A comparative study of risk management practices between Islamic and conventional banks in Pakistan
The purpose of this research study is to investigate the extent to which banks are
using risk management practices in dealing with various risks and to compare risk
management practices between Islamic and Conventional banks operating in Pakistan.
Methodology: This is an empirical research study which has employed quantitative
research methods. This study has used two sources of data, i.e. primary and secondary data.
Secondary data is collected by using content analysis through annual reports of five Islamic
and conventional banks for the six year time period from 2008 to 2013. The content
analysis was performed by using frequency analysis and un-weighted index scoring. And
primary data was collected through questionnaire from the senior managers, risk managers
and CRO of Islamic and conventional banks. The sample size was consisting of 150
respondents from banks. The data was analysed by using descriptive statistics, regression
analysis and Mann-Whitney U test.
Findings: Islamic banks are found to be significantly different from their conventional
counterparts in risk identification, risk management practices, liquidity risk analysis and
risk governance. Moreover, risk identification, risk assessment and analysis, credit risk
analysis and risk governance are most influencing and contributing variables in risk
management practices of banks operating in Pakistan. Also, credit, liquidity, market and
operational risk are found to be the most important risks faced by both conventional and
Practical Implication: Considering the importance of risk management practices in
Islamic and conventional banks; Bankers, investors, regulators, and policymakers are likely
to benefit from the results of the study as a guide, when developing and reforming the
existing risk management practices.
Originality: This study has extended the risk management practices model of banks by
incorporating two more variables, i.e. liquidity risk analysis and risk governance into the
model. Also, it is adding value methodologically, as data triangulation is used to draw a
valid inference. So, this study will add value to literature and will be useful for Islamic
banks, conventional banks, practitioners as well as for academic point of view.
- School of Management