Risk Analysis for Islamic Banks

Zamir Iqbal, Hennie van Greuning

• Publisher: World Bank Publications
• Year: 2007
• Topic: Economics
• eBook ISBN:
  9780821371428
• Subtopic: Islamic Banking & Finance
• Index: Economics

Navigate the Complexities of Islamic Banking with Expert Risk Analysis

In the rapidly growing world of Islamic finance, understanding and managing risk is paramount. Risk Analysis for Islamic Banks provides a comprehensive framework for navigating the unique challenges and opportunities in this sector. Designed for industry professionals, supervisors, and policymakers, this resource offers a high-level overview of risk assessment, analysis, and management tailored to Islamic financial markets.

Discover how to:

• Apply Shariah principles to risk management
• Implement effective corporate governance structures
• Adapt conventional techniques to the specific needs of Islamic banks
• Improve transparency and data quality for informed decision-making

Gain the knowledge and tools to ensure financial stability and ethical practices in Islamic banking. This book is your essential guide to mastering risk in this dynamic and evolving field. Authored by Hennie van Greuning and Zamir Iqbal, leading experts in Islamic finance.

Table of contents

• CONTENTS
• Foreword–Kenneth G. Lay
• Foreword–Dr. Shamshad Akhtar
• Acknowledgments
• About the Authors
• Acronyms and Abbreviations
• Part One: Principles and Key Stakeholders
• Part Two: Risk Management
• Part Three: Governance and Regulation
• Part Four: Future Challenges
• References
• Appendix: A Glossary of Islamic Terms
• Appendix: B IFSB Standard on Risk Management
• Appendix: C Proposed Outline for Bank Analytical Reports
• Index
• Box 1.1 Principles of an Islamic Financial System
• Box 3.1 Accountability of Bank Management
• Box 3.2 Fit and Proper Standards for Bank Management
• Box 3.3 The Responsibilities of Management
• Box 3.4 The Responsibilities of Audit Committees and Internal Auditors
• Box 3.5 The Responsibilities of External Auditors
• Box 8.1 IFSB Principles of Credit Risk
• Box 8.2 Content of an Investment and Financing Asset Review File
• Box 8.3 Signs of a Distorted Credit Culture
• Box 8.4 Asset Classification Rules
• Box 9.1 IFSB Principles of Liquidity Risk
• Box 9.2 IFSB Principle of Market Risk
• Box 9.3 IFSB Principles of Rate-of-Return Risk
• Box 9.4 IFSB Principles of Equity Investment Risk
• Box 11.1 IFSB Principles of Corporate Governance for Islamic Banks
• Box 12.1 Criteria for Evaluating Accounting Standards
• Box 12.2 Survey on Public Disclosure of Banks
• Box 12.3 AAOIFI Standards
• Box 13.1 IFSB Principles for Minimum Capital Adequacy Requirements (CAR)
• Box 13.2 IFSB Standard Formula for CAR
• Box 13.3 IFSB Supervisory Discretion Formula for CAR
• Box 13.4 Computation of CAR for an Islamic Bank
• Figure 2.1 Contracts and Instruments
• Figure 3.1 Partnership in Corporate Governance of Banks
• Figure 5.1 Composition of an Islamic Bank’s Assets, by Periods
• Figure 5.2 Trends in Asset Growth, by Period
• Figure 6.1 Composition of an Islamic Bank’s Balance Sheet
• Figure 6.2 Structure of an Islamic Bank’s Assets
• Figure 6.3 Structural Change and Asset Growth, 2001–06
• Figure 6.4 Growth of Assets, Year on Year
• Figure 6.5 Hypothetical Growth of Assets
• Figure 7.1 Asset Structure versus Income Structure
• Figure 7.2 Relationship of Income to Expenses, 2001–06
• Figure 7.3 Select Profitability Ratios 2001–06
• Figure 7.4 Additional Profitability Ratios, 2001–06
• Figure 7.5 Example: Return on Assets (ROA) and on Equity (ROE), Adjusted for the Cost of Capital
