Basel III: Comrade or Contender for Islamic Banking Intuitions - A Case of Pakistan

Abstract

Financial crisis of 2007 greatly impacted the global banking system. In the main time the rise of Islamic banking system comes as a substitute to the conventional banking system at the global level. Basel III accord come in being in 2011 put forward many regularity and supervisory frame work to establish the viability and credibility of world banking systems. The Islamic banking system increasing its presence in at the global level with assets of US$1.7 Trillion with annual growth rate of 17.6% up till the end of 2013.

Five Islamic banking institutions are working in Pakistan as torch bearer. These five are pure Islamic banking companies in Pakistan not any of them is a subsidiary of the convention banks working in Pakistan. Researcher will look into five years business of these Islamic banking companies that how they react to the Basel III regulatory requirement and the role of central bank in Pakistan i.e. State Bank of Pakistan (SBP) in implementation of regulatory and statutory framework of Islamic banking system in Pakistan.

Results of this studies reviles that the IBIs working in Pakistan are in better position in implementation of Basel III requirement like quality of capital, leverage ratio and risk management issues. We can consider it as the requirement of IBIs to work in this way as required by the shariah not by the Basel III regulation. IBIs need some indigenous system of regulation that suits to its need. Basel III not a suitable regulatory framework for the IBIs as it was framed for the conventional banking institutions.

Keywords: Islamic Banks; Basel III; Risk Management; Capital; Pakistan; Financial crisis