Impact of Credit Risk Transfer Techniques on Lending Behavior of Conventional & Islamic Banks in Pakistan

Yusra Saeed () and Huma Ayub ()
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Yusra Saeed: Department of Business Administration, Fatima Jinnah Women University, Pakistan
Huma Ayub: Department of Business Administration, Fatima Jinnah Women University, Pakistan

Sukkur IBA Journal of Management and Business, 2017, vol. 4, issue 2, 12-25

Abstract: Application of risk management techniques gain significant importance after the financial crises of 2008. Banks adopt contemporary risk management techniques to eliminate credit risk associated with the enlargement of their lending volume. The present study aims to analyze the impact of credit derivatives on lending/financing behavior of conventional and Islamic banks of Pakistan. The study used comparative analysis by employing random effect model for the sample of 20 conventional banks and pooled OLS regression on sample size of 5 Islamic banks for the period of 2006-2016. Results of the study show that conventional banks effectively increase their lending volumes by utilizing risk transfer techniques. However, Islamic banks are still at its infancy in utilizing risk transfer techniques due to shariah restrictions. The study recommends policy implications for Islamic bank to introduce innovative shariah compliant hedging instruments to boost their financing portfolios.

Keywords: Lending Behavior; Bank Credit Supply; Credit Risk Transfer; Credit Derivatives (search for similar items in EconPapers)
JEL-codes: E50 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ibajmb:0036

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