The applicability of Basel standards in Islamic banking

Abstract

With the goal of stabilizing the banking system at the national and global level and preventing the devastating crises that very swiftly spill over from the financial into the real sector, the Basel standards of capital adequacy and risk management have been adopted and implemented in the original or slightly altered form in many countries. The increasing presence and significance of Islamic banks demand more attention of the professional public focused on all of the business aspects of these financial institutions. One of the key aspects of Islamic bank business is efficiency in maintaining the adequate capital level and risk management. Considering the uniqueness of Islamic financial intermediation and businesses conducted by Islamic banks, the question is raised whether the Basel regulations and practices of conventional banks in capital and risk management are applicable in the Islamic banks. It this paper we will analyze the possibilities of Islamic banks to, apply the Basel standards without deviating from the basic Sharia principles in the process of structuring their capital, monitoring their capital adequacy ratios, and reporting on their success in capital and risk management.

Keywords

• Islam
• banking
• Basel standards
• capital adequacy
• accounting standards