Credit risk in local Islamic banks: a study in Malaysia / Nor Alyawafa Mohamad Akhiar

Credit risk is the most predicted risk in the banking system either in conventional or Islamic banks. Credit risk exists as loan and financing is available for the public. Vary with the conventional banking system, Islamic banking have lack of empirical study on macro-credit risk. As such, further studies concerning the stability of the Islamic banking industry has become domineering. Therefore, the objective of this study is to determine the key factor affecting credit risk in Malaysian Islamic banks. This study uses the panel data methods to determine the key factors affecting credit risk in local Islamic Banks in Malaysia. The panel data was collected from 10 local Islamic Banks in Malaysia from year 2008 until 2015. Previous researcher has conducting a research correlated with this topic admit that credit risk is the most important risk available in banking system besides market risk and operational risk. The banking institutions fail to retrieve their financing on time. Thus, this research revealed the significance of some determinant that may affect the credit risk in Islamic banks in Malaysia. Hence, list of the factor affecting credit risk in Malaysian Islamic Banks are bank size, bank profitability, management efficiency, capital buffering and financing growth. Moreover, variables such as bank profitability and management efficiency have significance relationship with credit risk. The data was collected from the financial statement and annual report or any info from the website of those banks. Besides, E-views also used to conduct regression analysis. It is hoped that the findings could draw the attention to determinant of credit risk in Islamic banking so that they can manage the credit risk properly in future.