Risk management practices in Islamic and conventional banks in Kazakhstan - the Islamic finance hub of the Central Asia
Purpose - The study explores the risk management and reporting practices in selected Islamic and conventional banks in Kazakhstan, the Islamic finance hub of the Central Asia. The Government of Kazakhstan has planned to transform the economy to a Shari’ah complaint economic system. As risk managemen...
| Main Author: | |
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| Format: | Dissertation (University of Nottingham only) |
| Language: | English |
| Published: |
2015
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| Online Access: | https://eprints.nottingham.ac.uk/28635/ |
| _version_ | 1848793615519711232 |
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| author | Kulchmanov, Arman |
| author_facet | Kulchmanov, Arman |
| author_sort | Kulchmanov, Arman |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | Purpose - The study explores the risk management and reporting practices in selected Islamic and conventional banks in Kazakhstan, the Islamic finance hub of the Central Asia. The Government of Kazakhstan has planned to transform the economy to a Shari’ah complaint economic system. As risk management is one of the important challenges for banks, this study explores the preparedness of the banking industry in Kazakhstan facing the risk management challenges.
Design/methodology/approach – The study took Kazakhstan as a context. There is only one Islamic bank that offers Shari’ah banking services, which was kept anonymous throughout the study. A number of other conventional banks were included in the sample for the purpose of comparing risk management practices with the Islamic banks. There were two stages in the methodology. After selecting the banks, senior officials at different levels those are responsible for risk management were interviewed using semi-structured interview protocol. In the second stage, a number of risk related ratios were calculated and analysed to synthesise the perception of the managers with the real financial performance. In addition, the risk management practices and the risk ratios of Islamic bank were compared with those of the conventional banks.
Findings – This study found that the three most important risks that Islamic Bank in Kazakhstan facing are credit risk, followed by operational risk and market risk. Credit risk was the most important risk among conventional banks. Islamic bank in Kazakhstan is totally equity based and operates in corporate sector by financing government and corporate projects. The primary source of financing activities was equity. Hence, Islamic bank does not consider liquidity risk as important while the same is treated as the second important challenge for the conventional banks. The modes of financing in Islamic bank were only those use mark-up financing financial instruments – the Murabahah and the Ijarah, with no Profit and Loss Sharing contracts. Small banks including the Islamic banks in Kazakhstan outperformed the large counterparts primarily due to the losses during global financial crisis by the big banks. However, the Return on Asset (ROA) and Return on Equity (ROE) in Islamic bank were lower than the country inflation rate. Limited or no use of technology in risk management, lack of supervisory oversight on the risk management practices, and lack of efficient human capital in the area of risk management were the major areas of concern identified by the respondents. Banks are in the support of the Basel requirements for capital adequacy and found it suitable and fair. Banks undertook massive restructuring in policies and procedures after the financial crisis.
Research limitations/implications – There was only one Islamic bank in Kazakhstan at the time the study was conducted. The Islamic finance industry was taking a shape at that time. These placed a major barrier in collecting data and possibly generalising these to a greater population. The study, hence, took a case study approach to explore what is prevailing and what can be inferred to have policy changes for future.
