RAOUF, HAJAR (2018) Risk Governance, Financial Performance and Financial Stability: Comparative Studies between Conventional and Islamic Banks in the GCC Countries. Doctoral thesis, Durham University.
|PDF (Doctoral thesis prepared for the degree of Doctor of Philosophy) - Accepted Version|
The banking institutions confront a wide range of complex risks while carrying out their traditional and innovative business activities. As financial risk management dwells at the heart of their business model, its governance is of crucial importance to achieve their performance targets while maintaining the required level of safety and stability within the national and global financial systems. The governance structures and mechanisms pertaining to the management of all types of risks are therefore of high-level concern for banks and for the regulators, particularly after the global financial crisis (GFC). Since the weaknesses in the risk management practices were identified as key contributor to the GFC, a substantial number of reports, peer-reviews and recommended guidelines published by international bodies such as the OECD, the BCBS and the FSB emphasize the important role of risk governance in ensuring financial health and stability of the financial sector in the post-crisis era. The academic evaluation of the role of risk governance in banks before and after the GFC remains limited despite the established theoretical nexus between bank governance and performance on the one hand and between bank governance and financial stability on the other hand. Given the above, the main aim of this thesis is to contribute to this nascent body of knowledge by examining the soundness of the risk governance frameworks and empirically evaluating their associations with various key indicators of banks’ performance and financial stability. To widen the scope of the analysis, the study is carried out on a sample of conventional and Islamic banks with the objective of comparing the results from the two distinct banks’ types. The interest to examine the particular case of Islamic banks stems from the results of some research that show their better performance and resilience during the GFC.
The thesis is structured as three essays to evaluate the soundness of the risk governance frameworks, a novel ‘Risk Governance Index’ (RGI) has been developed that accounts for the most important determinants identified in academic and regulatory literature. The RGI is used in dynamic panel regressions to study the causality effects of risk governance with three key proxies of financial performance (namely ROAA, ROAE and Cost-to-Income) and bank’s stability indicators (namely the z-score, the capital adequacy ratio, the ratio of loan loss reserves to gross loans and the ratio of liquid assets to deposits and short-term funding). Dynamic models using the two-step Generalized Method of Moments are estimated to assess the impact of RGI and various bank-specific and macroeconomic variables on the dependent variables. The main findings from the three empirical essays show that the different nature of the two banks’ type induces different impacts of RGI on performance and stability. Specifically, conventional banks show better risk governance structures relative to Islamic banks which also enable them to achieve higher operational performance and to improve their stability. Islamic banks, however, need to improve their risk management governance practices as in addition to having weaker structures that impact financial stability adversely, there are limitations to appropriately benefit from the good risks to increase their profitability.
|Item Type:||Thesis (Doctoral)|
|Award:||Doctor of Philosophy|
|Keywords:||Risk Governance, Financial Performance, Financial Stability, GFC|
|Faculty and Department:||Faculty of Social Sciences and Health > Economics, Finance and Business, School of|
|Copyright:||Copyright of this thesis is held by the author|
|Deposited On:||04 Jun 2018 09:42|