The relevance of risk management for bank profitability: evidence from selected Islamic banks

Safa Jallali and Faten Zoghlami

International Journal of Management and Decision Making, 2021, vol. 20, issue 2, 123-143

Abstract: Using a sample of 129 Islamic banks during 2010-2018, this paper aims to examine the impact of risk management on the banks' profitability. Results show a significant negative impact of overall risk management on the profitability of Islamic banks. Further investigation has shown that the profitability of the sample banks seems to be negatively affected particularly, by the management of liquidity as well as Islamic-banking specific risks, however, the management of the credit and the operational risk seems to enhance the sample banks' profitability. Findings might make an important contribution to the current academic and practical debate on the risk management effectiveness, calling on Islamic banks' regulatory instance and policymaker to reinvent risk management strategies to become more effective in preventing risks but also effective in driving profitability.

Keywords: risk management; bank profitability; structural equation modelling; SEM; Islamic banking. (search for similar items in EconPapers)
Date: 2021
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