dynamic panel models using two-step GMM method suggest that risk governance significantly contributes to the enhancement of the key financial stability measures. The RGI for Islamic banks is found to be smaller than their conventional counterparts and the regression results indicate that risk governance in Islamic banks has a negative impact on stability indicators. While the business models of Islamic banks have features that can enhance stability, poor risk governance can potentially negate this positive feature.     

Shari’ah supervision,corporate governance and performance: Conventional vs. Islamic banks

The performance and accountability of boards of directors and effectiveness of governance mechanisms continue to be a matter of concern. Focusing on differences between conventional banks and Islamic banks, we examine the effect of (i) Shari’ah supervision boards, (ii) board structure and (iii) CEO-power on performance during the period 2005–2011. We find Shari’ah supervision boards positively impact on Islamic banks’ performance when they perform a supervisory role, but the impact is negligible when they have only an advisory role. The effect of board structure (board size and board independence) and CEO power (CEO-chair duality and internally recruited CEO) on the performance of Islamic banks is overall negative. Our findings provide support for the positive contribution of Shari’ah supervision boards but also emphasize the need for enforcement and regulatory mechanism for them to be more effective.     

Is spin-off policy an effective way to improve performance of Islamic banks? Evidence from Indonesia

Indonesia has adopted a dual banking system in which both conventional and Islamic banks operate. Most of the sharia-based banks, however, are still operating Islamic windows within their conventional entity. To strengthen the role of Islamic banking in the intermediation system, the government issued Islamic Banking Law No. 21/2008 to encourage Islamic windows of conventional banks to become a legal entity separate from their parent company. Because some Islamic windows have spun off in this fashion, we can employ a difference-in-difference approach to examine the effect of such a spin-off on Islamic banks’ performance, efficiency, and risk. Our study covers all Islamic commercial banks (including Islamic windows of conventional banks) in Indonesia from 2008–2019. We find that the performance and efficiency of full-fledged Islamic banks are significantly lower compared with Islamic windows of conventional banks. Moreover, our results show that financing risk increases after the spin-off. The inferior performance of full-fledged Islamic banks persists for four years after the spin-off. We also find that a conversion strategy results in better outcomes, particularly for profitability and efficiency, than a pure spin-off strategy.     

Impact of corporate governance and related controversies on the market value of banks

Effective corporate governance of financial institutions, particularly in the banking sector, is vital for the stability of the financial system and the prevention of financial crises. Thus, this study examines the impact of corporate governance and related controversies on the market value of banks. For this purpose, we utilized Refinitiv’s corporate governance scores, including management, shareholder value, and corporate social responsibility (CSR), as well as its corporate governance controversies scores to analyze their impact on the market value of 242 banks in 43 countries. Using Refinitiv’s ESG database from 2017 to 2021, we conducted a path analysis and found a positive and statistically significant relationship between the CSR strategy scores and the market value of banks as well as between the management scores and the market value of banks. Moreover, there is a statistically significant relationship between the corporate governance controversies scores and the market value of banks.     

Political systems and the financial soundness of Islamic banks

We investigate whether and how political systems affect the financial soundness of conventional and Islamic banks. Using factors extracted from principal component analysis, we find that Islamic banks underperform their conventional counterparts in more democratic political systems but outperform them in hybrid and Sharia’a-based legal systems. The findings reflect the challenges Islamic banks face in Western countries in terms of perception, financial infrastructure, and regulatory constraints while mirroring the recognition of their specificities and their cultural and religious compliance with Sharia’a law in Muslim countries. The findings are robust to a battery of alternative estimation techniques and methods of correcting standard errors.     

The procyclicality of loan loss provisions in Islamic banks

From a sample of Islamic banks around the world from 1997 to 2012, this paper examines whether loan loss provisioning in Islamic banks is procyclical. Our empirical findings highlight that loan loss provisioning in Islamic banks remains procyclical, although the ‘expected’ loan loss model (E-LLM) has been implemented for Islamic banks in several countries. A closer investigation further documents that Islamic banks also use loan loss provisions for discretionary managerial actions, especially related to capital management in which loan loss reserves and provisions are inflated when bank capitalization declines. Eventually, this paper highlights that higher capitalization can mitigate the procyclicality of loan loss provisions in Islamic banks. In other words, loan loss provisioning becomes countercyclical for Islamic banks with higher capitalization. This paper therefore casts doubts on the adoption of the E-LLM for Islamic banks to promote countercyclical effects, because the E-LLM may be influenced by managerial discretion, including opportunistic capital management using loan loss provisions that may undermine the importance of maintaining bank capitalization.     

