The Shariah non-compliance (SNC) disclosure index of Islamic banks in Malaysia

Abstract

Purpose This study aims to examine the Shariah non-compliance (SNC) disclosure index for all 16 Malaysian Islamic banks from 2015 to 2020. Design/methodology/approach A qualitative research methodology was adopted that included content analysis. The data were gathered from banks’ annual reports from 2015 to 2020. To achieve this, firstly, the disclosure index was developed by examining the disclosure requirements of the regulator and previous studies. The index was then used to measure the level of disclosure index for all these banks. Findings The overall average SNC disclosure index for the Islamic banks from 2015 to 2020 remained low at 0.57. However, the values were comprised of mandatory and voluntary items. For the former, the SNC disclosure index was quite high at 0.82, but for the voluntary items, the value was 0.40. Progressive improvement can be observed in the disclosure practices of the majority of the Islamic banks between 2015 and 2020; nevertheless, certain banks displayed a deterioration in their disclosure practices. Research limitations/implications This study has several limitations, including the index used, the research period and the fact that it was restricted to SNC events. Practical implications These findings add value for information users by assuring them of the accountability of Islamic banks in terms of transparency, as well as their effectiveness in managing and mitigating SNC events. Regular monitoring and strong enforcement by the regulator are essential to achieve full compliance with the stipulated requirements. Originality/value This study offers a disclosure index for analysing SNC events in depth by segregating the disclosure into mandatory and voluntary items for each Islamic bank and making recommendations for future research. In addition, it provides a broad overview of current trends in SNC and the associated issues, as well as insights for regulators and the public in terms of the transparency levels of Islamic banks in relation to SNC event disclosure.