Effects of Shariah supervisory board characteristics on credit risk of Islamic banks

Abstract

The purpose of this paper is to examine the relationship between the effective characteristics (i.e. size, independence, female board, meeting frequency and remuneration) of Shariah supervisory Board (SSB) and its effects on the credit risk of Islamic banks (IBs). The study based on 504 Islamic bank-year observations from 56 banks in 18 countries between 2009 and 2017. The findings suggest that the SSB in Islamic banks with smaller size, the lower composition of female directors and higher remunerations are more likely to have lower credit risk. However, no evidence suggests that SSB with more independent directors and higher meeting frequency reduce the credit risk in Islamic banks. These findings will be of potential interest to policymakers and professionals in strengthening the role of SSB in Islamic banks. Moreover, the countries represented in this study have made significant contributions to the infrastructures of Islamic financial institutions around the world. Finally, the study outcome might also serve as another model for countries which seek to strengthen the role of SSB in managing IBs credit risk.