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Asset-liability management in Islamic banks: evidence from emerging markets

Heba Abou-El-Sood (Accounting Department, Cairo University Faculty of Commerce, Cairo, Egypt)
Osama El-Ansary (Business Administration Department, Cairo University Faculty of Commerce, Cairo, Egypt)

Pacific Accounting Review

ISSN: 0114-0582

Article publication date: 6 February 2017

1366

Abstract

Purpose

Motivated by massive bank failures during the financial crisis and the remarkable resilience of Islamic banks (IBs), this paper aims to analyze the interdependencies between asset/liability portfolio choices of IBs in emerging markets.

Design/methodology/approach

The authors collect data from the financial statements of IBs in the Middle East and North Africa region and Southeast Asia during the period 2002-2012. Using canonical correlation analysis, the authors investigate the degree of interdependencies between the asset/liability accounts unique to IBs and how their ALM models work at times of economic turmoil.

Findings

IBs tend to make decisions on sources of finance based on their asset portfolio choices. The interdependencies are stronger for small banks. IBs direct more of their investments to risk-mitigating instruments that share the risk with the borrower/client and are based on the purchase and sale of real goods rather than financial instruments. Additionally, banks tend to rely less on equity to finance their investments during economic boom and increase their equity holdings during economic bust.

Practical implications

This paper contributes to research on an under-researched, globally growing finance sector. It extends research on ALM while providing novel evidence using non-standardized asset/liability accounts unique to IBs.

Originality/value

The analysis of unique accounts has not been discussed in prior studies, which mainly used standardized account balances to compare Islamic and conventional banks. Moreover, the resilience of IBs and whether their ALM models are superior at times of turmoil has remained a black box. The results of this study are relevant to unravel this unanswered question.

Keywords

Acknowledgements

The authors thank the management team of Zag Trader for their assistance in getting the data used in this study and Gulf One Lancaster Centre for Economics Research for support. The authors would like to thank the participants of the 4th Islamic Banking and Finance Conference (IBF 2014) and anonymous reviewers for their valuable comments.

Citation

Abou-El-Sood, H. and El-Ansary, O. (2017), "Asset-liability management in Islamic banks: evidence from emerging markets", Pacific Accounting Review, Vol. 29 No. 1, pp. 55-78. https://doi.org/10.1108/PAR-04-2016-0050

Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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