Risk Management Practices and Islamic Banks: An Empirical Investigation from Pakistan

This study aims to determine the firm’s level factors which have significantly influence the risk management practices of Islamic banks in Pakistan. For this purpose, the current study selects credit, operational and liquidity risks as dependent variables while size, leverage, N PLs ratio, capital adequacy and asset management are utilize as explanatory variable for the period of four years from 2006 to 2009. The results indicate that size of Islamic banks have a positive and statistically significant relationship with financial risks (credit and liquidity risk), whereas its relation with operational risk is found to be negative and insignificant. The asset management establishes a positive and significant relationship with liquidity and operational risk. The debt equity ratio and N PLs ratio have a negative and significant relationship with liquidity and operational risk. In addition, capital adequacy has negative and significant relationship with credit and operational risk, whereas it is found to be positive and with liquidity risk.