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Credit Risk, Bank Performance and Islamic Banking: Evidence from Pakistan

  • Azam AliEmail author
  • Muhamed Zulkhibri
  • Tanveer Kishwar
Chapter

Abstract

This study examines the relationship between credit risk and performance using unbalanced quarterly panel data, of six Islamic banks in Pakistan. The study uses panel data instrumental variables regression, utilizing the Seemingly Unrelated Regression (SUR) models to identify the bank-specific variables that affect credit risk and performance of Islamic banks. The results show that credit risk is an endogenous determinant of bank performance. The causes of credit risk may include components of credit assets, which is dependent on bank-specific factors. Besides, the results also suggest that the credit risk of bank-specific variables lowers bank profitability. Therefore, the results support the statement that ‘credit risk is negatively related to bank performance’ in the case of Pakistan banking sector.

Keywords

Credit risk Performance Relationship SUR model Islamic banks Pakistan 

JEL Classification

E59 E69 G29 

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Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.Policy Division, Islamic Banking DepartmentState Bank of PakistanKarachiPakistan
  2. 2.Islamic Research and Training Institute (IRTI)Islamic Development BankJeddahSaudi Arabia
  3. 3.Jinnah University for WomenKarachiPakistan

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