Risk Management Practices in the Republic of Yemen: Are Islamic banks different?

Abstract

The main aims of this paper are, firstly, to investigate the extent to which Yemen’s banks, in particular its Islamic banks, are applying Risk Management Practices (RMPs) and related techniques to deal with various types of risk, and secondly, to compare and distinguish between the RMPs used in Islamic, national and foreign banks. Semi-structured interviews were conducted to identify the current RMPs in Yemen. The main research instrument was a questionnaire, divided into two sections. The first section covered the following five aspects: understanding risk and risk management, risk identification and analysis, risk monitoring, RMPs, and credit risk analysis. The second section consisted of four aspects: methods of risk identification, risk management, credit risk management, and types of risk. Multinomial regressions and other statistical tools were applied to determine whether there are differences between Islamic banks and other banks in Yemen. Our results revealed that there are significant differences between Islamic and national banks in terms of their understanding of risk and risk management, risk identification and analysis and credit risk analysis. However, there are no major differences found between national and Islamic banks in terms of risk management and RMPs. For Islamic and foreign banks, however, there are significant differences in terms of understanding risk and risk management and risk identification and analysis, but no differences between their risk management, RMPs and credit risk analysis.