Asian Journal of Multidisciplinary Studies DETERMINANTS OF LIQUIDITY RISK IN DUAL AND FULLY ISLAMIC BANKING SYSTEMS: EVIDENCE FROM MALAYSIA AND SUDAN (original) (raw)
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Asian journal of multidisciplinary studies, 2016
The objective of this study is to compare the determinants of liquidity risk of Islamic banks in the two environments of full Islamic banking scheme and dual banking system. The researchers used samples of Islamic banks in Sudan and Malaysia to represent the two banking environment. Data sourced from Islamic Banks Information System (IBIS) provided by Islamic Research and Training Institute(IRTI) for three banks in each of the countries from 2004 and 2015 was used for the study. Using Ordinary Least Regression Analysis (OLS) and panel data analysis techniques, the authors conclude that the different environment the Islamic banks operate determines the significance of liquidity risk determinants. There are conflicting effects of bank's specific(micro) factors including bank's size, capital adequacy ratio as well as macroeconomic variables like GDP and Money Supply on liquidity of Islamic banks. However, the study concludes that management efficiency proxied by deployment ratio is a common factor in the two settings. The authors recommend future study on comparison of liquidity risk management policies and structures of Islamic banks in the two environments.
Determinants of Liquidity Risk in Islamic Banks: A Panel Study
European Journal of Business and Management, 2015
This paper investigates the determinants of Islamic bank liquidity using a panel of 60 Islamic banks in MENA and Southeastern Asian countries. The period of study considers the subprime crisis insofar it ranges from 2004 to 2012. The analysis illustrates that liquidity risk depends on idiosyncratic factors such as bank profitability, capital adequacy ratio and investment ratio. While the profitability bank indicator (Return on Assets : ROA) positively affects the exposure to liquidity shortage, the capital adequacy ratio (CAR) and the ratio of bank’s investment have statistically significant negatively relationships with the liquidity risk measure. Nevertheless, the bank size does not matter probably because both small and large Islamic have difficulties to manage their liquidity risk. The real growth rate of Gross domestic product has negative but irrelevant association with liquidity risk. Islamic bank should improve their Profits and Losses Sharing investment in order to redu...
This paper investigates the determinants of Islamic bank liquidity using a panel of 60 Islamic banks in MENA and Southeastern Asian countries. The period of study considers the subprime crisis insofar it ranges from 2004 to 2012. The analysis illustrates that liquidity risk depends on idiosyncratic factors such as bank profitability, capital adequacy ratio and investment ratio. While the profitability bank indicator (Return on Assets : ROA) positively affects the exposure to liquidity shortage, the capital adequacy ratio (CAR) and the ratio of bank's investment have statistically significant negatively relationships with the liquidity risk measure. Nevertheless, the bank size does not matter probably because both small and large Islamic have difficulties to manage their liquidity risk. The real growth rate of Gross domestic product has negative but irrelevant association with liquidity risk. Islamic bank should improve their Profits and Losses Sharing investment in order to reduce their liquidity risk. Moreover, it is critical to reinforce instruments of liquidity risk management.
The determinants of liquidity risk: a panel study of Islamic Banks in Malaysia
2016
Liquidity risk occurs when a bank is unable to cover its financial obligation when it is due without bearing any costs. For Islamic bank, there will be additional risk due to limited access to Shariah compliant fund at a reasonable time and cost. Due on the importance on managing liquidity risk, the Basel Committee on Banking Supervision (BCBS) introduced the Basel 111 to emphasize the use of liquidity coverage ratio (LCR) and Net Stable Funding Ratio (NSFR) as measurement of liquidity risk. . This study attempts to examine the determinants of liquidity risk measured with the LCR and NSFR and two groups of variables which is microeconomic (size, capital adequacy ratio, profitability, asset quality and bank specialization) and macroeconomics (GDP and inflation rate). The sample included 17 Islamic Banks in Malaysia and based on secondary data covers a period from 2000 until 2013. Our findings show that characteristic of banks which are CAR and financing are significance with liquidit...
Liquidity Risk Determinants of Islamic Banks
International Journal of Business and Technology Studies and Research, 2020
The purpose of this article is to examine the impact of bank-specific variables on the liquidity risk of Islamic banks operating in 12 countries over the period from 2014Q1 to 2019Q3. Using the fixed effects technique panel data regression, we find that there is a significant positive impact of capital adequacy, asset quality and bank size on the liquidity risk measure. Moreover, cost-to-income ratio has a significant and positive association with liquidity risk of Islamic banks. The study also concluded that bank profitability has an insignificant relationship with the liquidity risk for the Islamic banks.
