The Exposure of participative banks to changes in interest rates: Its emergence, impacts and potential measures to address them

Anass Mezine ()
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Anass Mezine: FSJES AIN SEBAA, Hassan II University –Casablanca

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Abstract: Abstract The specificities of participative banks expose them, not only to traditional credit, market and operational risks, but also to risks of a unique nature. Although their mode of operation is not based on interest rate, several studies have demonstrated that participative banks are susceptible to fluctuations in market interest rates. The balance sheet structure, customer behavior, the absence of a refinancing market specific to participative banks and the shortage of sharia-compliant hedging instruments, increase their exposure to interest rate risk and make its management more complex. The objective of this paper is to provide answers to the problematic of exposure of participative banks to interest rate risk. To do this, we will adopt a theoretical approach based on a literature review, allowing on the one hand, to study the extent to which Moroccan participative banks may be impacted by changes in market reference rates, on the basis of the experience of participative banks operating in countries with a dual banking system and an underdeveloped or nonexistent Islamic financial market. Furthermore, we will illustrate the various practices and techniques developed to manage this risk. We intend to initially investigate this issue, its potential effects, and the various measurement and management techniques that can be employed to mitigate it. And subsequently, to present the best management practices that Moroccan participative banks, considering their specificities, can implement with the aim of addressing their exposure to such risk. Our study states that Moroccan participative banks are exposed to an extrinsic interest rate risk due to their operational environment. Despite their exposure, they lack the same flexibility as conventional banks when it comes to managing the potential impact on their financial situation. The recommendations provided in this paper focus notably on innovation and financial engineering in Sharia-compliant hedging financial instruments, the implementation of a reserve policy for risk management, and financial market education.

Keywords: Participative banks; interest rate risk; sensitivity; duration; ALM; Banques Participatives; Risque de taux d'intérêt; Sensibilité; Duration (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ara, nep-ban and nep-isf
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Published in African Scientific Journal, inPress, 3 (22), pp.0962-0998. ⟨10.5281/zenodo.10824597⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04507593

DOI: 10.5281/zenodo.10824597

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