This study explores the risk management practices, reporting and performance
of selected Islamic bank in Malaysia using single case study. Under the broad
paradigm of mixed methods, one in depth interview, content analysis and ratio
analysis were conducted. The result evidences a clear gap between Shariah and
practice of Islamic risk management, difference in Shariah and legal remedy,
and availability of credible internal control mechanism that are responsible for
effective risk analysis and management. The top priority risk is the operational
risk followed by market and credit risks. Risk management activities are mostly
reported using annual reports. The declining return ratios with respect to the
decreasing risk ratios indicate evidence of existence of conventional mean
variance frontier in Islamic finance. However, this low risk low return and credit
to asset ratios exhibit low risk taking tendency of the bank. As a result liquidity
ratio is increasing but profitability ratio is going down. Bank has to build an
internal risk management culture by training the employees and building up the
internal control system more effectively.