The Determinants of Liquidity Risk in Islamic Banks A Case of Sudanese Banking Sector
International Journal of Islamic Banking and Finance Research, 2020
Liquidity risk either due to a surplus or serious shortage in liquidity has a significant impact to the performance and sustainability of Islamic banks. Nevertheless, there are still no common agreement on specific factors that determine the liquidity risk in Islamic banking. This study investigates the determinant factors that affect the liquidity risk of Sudanese Islamic banks. A sample of 11 banks has been selected for a period of 7 years (2012 – 2018). The study is based on secondary data that analysed using Pearson correlation and multiple regression analysis for hypotheses tests. It investigated the explanatory variables of the bank’s cash position (CASH), investment in short-term securities (SECA), degree of financing the assets from customers’ deposits (DPAS) and bad financing and credit risk (NPL) as representatives of banks’ specific factors plus one macroeconomic factor which is Gross Domestic Product (GDP). The analysis found a significant and negative relation of CASH and SECA with the liquidity risk in Islamic banks. On the other hand, the results reveal that the DPAS and NPL variables have a positive relation and significant, while the GDP seen to be irrelevant to liquidity risk in Islamic bank. The importance of the study is that it touches the most significant type of risk that most of Sudanese Islamic banks face, and the data analysed covers a relatively longer period of time than similar studies for a single country. We target that the study contributes in providing decision-makers with reasonable ground for prediction and managing the liquidity risk.
Liquidity risk determinants: Islamic vs conventional banks
International Journal of Law and Management
Purpose This paper aims to identify and analyze the similarities and differences of the liquidity risk determinants within conventional and Islamic banks. Design/methodology/approach This study uses a dynamic panel data approach to examine the relationship between liquidity risk and a set of bank-specific and macroeconomic factors during 2005–2015, by selecting 27 Islamic banks and 49 conventional ones operating in the MENA region. More specifically, the dynamic two-step generalized method of moment estimator technique introduced by Arellano and Bond (1991) is applied. Findings The results suggest that the set of bank-specific variables influences the liquidity risk of both banking systems, while macroeconomic factors determine the liquidity risk of conventional banks. Islamic banks are not affected by macroeconomic determinants. Practical implications The research facilitates to the academicians, practitioners and bankers to have an alluded picture about liquidity risk determinants...
Journal of Islamic Financial Studies
There are two parallel pillars in banking industry i.e. Islamic Banking and Conventional banking. Conventional banks are interest based while Islamic banks are interest free banking. Islamic banking is key area for all Muslims, and grasps their attention for deposit purposes now a days. This study aims to examine the impact of different liquidity ratios on Islamic bank's performance. The study selected 25 international Islamic banks for the period of 10 years; as from 2006 to 2015. Eight differently composed liquidity ratios from balances sheet's current items, were used in study; quick ratio (QR), cash and due from bank to asset ratio (CDA), current ratio (CR), liquid to asset ratio (LA), investment to asset ratio (IT), cash and due from banks to deposit ratio (CDD), investment to deposit ratio (IDR) and cash deposit ratio (CD) as independent variables. Whereas return on asset (ROA) and return on investment (ROI) used as dependent variable. The age (AG) and size (LTA) of bank are used as control variables. Different analysis technique used to analyze results. Two models were incorporated in study. Results shows LA, QR, CDA, IT and CDD contribute in explaining ROA and ROI. Whereas, the IDR, CD, AG, LTA impact the financial performance but not as strong as the above mentioned because they are not explain all the financial performance indicators. Overall it is concluded that financial performance is impacted by the independent variables of study. The financial performance of Islamic banks improved by maintain liquidity at good level, and holding liquidity further which can cause inverse impact on the financial performance of Islamic banks. The study incorporates some few control variables which has impact on relationship.
Big Data & Innovative Financial Technologies Research Paper Series, 2016
The fundamental function of banking remains unchanged throughout the the history of banking theory. The management of risk, asset and liability remain the core function of banking. The early signal of banking crisis can be observed from the volatility of liquidity risk. Hence, this study attempted to investigate the influence of external and internal factors affecting liquidity risk of Islamic and conventional banks. This study employs time series regression analysis of Islamic banks and conventional banks from 2000 to 2010. The study found that Islamic banks maintain higher liquidity compared to conventional banks. The multivariate regression analysis shows that 4 out of 14 bank-specific factors and one macroeconomic factor significantly influence the liquidity risk of Islamic bank whereas conventional banks show that 5 out of 13 bank-specific factors are significant to liquidity risk
Determinants of Factor That Affect Liquidity Risk of Islamic Banks in Indonesia and Malaysia
2019
This study aims to analyze the factors that influence liquidity risk in Islamic banks in Indonesia and Malaysia. Research uses descriptive methods and quantitative methods. The indicator used in analyzing liquidity risk is Size of Firm, Return On Assets, Return On Equity, and Capital Asset Ratio. The data used is time series from 2015-2017. The data source used is secondary data from statistics reports on Islamic Banking statistics is taken from the Indonesian Financial Services Authority. The result is Size of Firm, ROE, ROA and CAR have positive results on liquidity risk but not significant in Islamic banks in Indonesia. As is the case with the Malaysian Islamic bank is also positive and insignificant. The results of liquidity risk in Malaysian Islamic banks are greater than Islamic banks in Indonesia, considering that Islamic banks in Malaysia were first present and more developed. Keywords—liquidity risk; Islamic banking; capital asset ratio; return on assets; return on equity; ...