Islamic and Conventional Banks in Egypt: A Comparative Analysis of Risk Management Practices
Egypt’s banking sector, with its cohort of both Islamic and conventional banks, has recently faced growing scrutiny regarding their risk management practices. This article presents a summary of the research conducted by Hafez (2015) that sheds light on this issue, highlighting the differences and similarities between the two sectors in managing financial risks.
The Importance of Risk Management in Egyptian Banks
Hafez’s research aimed to examine the effectiveness of risk management practices in Egyptian banks by focusing on the five key components of risk management:
- Risk Understanding
- Identification and Assessment
- Analysis
- Monitoring
- Practices
Parallel Risks for Islamic and Conventional Banks
The study revealed that both Islamic and conventional banks in Egypt face similar financial risks, with credit and liquidity risks being the most substantial challenges. These risks can lead to significant losses and instability for the banks.
Distinct Priorities in Managing Risks
Despite similar risks, Hafez’s research provided a surprising finding: the most prominent risk for each sector differed substantially:
- For Islamic banks in Egypt, the highest priority risk is liquidity.
- For conventional banks, the top concern is credit risk.
Advanced Techniques & Practices in Conventional Banks
The research underscores that conventional banks generally employ more advanced techniques and sophisticated practices to address risks, particularly in their liquidity and credit risk management.
Implications for the Future of the Egyptian Banking Sector
Hafez’s research offers valuable insights into the intricacies of risk management practices in Egyptian banks and sheds light on the potential implications for both industries:
The differences between the risk management practices of Islamic and conventional banks in Egypt reveal the need for ongoing research and dialog between the two sectors.
Cited Source
Hafez, H. (2015). Risk management practices in Egypt: A comparison study between Islamic and Conventional banks. Risk governance & control: Financial markets & institutions, 5(4-2), 257-270. https://doi.org/10.22495/rgcv5i4c2art1