Author(s): Suganthi Ramasamy, Jothee Sinnakannu, Sockalingam Ramasamy
Using ten years’ financial statements data, this study empirically determines the relationships between bank capital and credit risk in a selected sample of MENA region and non-MENA region Islamic banks. Evidence shows a negative impact of bank capital on the credit risk in MENA region Islamic banks supporting the moral hazard theory. Findings also indicates that non-MENA region Islamic banks with higher credit risk hold smaller capital. Moreover, highly profitable Islamic banks in the MENA region take less credit risk. This study also found that bank size also negatively affects credit risk of both MENA and non-MENA region Islamic banks. This implies that as the size of the MENA and non-MENA region Islamic banks increases, the credit risk decreases.