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Article
Publication date: 14 January 2020

Muhammed Habib Dolgun, Adam Ng and Abbas Mirakhor

The purpose of this paper is to highlight the effects of liquidity regulations on Islamic banking using Turkey as a case study. It recommends an alternative mechanism using…

Abstract

Purpose

The purpose of this paper is to highlight the effects of liquidity regulations on Islamic banking using Turkey as a case study. It recommends an alternative mechanism using capital market standards for liquidity requirement of Islamic banks to mitigate certain risks.

Design/methodology/approach

The paper evaluates the correlation between cash and profit and between liquidity coverage ratio and capital adequacy ratio of participating banks in Turkey.

Findings

Islamic banks hold higher cash than they should. The paper suggests a maximum liquidity ratio for Islamic banks. Applying a cap to the liquidity coverage ratio will impose discipline on Islamic banks to manage their assets appropriately as well as to encourage their financial intermediation to the real sector. In addition, the authors argue that even if the cash outflows from investment account on the right side of Islamic banks’ balance sheets are included in the short-term projection, they should not be included in the denominator of the liquidity coverage ratio.

Practical implications

The current Basel requirements and Islamic Financial Services Board standards are disincentives to Islamic banks to provide risk-sharing or partnership-based investments and services to their customers and depositors. Effective legal and regulatory framework and supervisory oversight need to take into account the difference between the risk profile of a typical Islamic bank and a conventional bank.

Originality/value

Although it is well accepted that without adequate regulatory involvement it would not be possible to control and mitigate the risks related to Islamic banking financial intermediation, there should be a balance between the growth and stability of the industry. The regulatory involvement that satisfies this balance would be welcome.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 13 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 13 October 2021

Anas Alaoui Mdaghri and Lahsen Oubdi

This paper aims to investigate the potential impact of the Basel III liquidity requirements, namely, the net stable funding ratio (NSFR) and the liquidity coverage ratio (LCR), on…

Abstract

Purpose

This paper aims to investigate the potential impact of the Basel III liquidity requirements, namely, the net stable funding ratio (NSFR) and the liquidity coverage ratio (LCR), on bank liquidity creation.

Design/methodology/approach

The authors developed a dynamic panel model using the Quasi-Maximum Likelihood estimation on an unbalanced panel dataset of 129 commercial banks operating in 10 Middle Eastern and North African (MENA) countries from 2009 to 2017.

Findings

The results show that the NSFR significantly negatively affects liquidity creation. Similarly, the LCR exerts a substantial negative impact on the liquidity creation of the sampled MENA banks. These findings suggest that complying with both liquidity requirements tends to curtail liquidity creation. Moreover, further regression analysis of large and small bank sub-samples uncovered results similar to the overall MENA sample.

Research limitations/implications

The findings raise interesting policy implications and suggest a trade-off between the benefits of the financial resiliency induced by implementing liquidity requirements and the creation of liquidity essential for promoting economic growth in the region.

Originality/value

Most empirical research focuses on the relationship between bank capital and liquidity creation. To the knowledge, this paper is the first to provide empirical evidence on the effect of both the NSFR and LCR regulatory liquidity standards on bank liquidity creation in the MENA region.

Details

Journal of Financial Regulation and Compliance, vol. 30 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Book part
Publication date: 26 March 2024

Vikas Sharma, Munish Gupta and Kshitiz Jangir

Introduction: Commercial banks play a vital role in the global economy, facilitating economic growth and providing essential financial services. As key intermediaries between…

Abstract

Introduction: Commercial banks play a vital role in the global economy, facilitating economic growth and providing essential financial services. As key intermediaries between savers and borrowers, these institutions operate in a dynamic and complex environment characterised by various risk factors that can significantly impact their profitability and overall stability. Understanding the interconnected relationships between credit risk, interest rate risk, liquidity risk, and profitability is crucial for effective risk management strategies and the development of appropriate regulatory frameworks.

Purpose: Commercial banks play a critical role in the global economy by facilitating economic growth and providing financial services. This study examines the interconnected relationships between credit risk, interest rate risk, liquidity risk, and profitability in commercial banking.

Methodology: The sample consists of licenced scheduled commercial banks on the Bombay Stock Exchange (BSE) from 2015 to 2022. Using the Smart PLS-SEM 3.0 path analysis technique, the study evaluates the combined influence of these risk factors on profitability and provides evidence-based recommendations for risk management strategies.