Practical implications - The study explores the risk management practices of the only available Islamic banks and compared with its counterparts in Kazakhstan. The paper also analyses the risk performance of different banks currently operating in Kazakhstan. The results can be used as a vehicle for improvement of the risk management environment in banking sector in Kazakhstan. This report is useful to regulators who are responsible for setting up Islamic banking regulations in Kazakhstan. |
| first_indexed | 2025-11-14T19:03:07Z |
| format | Dissertation (University of Nottingham only) |
| id | nottingham-28635 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T19:03:07Z |
| publishDate | 2015 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-286352017-12-23T03:59:16Z https://eprints.nottingham.ac.uk/28635/ Risk management practices in Islamic and conventional banks in Kazakhstan - the Islamic finance hub of the Central Asia Kulchmanov, Arman Purpose - The study explores the risk management and reporting practices in selected Islamic and conventional banks in Kazakhstan, the Islamic finance hub of the Central Asia. The Government of Kazakhstan has planned to transform the economy to a Shari’ah complaint economic system. As risk management is one of the important challenges for banks, this study explores the preparedness of the banking industry in Kazakhstan facing the risk management challenges. Design/methodology/approach – The study took Kazakhstan as a context. There is only one Islamic bank that offers Shari’ah banking services, which was kept anonymous throughout the study. A number of other conventional banks were included in the sample for the purpose of comparing risk management practices with the Islamic banks. There were two stages in the methodology. After selecting the banks, senior officials at different levels those are responsible for risk management were interviewed using semi-structured interview protocol. In the second stage, a number of risk related ratios were calculated and analysed to synthesise the perception of the managers with the real financial performance. In addition, the risk management practices and the risk ratios of Islamic bank were compared with those of the conventional banks. Findings – This study found that the three most important risks that Islamic Bank in Kazakhstan facing are credit risk, followed by operational risk and market risk. Credit risk was the most important risk among conventional banks. Islamic bank in Kazakhstan is totally equity based and operates in corporate sector by financing government and corporate projects. The primary source of financing activities was equity. Hence, Islamic bank does not consider liquidity risk as important while the same is treated as the second important challenge for the conventional banks. The modes of financing in Islamic bank were only those use mark-up financing financial instruments – the Murabahah and the Ijarah, with no Profit and Loss Sharing contracts. Small banks including the Islamic banks in Kazakhstan outperformed the large counterparts primarily due to the losses during global financial crisis by the big banks. However, the Return on Asset (ROA) and Return on Equity (ROE) in Islamic bank were lower than the country inflation rate. Limited or no use of technology in risk management, lack of supervisory oversight on the risk management practices, and lack of efficient human capital in the area of risk management were the major areas of concern identified by the respondents. Banks are in the support of the Basel requirements for capital adequacy and found it suitable and fair. Banks undertook massive restructuring in policies and procedures after the financial crisis. Research limitations/implications – There was only one Islamic bank in Kazakhstan at the time the study was conducted. The Islamic finance industry was taking a shape at that time. These placed a major barrier in collecting data and possibly generalising these to a greater population. The study, hence, took a case study approach to explore what is prevailing and what can be inferred to have policy changes for future. Practical implications - The study explores the risk management practices of the only available Islamic banks and compared with its counterparts in Kazakhstan. The paper also analyses the risk performance of different banks currently operating in Kazakhstan. The results can be used as a vehicle for improvement of the risk management environment in banking sector in Kazakhstan. This report is useful to regulators who are responsible for setting up Islamic banking regulations in Kazakhstan. 2015-02 Dissertation (University of Nottingham only) NonPeerReviewed application/pdf en https://eprints.nottingham.ac.uk/28635/1/KulchmanovArman.pdf Kulchmanov, Arman (2015) Risk management practices in Islamic and conventional banks in Kazakhstan - the Islamic finance hub of the Central Asia. [Dissertation (University of Nottingham only)] |
| spellingShingle | Kulchmanov, Arman Risk management practices in Islamic and conventional banks in Kazakhstan - the Islamic finance hub of the Central Asia |
| title | Risk management practices in Islamic and conventional banks in Kazakhstan - the Islamic finance hub of the Central Asia |
| title_full | Risk management practices in Islamic and conventional banks in Kazakhstan - the Islamic finance hub of the Central Asia |
| title_fullStr | Risk management practices in Islamic and conventional banks in Kazakhstan - the Islamic finance hub of the Central Asia |
| title_full_unstemmed | Risk management practices in Islamic and conventional banks in Kazakhstan - the Islamic finance hub of the Central Asia |
| title_short | Risk management practices in Islamic and conventional banks in Kazakhstan - the Islamic finance hub of the Central Asia |
| title_sort | risk management practices in islamic and conventional banks in kazakhstan - the islamic finance hub of the central asia |
| url | https://eprints.nottingham.ac.uk/28635/ |