Risk management practices of Islamic banks of Brunei Darussalam

Abstract

Purpose The objective of this paper is to assess the degree to which Islamic banks in Brunei Darussalam use risk management practices (RMPs) and techniques in dealing with different types of risk. Design/methodology/approach The researcher developed a questionnaire which covers six aspects in the first part: understanding risk and risk management, risk assessment and analysis (RAA), risk identification (RI), risk monitoring, credit risk analysis and RMPs. The second part consists of two questions based on an ordinal scale dealing with two topics: methods of RI and risk facing the sample banks. Findings This study found that that the three most important types of risk that the Islamic banks in Brunei Darussalam facing are foreign‐exchange risk, followed by credit risk and then operating risk. It also found that the Islamic banks are somewhat reasonably efficient in managing risk where RI and RAA are the most influencing variables in RMPs. Research limitations/implications The paper's findings are limited to the RMPs of Islamic banks in Brunei Darussalam. Originality/value The paper explores the RMPs of the Islamic banks in Brunei Darussalam. The results can be used as a valuable feed back for improvement of RMPs in the Islamic banks in Brunei and will be of value to those people who are interested in the Islamic banking system.

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