Abstract:
This study aims to analyze the relationship between risk management practices and
financial performance in the Islamic banks in Sri Lanka. In achieving this objective,
the study assesses the current risk management practices of Islamic banks and
links them with the banks’ financial performance. The study used both the primary
data from survey questionnaires and secondary data from annual reports. For this
purpose, the current study selects Risk environment, risk measurement, risk mitigation,
risk monitoring, and internal control as independent variables while return on assets
(ROA) is utilized as dependent variables for the period from the year 2011 to the year 2014.
Seven Islamic banks and Islamic windows were selected for this study using the convenience
sampling technique. For the statistical analysis purpose, the study used descriptive,
correlation, and multiple regression models. The results revealed that independent
variable factors impact ROA of 85.4%. The further revealed that risk environment,
risk measurement, risk monitoring, and internal control system have a positive
significant level with financial performance and risk mitigation factor has no
significance: with financial performance. The results of the study shed some light on
the current risk management practices of the Islamic banks in Sri Lanka. By assessing
their current risk management practices and linking them with financial performance,
the study hopes to contribute in terms of recommending strategies to strengthen the
risk management practices of the Islamic banks so as to increase the overall
* competitiveness in the Islamic banking industry.
