CREDIT RISK IN ISLAMIC AND CONVENTIONAL BANKING SYSTEMS: EVIDENCE FROM NIGERIA
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Date
2024
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International Centre of Excellence for Rural Finance and Entrepreneurship (ICERFE), Ahmadu Bello University, Zaria
Abstract
Islamic banking has been characterised by high credit risk exposure as receivables take higher portion of the bank assets which are only held till maturity as discounting is not allowed. The high level of exposure may affect their performance in relation to conventional banks However, there is dearth of research on the comparative analysis of credit risk exposure of Islamic and conventional banks in Nigeria. This study therefore investigated the level of credit risk of Islamic banks in comparison with that of conventional deposit money banks in Nigerian. Data were collected from annual reports of the selected banks and analysed via Wilcoxon Signed Ranks Test. The study found that Islamic banks had significantly lower loss provision ratio than conventional banks. Non-performing financing was also found to be significantly lower for Islamic banks the conventional banks. However, Islamic banks had higher but insignificant level of cost to loan asset. Based on these findings, the study concluded that Islamic banks have lower level of credit risk exposure than their conventional counterparts in Nigeria. The study thus recommended moderate provision for loss financing to reduce costs and enhance profitability.
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Jimoh et al. (2024)