The Role of Credit Quality Management in Reducing Credit Risk and Supporting Economic Stability in Islamic Banks, A Descriptive Applied Study on the Libyan Islamic Bank – Tripoli

Abstract

This study aimed to identify the role of credit quality management in reducing credit risk and supporting economic stability in Islamic banks, through a descriptive applied study of the Libyan Islamic Bank – Tripoli. The study focused on examining the current practices of credit quality management within the bank, highlighting its role in reducing credit risks, and identifying the main obstacles facing credit management, as well as the solutions adopted or proposed to address them. The study adopted a qualitative descriptive approach, relying on field data collected through interviews and observation, in addition to relevant documents and sources related to the subject of the study.

The findings revealed that credit management represents one of the core activities of the bank, and that the quality of credit decisions is closely associated with the accuracy of financing application assessment, customer evaluation, and their ability to repay, in addition to the importance of continuous monitoring and supervision of financing after it has been granted. The findings also indicated that credit risk is one of the major challenges facing banking activities. Furthermore, the specific nature of Islamic banking requires compliance with Sharia principles and rules alongside financial and administrative considerations in credit management. The study also identified several obstacles, including delays in repayment by some customers, certain administrative shortcomings, insufficient clarity of some policies and procedures related to risk reduction, liquidity shortages, and limited awareness among some customers regarding the nature of Islamic financial transactions.

The study concluded that improving credit quality management requires the development of clear credit risk management policies and procedures, strengthening the assessment of customers' creditworthiness before granting financing, enhancing continuous monitoring and supervision of financing, improving banking services, and increasing customers' awareness of Islamic financial products. Such measures may contribute to reducing the risk of default, improving the efficiency of banking activities, and supporting banking and economic stability.