An Analysis of Credit Risk in ASEAN and GCC Islamic Banks

• Published in: Islamic Finance in the Modern Era: Digitalization, FinTech and Social Finance
• Main Authors: Misman F.N., Sr.; Bhatti M.I.
• Format: Book chapter
• Language: English
• Published: Taylor and Francis 2024
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85201500456&doi=10.4324%2f9781003366751-10&partnerID=40&md5=54c548eb23b31504bfc35cb73f0e4d04

The main objective of this chapter is addressing the research question of how to handle credit risk in Islamic banking and finance. The chapter examines the important issues related to credit risk in selected Islamic banks (IBs) in nine Islamic countries from two distinct regions: the Association of Southeast Asian countries and the Gulf Cooperation Council countries. We utilized the generalized least squares panel data regression model to estimate the ratio of non-performance financing to total financing as dependent variables and bank-specific variables to determine the credit risk. This work uses 12 years of unbalanced panel data from 40 different Islamic banks. The overall findings show that financing quality has a significant positive effect on credit risk. Furthermore, we noted that the larger IBs owned more assets with lower credit risk compared to smaller banks. Also, we observed that the regulatory capital significantly reduces the credit risk exposure adherence to the minimum regulatory capital requirements, which help IBs to manage their credit risk exposures, and IBs were unaffected by the global financial crisis due to lower credit risk compared to conventional banks. © 2025 selection and editorial matter, Hussain Mohi-ud-Din Qadri and M. Ishaq Bhatti.