APPENDIX 1
Questionnaire
PHD. RESEARCH ON ‘RISK MANAGEMENT IN ISLAMIC BANKING’
Part One: General and Background Information
Name and location of the Financial Institution:
Respondent's Name:
Position:
Department:
- Nature of the financial institution:
(Please mark the appropriate boxes)
□ Fully Fledged Islamic bank □ Conventional bank with Islamic activities/windows □ Conventional bank □ Other, please specify - Nature of activities: (Please mark the appropriate boxes)
□ Commercial banking □ Investment banking □ Retail banking □ Other, please specify - The accounting standards used by your institution comply with:
□ International standards □ AAOIFI standards □ Other, please specify □ Don't know
Part Two: Risk Perception
Section I Risk Issues in Islamic Banks
- Severity of risks facing Islamic banks
Below are the main inherent risks in Islamic banking. Could you please identify the seriousness/importance of the following risks to Islamic banks according to your own personal view?
Please mark the appropriate box.
Risk Very Important Important Neutral Unimportant Very Unimportant Credit Risk □ □ □ □ □ Market Risk* □ □ □ □ □ Operational Risk □ □ □ □ □ Equity Investment Risk □ □ □ □ □ Liquidity Risk □ □ □ □ □ Asset–Liability Management Risk □ □ □ □ □ Displaced Commercial Risk ** □ □ □ □ □ Shari'ah non-compliance Risk □ □ □ □ □ Concentration Risk □ □ □ □ □ Reputation Risk □ □ □ □ □ Fiduciary Risk □ □ □ □ □ Corporate Governance Risk □ □ □ □ □ Legal Risk □ □ □ □ □ * Market Risk encompasses Rate-of-Return Risk, Currency Risk, Commodity Risk, Benchmark Risk, and Mark-up; but excludes Equity Investment Risk.
** Displaced Commercial Risk is the risk of liquidity suddenly drying up as a consequence of massive withdrawals should the Islamic bank assets yield returns for Investment Account Holders lower than expected, or worse, negative rates of profits.
- Please list below any other risks (if applicable) that you think might affect Islamic banks, in order of their seriousness/importance.
- For institutions that use Islamic finance contracts, please rank the following Islamic finance contracts according to the intensity of use by your institution (the most used first):
Please use a scale from 1 to 7, with 1 as the most used and 7 as the least used.
Contract Rank Murabahah Mudarabah Wakala Ijarah Musharakah Istisna'a Salam - According to your own view, please rank the following Islamic finance contracts according to their risk seriousness, starting by the most risky:
Please use a scale from 1 to 7, with 1 as the most risky and 7 as the least risky.
Contract Rank Murabahah Mudarabah Wakala Ijarah Musharaka Istisna'a Salam - Please mark the appropriate boxes below
Strongly Agree Agree Neutral Disagree Strongly Disagree 1. Risks for Islamic banks should be managed using same techniques used in conventional banking. □ □ □ □ □ 2. Islamic banking is more risky by nature than conventional banking. □ □ □ □ □ 3. Risk management for Islamic banks is more challenging than it is for conventional banks. □ □ □ □ □ 4. There is naturally inherent conservatism in the principles of Islamic finance. □ □ □ □ □ 5. In an Islamic bank, a low rate of return on deposits will lead to withdrawal of funds. □ □ □ □ □ 6. Depositors would hold the bank responsible for a lower rate of return on their deposits. □ □ □ □ □ 7. Variation among Shari'ah scholars' opinions represents a major risk to Islamic banking. □ □ □ □ □ 8. Non-Shari'ah compliance could severely damage the reputation of an Islamic bank. □ □ □ □ □ 9. AAOIFI and IFSB standards should be made mandatory for Islamic banks. □ □ □ □ □ 10. Corporate governance is generally weak in Islamic banks. □ □ □ □ □ 11. Islamic banking in its current state is a safer option than conventional banking □ □ □ □ □
Section II Capital Adequacy
- Which of the following does your bank use in calculating its minimum capital requirements?
