A Qualitative Enquiry into the Risk Management and Reporting Practices of Islamic Banks in Malaysia

This study explores the risk management practices, reporting and performance of selected Islamic bank in Malaysia using single case study. Under the broad paradigm of mixed methods, one in depth interview, content analysis and ratio analysis were conducted. The result evidences a clear gap between Shariah and practice of Islamic risk management, difference in Shariah and legal remedy, and availability of credible internal control mechanism that are responsible for effective risk analysis and management. The top priority risk is the operational risk followed by market and credit risks. Risk management activities are mostly reported using annual reports. The declining return ratios with respect to the decreasing risk ratios indicate evidence of existence of conventional mean variance frontier in Islamic finance. However, this low risk low return and credit to asset ratios exhibit low risk taking tendency of the bank. As a result liquidity ratio is increasing but profitability ratio is going down. Bank has to build an internal risk management culture by training the employees and building up the internal control system more effectively