MANAGEMENT AND ACCOUNTING REVIEW

 


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Volume 22 No. 3, December 2023

 

ARTICLE INFO
Article History:
Received: 01 October 2023
Accepted: 30 October 2023
Available online: 01 December 2023

MANAGEMENT AND ACCOUNTING REVIEW, VOLUME 22 NO. 3, DECEMBER 2023
https://doi.org/10.24191/MAR.V22i03-18

Financing Concentration and Credit Risks: Empirical Study on the Islamic Banks in Malaysia


Abdulazeez Adewuyi Abdurraheem1, Md. Mahmudul Alam2♣, and Farah Aida Ahmad Nadzri3

1Department of Finance, Faculty of Management Sciences, University of Ilorin, Ilorin, Nigeria
2Economic and Financial Policy Institute, School of Economics, Finance and Banking,
Universiti Utara Malaysia, Kedah, Malaysia
3Accounting Research Institute, Universiti Teknologi MARA, Shah Alam, Malaysia



ABSTRACT

Sectoral financing concentration in a few sectors of the economy by Islamic banks in Malaysia has become a recurring issue. The objective of this study was to examine the relationship between financing concentration and Islamic banking credit risks in Malaysia. The study employed the Hirschman-Herfindahl-Index (HHI) to investigate the sectoral concentration of the financing portfolio. Dynamic OLS Approach of Cointegration was estimated to determine the long-run relationship between financing concentration and credit risks in the Islamic banking system. The HHI indicated that Islamic banks in Malaysia held a highly concentrated financing portfolio during the period 2007-2018. The result of the Dynamic OLS Approach of Cointegration indicated the existence of the long-term relationship between the banks’ financing concentration and credit risks. Findings from the study present practical implications for policy formulation and monitoring functions of the regulatory authorities, and managers of Islamic banks in particular, to protect the interests of depositors and the financial system against the consequences of an unanticipated macroeconomic shock. The study provides new insights into financing concentration as a determinant of credit risk in Islamic banking in Malaysia using static and dynamic statistical methods.


Keywords: Credit risk, financing concentration, Hirschman-Herfindahl Index, Dynamic OLS.
Corresponding Author: Md. Mahmudul Alam; Economic and Financial Policy Institute, School of Economics, Finance and Banking, Universiti Utara Malaysia, Kedah, Malaysia; Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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