□ Basel II standards □ IFSB standards □ Other, please specify □ Don't know - If your institution is using Basel II standards, please indicate the methodology used to calculate the minimum capital requirement for:
Credit Risk
□ Standardised approach □ Foundation IRB □ Advanced IRB Market Risk
□ Standardised approach □ Internal models approach Operational Risk
□ Basic indicator approach □ Advanced measurement approach - Do you think that the capital requirements for Islamic banks as compared to conventional banks should be:
□ Higher □ Same □ Lower □ Don't know - Please mark the appropriate boxes in the table below
Strongly Agree Agree Neutral Disagree Strongly Disagree 1. Basel II standards should be equally applied to Islamic banks without modification. □ □ □ □ □ 2. IFSB standard on Capital Adequacy should be used by Islamic banks rather than Basel II. □ □ □ □ □ 3. Basel II standards should be reviewed after failing to prevent the current crisis. □ □ □ □ □ 4. The proposed Basel III rules would be easily applicable to Islamic banks □ □ □ □ □ 5. Stricter capital, leverage and liquidity rules, as proposed under Basel III, are likely to prevent another financial crisis. □ □ □ □ □
Section III Credit Crisis and Islamic Finance
- Please mark the appropriate boxes in the table below
Strongly Agree Agree Neutral Disagree Strongly Disagree 1. Islamic banks are more resilient to economic shocks than their conventional peers. □ □ □ □ □ 2. The recent crisis would not have happened under a true Islamic banking system. □ □ □ □ □ 3. Islamic finance could have solved the global crisis. □ □ □ □ □ 4. Risk management must be embedded institutionally. □ □ □ □ □ 5. Banks in general used to rely heavily on rating agencies. □ □ □ □ □ 6. Islamic banks rely less on rating agencies than conventional banks. □ □ □ □ □ 7. Islamic finance industry should develop its own rating agencies. □ □ □ □ □ 8. Islamic banks will emerge stronger from the current crisis. □ □ □ □ □ 9. Consolidation is needed among smaller Islamic banks. □ □ □ □ □
Part Three: Risk Management and Mitigation
- How often does your bank produce the following reports, if applicable?
Daily Weekly Monthly Yearly Never Don't know Capital requirement report □ □ □ □ □ □ Operational risk report □ □ □ □ □ □ Profit rate risk report □ □ □ □ □ □ Foreign exchange risk report □ □ □ □ □ □ Liquidity risk report □ □ □ □ □ □ Commodity risk report □ □ □ □ □ □ Country risk report □ □ □ □ □ □ Equity mark-to-market report □ □ □ □ □ □ Classified accounts report □ □ □ □ □ □ Industry concentration risk report □ □ □ □ □ □ Credit exposure report □ □ □ □ □ □ Large exposure report □ □ □ □ □ □ Other risk reports (please specify) □
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□ - Which of the following techniques does your organisation use to analyse risks, if applicable?
Internal based ratings □ Credit ratings by rating agencies □ Gap analysis □ Duration analysis □ Maturity matching analysis □ Earnings at risk □ Value at risk □ Stress testing □ Simulation techniques □ Risk Adjusted Rate of Return on Capital (RAROC) □ Other (Please Specify) - Risk mitigation techniques in Islamic banking compared to conventional banking are:
□ More advanced □ Less advanced □ Similar □ Don't know - For institutions that use Islamic finance contracts, which of the following techniques does your organisation use to mitigate risks?
On balance sheet netting □ Islamic options □ Islamic swaps □ Guarantees □ Islamic currency forwards □ Parallel contracts □ Collateral arrangements □ Other (please specify)
Part Four: Islamic Banking in Practice
- Please mark the appropriate boxes in the table below
Strongly Agree Agree Neutral Disagree Strongly Disagree 1. Islamic banks have been mimicking conventional models. □ □ □ □ □ 2. Islamic finance provides an ethical banking alternative. □ □ □ □ □ 3. There is difference between the current practice and principles of Islamic banking. □ □ □ □ □ 4. Islamic banks need to reform to be successful. □ □ □ □ □
Part Five: The Next Chapter in Islamic Banking
- According to your own view, which of the following strategies should Islamic banks focus on in order to thrive? Please rank the following strategies according to their importance, starting by the most important.
Please use a scale from 1 to 8, with 1 as the most important and 8 as the least important.
| Strategy | Rank |
| Improved risk management | |
| Enhanced morality – back to roots | |
| Mergers and acquisitions | |
| Organic growth in home market | |
| Better risk mitigation | |
| Innovation | |
| Diversification – reduce concentration | |
| Standardisation | |
| Other (please specify) |
Thank you for your cooperation.
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