Sharia supervisory boards,governance structures and operational risk disclosures: Evidence from Islamic banks in MENA countries

This paper examines the impact of Sharia supervisory board (SSB) and governance structures on the extent of operational risk disclosures (ORDs), using a sample of 63 Islamic banks from 10 (i.e., Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, and the UAE) countries in the Middle East and North Africa (MENA) region for the fiscal years 2006 to 2013. Drawing on Sharia compliance, Islamic banking and corporate governance literature, our findings are as follows. We find that SSB, block ownership, board independence, and country-level governance quality are statistically significant and positively associated with ORDs. Our results are robust when controlling for several bank- and country-level variables. Our study has implications for policy-makers and regulators in the MENA region with respect to the development and implementation of SSB and governance mechanisms that can improve operational risk disclosures. Finally, the findings highlight the need to enhance current understanding of SSB structures and governance mechanisms that can best help Islamic banks towards engaging in effective compliance with recent governance and accounting reforms.     

Do banks effectively manage their risks? The role of risk governance in the MENA region

This study aims to investigate (1) the effects of the creation of a board-level risk committee (RC) and the designation of a chief risk officer (CRO) on the risk-taking practices undertaken by financial institutions and (2) whether these mechanisms improve the risk management effectiveness of both conventional banks (CBs) and Islamic banks (IBs). We contribute to the scarce literature on the relationship between risk governance and risk-taking behaviour and investigate IBs in this context. Using a sample of 573 observations representing 65 banks (28 CBs and 37 IBs) in the Middle East and North Africa (MENA) region from 2005 to 2015, we find a negative association between the risk governance indices and their risk perspectives across both types of banks for the post-crisis period. Interestingly, we find that the existence of risk governance mechanisms in IBs is associated with higher risk taking for the pre-crisis period, i.e., before the recent amendments to the risk governance principles in the MENA region. This result implies that IBs can respond to regulatory reforms in the post-crisis period by curbing excessive risk taking. We offer further evidence that the risk governance effect on overall risk taking stems only from the stand-alone board-level RC and not from the role of the CRO. We note that the CBs’ performance is more associated with risk taking for banks with stronger board-level RCs. The board-level RCs improve the effectiveness of risk management within CBs but do not influence the risk management effectiveness of IBs.     

论我国商业银行内部审计制度和模式的创新

内部审计是公司治理的重要控制和监督环节,在公司治理结构中发挥着越来越重要的作用.当前,加强银行公司治理是我国商业银行改革的关键环节,如何更好地发挥内部审计在银行治理结构中的作用,从而为银行机构增加价值并促使其高效率、高质量地运转,是一个具有重要现实意义的课题.本文从既有的研究成果出发,通过考察银行治理结构和内部审计的关系及西方国家商业银行内审理念的演变趋势,针对巴塞尔新资本协议等对商业银行内审工作提出的新要求,指出我国商业银行内部审计应从财务型审计转向增值型审计,在内审理念、内审体制及方法手段等方面进行创新.     

Capital structure of Islamic banks: How different are they from conventional banks?

This paper uses comprehensive data for 112 Islamic and 709 conventional banks from 23 countries over 1995–2015 to compare the capital structure of Islamic banks (IBs) and conventional banks (CBs) from several perspectives. We find that IBs and CBs seem to face different cost pressures in the process of adjusting towards the target capital structure. Asset growth is a key driver of capital structure change, and CBs adjust leverage more aggressively in response to changes in total assets compared to IBs, because they have an advantage in obtaining external funds and can achieve leverage adjustments faster and at a low cost. IBs have more regulatory capital, but their ability to respond to risks is weaker than traditional banks. The results of this paper suggest that Islamic banks are in a disadvantaged position compared to CBs in capital structure management. The conclusion suggests that IBs need to expand its financing tools and funding sources to reduce adjustment costs and improve their capability to deal with asset risk.     

Risk-adjusted profitability and stability of Islamic and conventional banks: Does revenue diversification matter?

Revenue diversification in banking offers opportunities and threats. Recent academic research shows that disadvantages may outweigh advantages, in terms of both volatility of profitability and bank riskiness. Literature on this topic in emerging countries and in the field of Islamic finance is limited: our aim is to empirically test if revenue diversity affects Islamic banks differently than conventional institutions. We analyze the impact of income diversification on profitability and firm-risk of banks in selected OIC countries, in the period 2007–2016, using a comprehensive dataset of 47 Islamic and 154 conventional banks, through diverse measures and econometric approaches. We find that diversification provides lower rewards for Islamic banks than conventional banks, with effects that are stronger for accounting-based measures rather than market-based metrics. Shares of non-interest income positively contribute to profitability regardless of the business model, whereas income diversification shows a not significant effect on the risk-adjusted profitability of Islamic banks. Moreover, we do not find any relationship between income diversification and stability for both conventional and Islamic banks.     

