Environmental risk has found with its direction correlation to credit quality. Improper credit risk assessment has also found with an increased level of risk to core business practices of banking firms (Stiroh, 2006). This has also found with improper portfolio diversification and higher probable risk to banking operations. BASEL accords has been found with incorporation of industrial experience in policy framework with assurance of capital adequacy measure to ensure business sustainability (Weber, Fenchel & Scholz, 2008). Furthermore, process of globalization have found with an increased risk exposure to banking firms with integration of practices (Stiroh, 2006). Recent pandemic has found with serious challenges to banking firm with rapid slowdown of macroeconomic practices, job losses and stage of stagnancy of business cash flows observed with an increase in size of non-performing loans along with direct risk to banking firms’ sustainability (Rosenberg & Perry, 1978).
Islamic banks, like conventional banks, also observed with great challenges in term of liquidity management and portfolio diversification. Islamic banks works on the principle of trading or rental. Islamic banks are majorly observed additional risk i.e. Shariah compliance risk in addition to all other risk factors. On the basis of above discussion and current pandemic condition has raised with essentiality to investigate implications of current COVID-19 condition with input of current risk management practice in mitigation with special in investigation of Islamic banking firms in Pakistan.
Problem Statement
COVID-19 has observed with its significant impact on each country globally either major or minor impact but trade impact has found with its significant impact worldwide (Richter & Wilson, 2020). This pandemic condition also resulted in postponing or cancelation of orders. In addition, this also resulted in squeezing of cash flows of different business segments and observed with its impact on receivables of banking firms (Stiroh, 2006). Banking firms also observed with deferment of financing facilities to mitigate with current conditions. On the other side, COVID-19 also observed with an increase in volatility of confidence level of depositors (Li, Strahan, & Zhang, 2020). In this context, current risk management practices of banking firm observed with rethinking among management to come up with possible changes in term of client selection, portfolio diversification, introduction of new product ranges and solution to ensure the sustainability of banking firms (Stiroh, 2006). In addition, banking firms are also observed with critical responsibility to ensure profit payment to depositors in contrast to Islamic banking firms (Waemustafa & Sukri, 2015).
COVID-19 raised with seriousness of management toward development of practices to deal with unexpected crisis and formulation of plans to reflect with responsible practices. Banking firms also did with changes in working practices in pandemic conditions along with implementation of necessary measure to overcome liquidity crises (Paggiaro, Conceiçao, Bianchi & Gemperli, 2020). Furthermore, this has also raised with essentiality of development of product offers to cope up with such health problems in future (Disemadi & Shaleh, 2020). This also increase the attention of management toward importance of function of Takaful/ insurance with assurance of financial sustainability of banking institutions. Environmental risk has found with its direction correlation to credit quality. Improper credit risk assessment has also found with an increased level of risk to core business practices of banking firms (Stiroh, 2006). This has also found with improper portfolio diversification and higher probable risk to banking operations. BASEL accords has been found with incorporation of industrial experience in policy framework with assurance of capital adequacy measure to ensure business sustainability (Weber, Fenchel & Scholz, 2008). Furthermore, process of globalization have found with an increased risk exposure to banking firms with integration of practices (Stiroh, 2006).
Good article
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