The susceptibility of Islamic banks’ credit risk towards macroeconomic variables
Credit risk is the most anticipated risk in the banking system. It is one of the key elements to assess systemic risk and stress testing financial fragility which is very helpful to come up with macro-prudential surveillance in financial systems. Unlike the conventional banking system, there is dear...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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IIUM Institute of Islamic Banking and Finance
2014
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/36510/ http://irep.iium.edu.my/36510/1/JIF_3%2C1%2C_p_23-37.pdf |
| _version_ | 1848781243893678080 |
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| author | Nursechafia, Nursechafia Abduh, Muhamad |
| author_facet | Nursechafia, Nursechafia Abduh, Muhamad |
| author_sort | Nursechafia, Nursechafia |
| building | IIUM Repository |
| collection | Online Access |
| description | Credit risk is the most anticipated risk in the banking system. It is one of the key elements to assess systemic risk and stress testing financial fragility which is very helpful to come up with macro-prudential surveillance in financial systems. Unlike the conventional banking system, there is dearth of empirical study on macro-credit risk in relation with Islamic banking. As such, further research regarding the stability of the Islamic banking industry has become imperative. Accordingly, this paper is aimed at determining and assessing the long run vulnerabilities of Islamic financing sustainability in term of its response to changes in key macroeconomic variables by using time series
econometric approaches of cointegration and vector autoregression (VAR). Based on the result of simulating variance decomposition (VD) and impulse response function (IRF), it is found that, sufficient evidence of long-run relationship between credit risk ratio in Islamic banking industry and the selected macroeconomic variables exist. The exchange rate, supply side-inflation, and growth have been indicated to negatively influence credit risk rate in Islamic banking, while money supply and Islamic interbank money market rate positively affect the risk rate. |
| first_indexed | 2025-11-14T15:46:28Z |
| format | Article |
| id | iium-36510 |
| institution | International Islamic University Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T15:46:28Z |
| publishDate | 2014 |
| publisher | IIUM Institute of Islamic Banking and Finance |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | iium-365102018-06-20T07:14:44Z http://irep.iium.edu.my/36510/ The susceptibility of Islamic banks’ credit risk towards macroeconomic variables Nursechafia, Nursechafia Abduh, Muhamad BP173.75 Islam and economics HG1501 Banking Credit risk is the most anticipated risk in the banking system. It is one of the key elements to assess systemic risk and stress testing financial fragility which is very helpful to come up with macro-prudential surveillance in financial systems. Unlike the conventional banking system, there is dearth of empirical study on macro-credit risk in relation with Islamic banking. As such, further research regarding the stability of the Islamic banking industry has become imperative. Accordingly, this paper is aimed at determining and assessing the long run vulnerabilities of Islamic financing sustainability in term of its response to changes in key macroeconomic variables by using time series econometric approaches of cointegration and vector autoregression (VAR). Based on the result of simulating variance decomposition (VD) and impulse response function (IRF), it is found that, sufficient evidence of long-run relationship between credit risk ratio in Islamic banking industry and the selected macroeconomic variables exist. The exchange rate, supply side-inflation, and growth have been indicated to negatively influence credit risk rate in Islamic banking, while money supply and Islamic interbank money market rate positively affect the risk rate. IIUM Institute of Islamic Banking and Finance 2014-03-01 Article PeerReviewed application/pdf en http://irep.iium.edu.my/36510/1/JIF_3%2C1%2C_p_23-37.pdf Nursechafia, Nursechafia and Abduh, Muhamad (2014) The susceptibility of Islamic banks’ credit risk towards macroeconomic variables. Journal of Islamic Finance, 3 (1). pp. 23-37. ISSN 2289-2117 (O), 2289-2109 (P) http://journals.iium.edu.my/iiibf-journal/index.php/jif/issue/archive |
| spellingShingle | BP173.75 Islam and economics HG1501 Banking Nursechafia, Nursechafia Abduh, Muhamad The susceptibility of Islamic banks’ credit risk towards macroeconomic variables |
| title | The susceptibility of Islamic banks’ credit risk towards macroeconomic variables |
| title_full | The susceptibility of Islamic banks’ credit risk towards macroeconomic variables |
| title_fullStr | The susceptibility of Islamic banks’ credit risk towards macroeconomic variables |
| title_full_unstemmed | The susceptibility of Islamic banks’ credit risk towards macroeconomic variables |
| title_short | The susceptibility of Islamic banks’ credit risk towards macroeconomic variables |
| title_sort | susceptibility of islamic banks’ credit risk towards macroeconomic variables |
| topic | BP173.75 Islam and economics HG1501 Banking |
| url | http://irep.iium.edu.my/36510/ http://irep.iium.edu.my/36510/ http://irep.iium.edu.my/36510/1/JIF_3%2C1%2C_p_23-37.pdf |