Journal of Statistical Science and Application 2 (2014) 47-54 Islamic Banks Impaired Financing: Relationship Between Shariah Committee Meetings Frequency and Shariah Risks Compliance on Assets Quality Mohd Yaziz Bin Mohd Isa Universiti Tun Abdul Razak Kuala Lumpur, Malaysia This study made a pioneering attempt to econometrically examine what factors determining impaired financing using shariah committee meetings frequency from data on Islamic banks in Malaysia and how does it affects on the quality of assets. The objective of the study is to improve assessment of their assets quality so as to increase the reliability of the financial statements. The European Central Bank may find the findings from this study useful in their exercise to assess risks and assets quality of their commercial banks, a move to tackle the ailing banks in centralizing oversight supervision in late 2014. The major components of the Islamic banks’ assets quality are impaired financing and provisions for financing impairment. In the Islamic banks, shariah committee principally manages the shariah risks non-compliance with other risks; however because their management is not straightforward, the study uses the shariah committee meetings frequency as an indicator of the assets quality. The study found the less-than-full frequency of shariah committee meetings resulted in less guidance and conformation of shariah principles, and consequentially the quality of the assets. Keywords: Islamic banks, impaired financing, shariah meetings frequency, shariah risks compliance. Introduction Islamic banks perform a role to provide capital from depositors with surplus funds to skilled entrepreneurs to undertake productive contract activities. The deposits from the depositors constitute the bank’s liabilities and the contracts to the entrepreneurs represent the bank’s assets. The difference between returns or yields from investments of the entrepreneurs, and the returns to the depositors comprises the bank’s “spread” which is an element of profitability. The bank’s margin is a “spread” between interest revenue on bank assets and interest expense on bank liabilities. Hutapea & Kasri (2010) analyze between Islamic banks and conventional banks in Indonesia, revealed whilst the conventional banks responded positively to interest rate movements by adjusting their loans and deposit interest rates to the movements, the Islamic banks responded negatively to the profit rate movements. On the one hand the ability of the banks to provide capital is dependent on the deposits the quality of the contacts of the entrepreneurs has effect on the banks’ solvency. As such, all Islamic banks have formed shariah committee whose duties and responsibilities are to ensure the contracts are in compliance and conformation to Corresponding author: Mohd Yaziz Bin Mohd Isa, Universiti Tun Abdul Razak Kuala Lumpur, Malaysia. DAVID PUBLISHING D