Growing Pains: Managing Islamic Banking Risks

Islamic financial crisis in living memory, the Islamic banking sector remains an oasis of relative …. serve the real risks that Islamic banks – obscure the support for Islamic banking products ….

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Banking and Capital Markets
Growing pains: Managing Islamic banking risks

  • Introduction
  • Overview
  • Risk management challenges
  • Displaced commercial risk
  • Liquidity risk
  • Real estate risk
  • Operational risk
  • Fiduciary and reputational risk
  • Capital management and Basel II
  • What the future holds for risk managementin Islamic banking
  • How PricewaterhouseCoopers can help
  • Appendix
  • Contacts

Points:

  • Islamic banks have a unique risk profile because of the need to make their products Shariah-compliant
  • Islamic banks typically obtain the majority of their funds from mudharaba and wakala investment accounts and, at first glance, this arrangement appears to provide the institution with a significant buffer against loss
  • Islamic banks are so sensitive to displaced commercial risk because they have restricted access to the short-term funding options used by conventional banks
  • Real estate risk concentrations are common among Islamic banks their geographic reach tends to be limited, as do the type of assets they are able to accept. Hedging is mostly out of bounds, and risk transfer via securitisation may be difficult to achieve
  • Islamic banking products can involve a number of separate contracts, giving rise to additional legal risks
  • Shariah compliance is all-important to an Islamic bank and to its customers
  • Risk and capital are the twin hearts of Basel II. The new framework is supposed to result in more accurate assessments of risk by banks, which then produce a more dynamic, sensitive regulatory capital requirement
  • What the future holds for risk management in Islamic banking
  • Risk management is an issue which no bank can ignore and Islamic banks have a pressing need to establish risk management credibility as they move into the mainstream of the financial system

 

Download Growing Pains: Managing Islamic Banking Risks pdf from www.pwc.com, 28 pages, -KB.