Islamic Banks Credit Risk: A Panel Study

The purpose of this paper is to investigate the determinants of credit risk in the case of Malaysia Islamic banks. Using a yearly bank level data from 1995 to 2013, this paper utilizes the fixed effect model to provide empirical evidences on Islamic banks credit risk in Malaysia. The empirical results demonstrate that a few bank-specific variables do significantly influence credit risk of Malaysia Islamic banks. The findings show that financing quality and capital ratio demonstrate consistent results regardless of specification and estimation models. The inclusion of ownership status also suggests that there is a significant difference between the local and foreign ownership Islamic banks in this regard. The finding added important evidence to the existing literature on credit risk specifically Islamic banks credit risk.