Risk management practices on the financial performance of Islamic Bank and Islamic windows of conventional Banks in Sri Lanka

Abstract

This study aims to analyze the relationship between risk management practices and financial performance in the Islamic banks in Sri Lanka. In achieving this objective, the study assesses the current risk management practices of Islamic banks and links them with the banks’ financial performance. The study used both the primary data from survey questionnaires and secondary data from annual reports. For this purpose, the current study selects Risk environment, risk measurement, risk mitigation, risk monitoring, and internal control as independent variables while return on assets (ROA) is utilized as dependent variables for the period from the year 2011 to the year 2014. Seven Islamic banks and Islamic windows were selected for this study using the convenience sampling technique. For the statistical analysis purpose, the study used descriptive, correlation, and multiple regression models. The results revealed that independent variable factors impact ROA of 85.4%. The further revealed that risk environment, risk measurement, risk monitoring, and internal control system have a positive significant level with financial performance and risk mitigation factor has no significance: with financial performance. The results of the study shed some light on the current risk management practices of the Islamic banks in Sri Lanka. By assessing their current risk management practices and linking them with financial performance, the study hopes to contribute in terms of recommending strategies to strengthen the risk management practices of the Islamic banks so as to increase the overall * competitiveness in the Islamic banking industry.