Impact of risk management practices on performance of Islamic window in conventional banks in Sri Lanka

Abstract

The objective of this study is to analyze the relationship between risk management practices and financial performance in the Islamic window in conventional banks in Sri Lanka. This study examined the present risk management practices of the Islamic window and the banks’ financial performance. The study used both the primary data from survey questionnaires and secondary data from annual financial reports. For this purpose the present study selects risk environment, risk measurement, risk mitigation, risk monitoring and internal control as independent variables while return on assets is utilized as dependent variables for the period from year 2010 to year 2015. The study used descriptive, correlation, and multiple regression models. The results revealed that independent variable factors 83.5% impact on return on assets. This study further revealed that risk environment, risk monitoring and internal control system have positive significant impact on financial performance, however, the risk measurement and risk mitigation shown a negative significant impact on financial performance. The results of the study shed some lights on the present risk management practices of the Islamic banks in non-Muslim countries. By assessing their risk management practices and linking them with financial performance, the study contribute in terms of recommending strategies to strengthen the risk management practices of the Islamic windows in conventional banks, so as to increase the overall performance and competitiveness in the Islamic banking industry.