CONVENTIONAL AND ISLAMIC BANKS’ RISKS: RATING ASSESSMENT FROM CREDIT RATING AGENCIES

Similar to conventional banks, Islamic banks perform all those functions expected from a financial institution and assist the business world by providing all the services required to run an economy smoothly. However, the philosophy and operational methods of Islamic and conventional banks are different. Their different philosophies have resulted in Islamic banks confronted and deal with risks that are akin to those conventional financial institutions and risk that exclusively stemming from Shariah (Islamic law) implications. This study will examine the methodology used by different various credit rating agencies in assessing various risks of concerning conventional and Islamic banks operations. Since the operations of Islamic financial institutions must be consistent with Shariah, this paper will also examine to what extent Shariah issues are factored into rating methodology when evaluating the creditworthiness of Islamic banks. The research on ratings will helps help boost investor confidence in the Islamic finance industry and also enhances enhance our understanding of the concept despite the different methods adopted by the agencies concerned.