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  • Islamic Bank Failure: A Case Study

    Author(s)
    Nathie, Mahmood
    Griffith University Author(s)
    Nathie, Mahmood
    Year published
    2010
    Metadata
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    Abstract
    Recent turmoil in financial markets has once again emphasised the need for regulatory vigilance-especially in relation to banks in distress and those experiencing a run on depositors' funds. The Islamic Bank Ltd of South Africa collapsed in 1997, and its failure exposed the cost of bad credit risk management, operational dysfunction and regulatory breaches. This study finds early regulatory intervention may have addressed major liquidity shortcomings and perhaps even forestalled the bank's collapse. Despite effective intervention measures, the evidence shows a run on funds fuelled by noise and loss of confidence is ...
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    Recent turmoil in financial markets has once again emphasised the need for regulatory vigilance-especially in relation to banks in distress and those experiencing a run on depositors' funds. The Islamic Bank Ltd of South Africa collapsed in 1997, and its failure exposed the cost of bad credit risk management, operational dysfunction and regulatory breaches. This study finds early regulatory intervention may have addressed major liquidity shortcomings and perhaps even forestalled the bank's collapse. Despite effective intervention measures, the evidence shows a run on funds fuelled by noise and loss of confidence is difficult to reverse without direct and significant central bank liquidity infusion and deposit guarantees. Evidence of poor management and dereliction of duty by external auditors to report on material irregularities reinforces the need for a new wholeof- regulatory approach. Further, Sharʑah compliance is found to be ineffectual without substantive legal support.
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    Journal Title
    ISRA International Journal of Islamic Finance
    Volume
    2
    Issue
    1
    Publisher URI
    https://www.emeraldgrouppublishing.com/journal/ijif
    Subject
    Financial Institutions (incl. Banking)
    Publication URI
    http://hdl.handle.net/10072/39098
    Collection
    • Journal articles

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