World Applied Sciences Journal 30 (Innovation Challenges in Multidiciplinary Research & Practice): 295-301, 2014 ISSN 1818-4952 © IDOSI Publications, 2014 DOI: 10.5829/idosi.wasj.2014.30.icmrp.38 Corresponding Author: Sheila Nu Nu Htay, Institute of Islamic Banking and Finance, International Islamic University Malaysia 295 Is There Any Relationship among the Risks of Banks in Malaysia? Sheila Nu Nu Htay and Syed Ahmed Salman Institute of Islamic Banking and Finance, International Islamic University Malaysia Submitted: Jan 5, 2014; Accepted: Feb 24, 2014; Published: Mar 12, 2014 Abstract: Banking sector is the backbone of any country’s economy and involves in the risky business activity. It is also highly regulated industry mainly due its high risky activities. Among the risks faced by the banks, operating risk, liquidity risk, credit risk and market risk are the major risk. The objective of this study is to examine the correlation among these risks in the context of locally owned banks in Malaysia. The data has been collected from five listed banks for 10 years (2002-2011). Malaysian banking sector is chosen due to its unique nature of banking environment which promotes Malaysia to be the hub of Islamic banking and finance and which accommodate the dual banking system. Pearson correlation method is used to find out the relationship among the risk. The findings show that the risk relation varies across the banks and it is difficult to generalize the risk relationship nature in Malaysian banks. We suggest the banks need to manage the risks based on their risk portfolio and risk appetite. These findings contribute to enhance the knowledge on risk behaviors and will be the interest of regulators, investors and industrial players for future making rules, investment decision and plan the risk management. Key words: Operational risk Liquidity risk Credit risk Market risk Malaysia and banks INTRODUCTION services which are comparable and compatible with Banking industry has been recognized as one of the principles. In order to be compliant with Islamic laws, the industries exposed to very risky business. Many Islamic banks are structuring the products based on the international organizations like BASEL Committee on contracts such as profit and loss sharing contracts, for Bank Supervision and IFSB (Islamic Financial Services instance, Mudarabah and Musharakah and debt based Board) and many developed countries and developing contracts, for instance, Salam, Istisna while the countries have implemented risk management guidelines conventional banking is based on the lending and to mold the banking industry. Among the risks faced by borrowing concept which involves interest. the banks, liquidity risk, credit risk, operational risk and To the extent of our knowledge, there is no research market risk are the major risks [1, 2].The literature has has been conducted to examine the correlation of the risks highlighted that the risks should be managed together, faced by the banking groups which offer both Islamic and otherwise, the eliminating of one risk might create another conventional banking products and services. We are new risk. In addition, if the risk management is in interested and motivated what will be the correlation collective nature, one chosen technique will mitigate all among the risks in the case of banking group which offers the related risks at the same time [3]. both conventional and Islamic banking products and Malaysia as one of the leading countries in Islamic services. Thus, the objective of this research is to examine banking has no exception in risk exposure. The unique the correlation among the liquidity risk, credit risk, nature of Malaysian banking industry is that the Islamic operational risk and market risk in the context of Malaysia. banking products and services are provided. This Islamic This paper is organized in 5 sections. The second section banking emerged as an alternative to the conventional presents the relevant literature. The third section banking because the later one involves the interest which mentions the research methodology. The fourth section is prohibited from the Islamic perspective. Therefore, the explains the findings and the last section concludes the Islamic bankers come out with their banking products and paper. conventional banking products while adhering the Islamic