Assessment of 5Cs Relationship towards Credit Risk Management: Evidence from Islamic Banks

Abstract

This study aims to provide a new approach to assess the Character, Capacity, Capital, Condition, and Collateral (5Cs) variables towards the Islamic Bank Credit Risk Management from the Islamic Banks in Nigeria. The study used a quantitative approach using a structured questionnaire; 310 individuals participated. Data are sourced from Islamic Bank staff, customers of Islamic Bank, experts from financial institutions and some Shariah scholars of the advisory board of Islamic banks. The study employed structural Equation Modeling (SEM), using AMOS and SSPS, are used for analysis. The results indicate a positive relationship between Character, Capacity, Capital, Condition, and Collateral (5Cs) and Islamic Bank Credit Risk Management; such can also control and mitigate Credit Risk in an Islamic Bank in Nigeria. In the managerial part, such credit risk should be considered vital in examining and controlling credit risk-mitigation. The paper indicates a positive and significant relationship between the Character, Capacity, Capital, Condition, and Collateral (5Cs) and Islamic Bank’s Credit Risk Management. The authors innovatively use a unique sample to assess the relationship between 5Cs and Islamic Bank’s Credit Risk Management. Even though 5Cs and Credit Risk Management are well-known in the conventional financial concept system, while have not been elaborate on Islamic Banks as the paper attempts to fill the gap. The study is limited to Northern Nigeria and did not cover the entire regions of the country due to the resource constraints and short study period.