A net stable funding ratio for Islamic banks and its impact on financial stability: An international investigation

The Islamic Financial Services Board (IFSB) is the standard setting body for the Islamic banking industry. The IFSB, while endorsing the Basel III accord, modified the criteria to calculate the Net Stable Funding Ratio (NSFR) to cater for the unique aspects of the Islamic banking industry. In this paper, we calculated the modified NSFR of 136 Islamic banks from 30 jurisdictions between 2000 and 2013 and explored the potential impact the requirements of this ratio has on the financial stability of Islamic banks after controlling for bank, country, and market-specific variables. The empirical findings suggest that the modified NSFR has a positive impact on the financial stability of Islamic banks during the sample period. However, the marginal impact of the NSFR on stability diminishes as the size of the bank increases. The results remained robust after applying an alternative measure of stability and using an alternative estimation model based on an instrumental variable approach. These results validate the use of the IFSB’s modified NSFR for Islamic banks as a regulatory measure.     

商业银行公司治理机制的发展趋势研究

公司治理机制是现代公司制度的基本架构。从公司制度诞生至今,良好的公司治理机制始终和公司的健康运行密切相关。由于商业银行区别于一般公司的特殊性,构建良好的公司治理机制一直是国际银行业所关注的焦点。本文从公司治理机制的理论和制度两个层面分析商业银行公司治理机制的发展趋势,并探讨这种变化趋势对中国商业银行公司治理改革的借鉴意义。作者认为商业银行应当按照国际会计准则提高信息披露的质量,利用市场竞争的力量来改善公司治理机制,注重外部审计和内部审计力量的结合,注重法律在公司治理机制中的作用,实现商业银行激励与约束机制的创新。     

国有商业银行公司治理结构的特殊性及其改革

公司治理结构的所有原则都来源于商业银行活动的基本实践.银行治理结构的缺陷最终会损害银行的竞争力,增大银行体系的风险.在当前面临外资银行激烈竞争的新形势下,建立国有商业银行良好的公司治理结构应是银行业改革的首要议题.鉴于我国国有商业银行公司治理结构的特殊性,其公司治理机制的构建应从利益相关者治理的角度出发,顺应国际公司治理的发展趋势,科学地借鉴国外公司治理的典型模式,通过有效的激励机制和内部控制体系,完善信息披露制度,以及逐步健全外部治理等措施,实现国有商业银行富有成效的改革,促进金融行业国际竞争力和资源配置效率的提高.     

Islamic versus conventional banks in the GCC countries: A comparative study using classification techniques

This paper contributes to the empirical literature on Islamic finance by investigating the feature of Islamic and conventional banks in Gulf Cooperation Council (GCC) countries over the period 2003–2010. We use parametric and non-parametric classification models (Linear discriminant analysis, Logistic regression, Tree of classification and Neural network) to examine whether financial ratios can be used to distinguish between Islamic and conventional banks. Univariate results show that Islamic banks are, on average, more profitable, more liquid, better capitalized, and have lower credit risk than conventional banks. We also find that Islamic banks are, on average, less involved in off-balance sheet activities and have more operating leverage than their conventional peers. Results from classification models show that the two types of banks may be differentiated in terms of credit and insolvency risk, operating leverage and off-balance sheet activities, but not in terms of profitability and liquidity. More interestingly, we find that the recent global financial crisis has a negative impact on the profitability for both Islamic and conventional banks, but time shifted. Finally, results show that Logit regression obtained slightly higher classification accuracies than other models.     

关于把商业银行建成精品银行的战略思考

本文结合国内外商业银行发展的新趋势,归纳了精品银行的基本特征.作者通过深入分析中国商业银行在发展战略、公司治理、资产质量、经营效益、金融创新、人力资源和银行文化等方面存在的问题,有针对性地提出了中国商业银行在推进精品银行建设过程中需要采取的战略性措施,包括:构建具有领先型、竞争型和可持续型的发展战略;不断改进和完善公司治理结构;打造具有竞争力的核心业务和优势业务,推进业务流程再造;建立全面、及时、审慎、有效的风险管理系统,不断提高风险集中管理能力;坚持以人为本,构建先进的人力资源管理与开发体系,提升人力资本在建设精品银行中的决定性作用.     

比较视野中的商业银行公司治理模式及其借鉴

建立良好的公司治理结构是一个国家及其企业树立市场信心、吸引更多投资的重要手段。现代商业银行作为资金运营的企业特别是投融资的中介,其公司治理科学与否、运行是否有效,是商业银行构造合理的内部制衡机制和有效的内控制度,进而强化外部监管和信息披露,建立完善的产权制度的关键。本文在借鉴国外具有代表性的商业银行公司治理模式的基础上,提出了所有权分散化、推行问责制、完善信息披露制度、完善激励机制、加强风险防范及通过上市完善公司治理等进一步优化我国商业银行公司治理的对策和建议。