Authors: Faridah Najuna Misman, Weifang Lou, Ishaq Bhatti, Faridah Najuna Misman
This paper examines the determinants of credit risk of Islamic banks in Malaysia using secondary data. The paper applies the fixed effect model to an unbalanced panel of 17 Malaysian Islamic banks for the period of 1995-2011. Different from previous studies, the paper introduces the Islamic financing type as an explanatory variable in modelling credit risk in Islamic banks. The results show that financing quality, capital buffer and Islamic financing type have a positive and significant effect on credit risk of Islamic banks in Malaysia while capital ratio and financing expansion are negatively related to their credit risk level.
Keywords: Islamic Banks; Credit Risk; Islamic Financing Types