Volatility of the returns and expected losses of Islamic bank financing

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)

Abstract

PurposeThe paper attempts to analyze the volatility of returns and expected losses of Islamic bank financing. In particular, it takes the case of Indonesian Islamic banking industry. Design/methodology/approachThe paper uses Value at Risk (VaR) approach to compute the volatility (risk) of returns and expected losses of Islamic bank financing. In particular, it uses variance-covariance method to calculate VaR of multi-asset portfolios (groups of equity-, debt- and service-based financing). FindingsFirst of all, equity and debt-based financing produce sustainable returns of bank financing. Moreover, they are also very resilient during unfavorable economic conditions. Second, the performance of service-based financing is very sensitive to the economic conditions. Lastly, VaR computation on the volatility of returns and expected losses of bank financing finds that risk of investment and expected losses are well managed. Practical implicationsThe paper demands Islamic banks to keep intensifying equity-based financing rather than only debt-based financing and improve the banking services to support the performance of service-based financing. Originality/valueTo the best of the author's knowledge, this is the first paper to assist the volatility of returns and expected losses of the Islamic banking financing in Indonesian.

Original languageEnglish
Pages (from-to)267-279
Number of pages13
JournalInternational Journal of Islamic and Middle Eastern Finance and Management
Volume3
Issue number3
DOIs
Publication statusPublished - 31 Aug 2010

Keywords

  • Banking
  • Debts
  • Equity capital
  • Financial risk
  • Financing
  • Indonesia
  • Islam

Fingerprint Dive into the research topics of 'Volatility of the returns and expected losses of Islamic bank financing'. Together they form a unique fingerprint.

Cite this