Credit risk management: A comparative study between Islamic and conventional banks in Turkey

In this research, we aimed to identify variables determining credit risk in Islamic and conventional banks. A comparison between Islamic and Conventional Banks is highlighted. The researcher employed a panel data fixed effect model to analyze quarterly data belong to three Islamic Banks in Turkey for the period 2008 Q1 to 2017 Q4. While for conventional banks, previous studies conducted in Turkey are used to compare Islamic banks to conventional banks. Non-performing Loans (NPL) ratio was used as a proxy for credit risk. According to Empirical result, NPL in Islamic Banks is positively affected by Loan Loss Provision, and Proportion of Loans to Deposits, and negatively affected by Assets Size. While in conventional banks it is positively affected by Net Interest Margin, Loan Loss Provision, and Capital Adequacy Ratio and negatively affected by Proportion of Loan to Deposits, Proportion of Loans to Assts and SIZE. There were clear differences between both Islamic and Conventional banks related to all variables of study except Loan Loss Provision and Proportion of Loan to Assets ratios.