Risk Management of Full-Fledged Islamic Banks versus Islamic Subsidiaries of Conventional Banks in Malaysia: The Sustainable Growth within Restricted Minimum Requirements

Abstract

This paper aims to analyze the risk management practices of full-fledged Islamic banks versus Islamic subsidiaries of conventional banks in Malaysia and the
sustainable rate of growth within restricted minimum requirements of capital adequacy, leverage and liquidity. In achieving these objectives, the paper assesses
the risk management practices of full-fledged Islamic banks, i.e. Bank Islam Malaysia Berhad and Bank Muamalat Malaysia Berhad and Islamic subsidiaries of
conventional banks, i.e. Maybank Islamic Berhad and CIMB Islamic Berhad. This paper uses annual reports and focus group interview to obtain the data. The
results of the analysis show that the Leverage Ratio, Liquidity Coverage Ratio (LCR) and capital requirement ratios, such as Common Equity Tier 1 capital Ratio, Core Capital Ratio (CCR) and Risk Weighted Capital Ratio (RWCR) have exceeded the minimum requirement by Basel Accord. The result of the focus group interview shows that full-fledged Islamic banks and Islamic subsidiaries of conventional banks conformed and implemented the risk management framework imposed by the regulatory agency. However, the growth rate in total asset, loan, Return On Assets (ROA) and net income margin has mixed growth except for loan to total asset which increase over the year, albeit of the minimum risk management requirement. These empirical and focus group results suggest an important policy on issues pertaining to how Islamic banks have to adjust the changes in the banking environment in terms of growth and its comparative advantages specifically on management efficiency.