A comparative study of risk management practices between Islamic and conventional banks in Pakistan

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