Abstract
This study aims to examine the relationship between credit risk and capital adequacy with the banking hedging of Islamic and conventional banks in Yemen. A sample of 4 conventional banks and 3 Islamic banks was used during (2012-2017). Using Pearson correlation and regression analysis, the study concludes that there is a statistically significant relationship between credit risk and banking hedging and a strong statistically significant relationship between capital adequacy and banking hedging. Based on the type of bank, results indicate a negative relationship but no statistical significance between conventional banks' credit risk and banking hedging. There is a statistically significant relationship between credit risk and banking hedging of Islamic banks. Capital adequacy positively interacts with the banking hedging in both banks.
Highlights
Yemen, among Middle East countries, is considered the weakest country in terms of growth and development
Given this improvement of the Yemeni banking sector, this improvement accompanied by an increase in growth and development of several Yemeni banks, whether conventional or Islamic banks, as well as diversity and branching of their banking activities, which led to a rise in the Impact of Credit Risk and Capital Adequacy on Islamic and Conventional Banking Hedging risks facing banks and impeded the fulfillment of their obligations
The rapid development of banking transactions and its functions, the big trend towards the open economy, weak regulations and legislation related to the banking business, the weakness of qualified cadres, and other factors led to increasing the risk face banks such as credit risk, capital adequacy risk, liquidity risk, interest rate risk, and operational risks
Summary
Among Middle East countries, is considered the weakest country in terms of growth and development. The Yemeni financial and banking sector evolved in the last decade This development accompanied by a set of reforms undertaken by the Central Bank of Yemen to raise the level of the banking sector in several areas including organizational, supervisory, liquidity, and credit risk management, as well as enhancing capital adequacy requirements at the beginning of 2004 (Shawtari et al, 2015). Given this improvement of the Yemeni banking sector, this improvement accompanied by an increase in growth and development of several Yemeni banks, whether conventional or Islamic banks, as well as diversity and branching of their banking activities, which led to a rise in the Impact of Credit Risk and Capital Adequacy on Islamic and Conventional Banking Hedging risks facing banks and impeded the fulfillment of their obligations. The possibility of risks accrue is high
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