• Figure 8.1 Exposure to 20 Largest Exposures (Hypothetical Example)
• Figure 8.2 Customer Profile:Who Are We Investing In?
• Figure 8.3 Composition of Islamic Products:What Are We Investing In? (2006 Compared to 2001)
• Figure 8.4 Year-on-Year Fluctuations in Growth of Portfolio Components
• Figure 9.1 Liquidity Mismatches (Derived from Maturity Profile of Assets and Liabilities)
• Figure 9.2 Cash Flows (Derived from Cash Flow Statements)
• Figure 9.3 Exposure to Marketable Securities, 2001–06
• Figure 9.4 Simplistic Impact on Equity of Marking to Market
• Figure 11.1 Corporate Governance Structures in Institutions Offering Islamic and Conventional Financial Services
• Figure 12.1 Transparency in Financial Statements Achieved through Compliance with the IFRS Framework
• Figure 13.1 Framework for Measuring Credit Risk Weights
• Figure 13.2 Framework for Measuring Market Risk Weights
• Figure 13.3 Components of Bank Capital
• Figure 13.4 Risk Profile of Assets
• Figure 13.5 Capital Tiers and Compliance
• Figure 13.6 Potential Capital Shortfall Assuming Continued Average Growth in Assets and Capital
• Figure 14.1 The Context of Bank Supervision
• Table 1.1 Development of Islamic Economics and Finance in Modern History
• Table 2.1 Theoretical Balance Sheet of an Islamic Bank Based on Maturity Profile and Functionality
• Table 2.2 Sources and Application of Funds
• Table 2.3 Size of Islamic Financial Institutions in 1999
• Table 4.1 Importance of Key Stakeholders in the Islamic Finance Industry
• Table 5.1 Banking Risk Exposures
• Table 5.2 Contractual Role and Risk in Islamic Banking
• Table 5.3 Stages of the Analytical Review Process
• Table 5.4 Balance-Sheet Composition of Assets
• Table 5.5 Balance-Sheet Growth, Year on Year
• Table 6.1 Composition of an Islamic Bank’s Balance Sheet
• Table 6.2 Islamic Financing and Investing Assets Grass
• Table 6.3 Percentage Composition of the Balance Sheet, 2001–06
• Table 7.1 Composition of the Income Statement, 2005–06
• Table 7.2 Percentage Composition of Islamic Products’ Revenues over Time
• Table 7.3 Profitability Ratios, 2001–06
• Table 8.1 Related-Party Lending
• Table 8.2 Customer Profile:Who Are We Investing In?
• Table 8.3 Composition of Products:What Are We Investing In?
• Table 8.4 Maturity Profile of Total Assets: For How Long Are We Investing?
• Table 8.5 Recommended Provisions
• Table 8.6 Year-on-Year Fluctuations in Growth of Portfolio Components
• Table 9.1 Theoretical Balance Sheet of an Islamic Bank Based on Functionality
• Table 9.2 Maturity Profile of Assets and Liabilities
• Table 9.3 Sample Approach to Market Risk Disclosure: Value-at-Risk by Category and for Entire Institution
• Table 9.4 Simplistic Calculation of Net Effective Open Positions (Assuming Uniform Instruments in Every Market)
• Table 11.1 Presence of a Centralized Shariah Supervisory Board or Islamic Rating Agency in Select Countries
• Table 11.2 Regulations Governing Shariah Supervisory Boards in Select Countries
• Table 11.3 External Shariah Boards in Select Countries
• Table 12.1 Disclosure Practices of Islamic Banks
• Table 13.1 Classification of Capital in the Basel Accords
• Table 13.2 Capital Adequacy Standards for Credit Risk: Basel II versus IFSB
• Table 13.3 Capital Adequacy Standards for Market Risk: Basel II versus IFSB
• Table 13.4 Capital Adequacy Standard for Operational Risk: Basel II versus IFSB
• Table 13.5 Trend Analysis of Capital Adequacy Ratios
• Table 14.1 Stages of the Analytical Review Process
• Table 14.2 Adapting the External Audit to Specific Circumstances and Needs