Findings: The findings can assist banks in enhancing their risk management practices, and regulators in developing appropriate regulatory frameworks. By understanding the key risk factors and their impact on profitability, banks and regulators can mitigate risks, enhance transparency, and promote stability within the banking sector.

Significance/value: The value of this study lies in its focus on the interconnectedness of risk factors, profitability, and the potential implications for decision-making, risk management strategies, regulatory frameworks, and the overall stability of the commercial banking sector.

Details

The Framework for Resilient Industry: A Holistic Approach for Developing Economies
Type: Book
ISBN: 978-1-83753-735-8

Keywords

Article
Publication date: 17 October 2023

Megha Jaiwani and Santosh Gopalkrishnan

The study examines whether the Basel-III regulations impact the financial performance, operational efficiency and resilience of Indian banks. Further, the study tests whether…

Abstract

Purpose

The study examines whether the Basel-III regulations impact the financial performance, operational efficiency and resilience of Indian banks. Further, the study tests whether there is a variance in the impact between private- and public-sector banks.

Design/methodology/approach

The study uses panel data regression on data from 16 private- and 12 public-sector banks from the years 2016–2022. Random-effect estimation is used, and robust standard errors are calculated.

Findings

The main findings indicate that the Basel-III regulations related to capital and leverage boost public-sector banks' financial performance and resilience. However, a similar impact is not detected in the case of private-sector banks.

Practical implications

The findings signify that the Basel-III framework does not address the differences between public and private-sector banks. Therefore, the policy implications are of practical importance and indicate that Basel-III regulations should not be considered a one-size-fits-all type of bank. Instead, policymakers should consider the structural differences between private and public-sector banks concerning Basel-III regulations.

Originality/value

The study addresses a significant limitation of the Basel-III regulations, which, in their current state, somehow fail to account for the differences between the public- and private-sector banks.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 8 February 2024

Isaac Bawuah

This study investigates the relationship between bank capital and liquidity creation and further examines the effect that institutional quality has on this relationship in…

Abstract

Purpose

This study investigates the relationship between bank capital and liquidity creation and further examines the effect that institutional quality has on this relationship in Sub-Saharan Africa (SSA).

Design/methodology/approach

The data comprise 41 universal banks in nine SSA countries from 2010 to 2022. The study employs the two-step system generalized methods of moments and further uses alternative estimators such as the fixed-effect and two-stage least squares methods.

Findings

The empirical results show that bank capital has a direct positive and significant effect on liquidity creation. In addition, the positive effect of bank capital on liquidity creation is enhanced, particularly in a strong institutional environment. The results imply that nonconstraining capital regulatory policies bolster bank solvency, improve risk-absorption capacity and increase liquidity creation.

Practical implications

This study has several policy implications. First, it provides empirical evidence on the position of banks in SSA on the financial fragility and risk-absorption hypothesis of bank capital and liquidity creation debates. This study shows that the effect of bank capital on liquidity creation in SSA countries is positive and supports the risk-absorption hypothesis. Second, this study highlights that a country's quality institutions can complement bank capital to increase liquidity creation. In addition, this study highlights that nonconstraining capital regulatory policies will bolster bank solvency, improve risk-absorption capacity and increase liquidity creation.

Originality/value

The novelty of this study is that it introduces the country's quality institutional environment into bank capital and liquidity creation links for the first time in SSA.

Details

African Journal of Economic and Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-0705

Keywords

Article
Publication date: 21 November 2008

Andreas Jobst, Peter Kunzel, Paul Mills and Amadou Sy

The most popular form of Islamic finance is commonly referred to as sukuk – wholesale, asset‐based capital market securities. The purpose of this paper is to enhance the general…

4966

Abstract

Purpose

The most popular form of Islamic finance is commonly referred to as sukuk – wholesale, asset‐based capital market securities. The purpose of this paper is to enhance the general understanding of essential policy considerations in the creation and development of sukuk markets.

Design/methodology/approach

This policy paper reviews the key developments in the sukuk market and informs a debate about challenges and opportunities going forward. The paper presents a qualitative analysis of economic, regulatory and legal issues that warrant consideration.

Findings

The paper finds that while the sukuk market continues to generate strong interest by new issuers in Muslim and non‐Muslim countries alike, some critical constraints arising from continued legal uncertainty and regulatory divergences still need to be overcome. As issuers weigh the costs and benefits of sukuk issuance in a broad policy context, continued efforts will be required to overcome a series of economic, legal and regulatory issues.

Originality/value

The paper presents, for the first time, a structured analysis of sukuk markets aimed at identifying key considerations for sovereign debt managers, especially in non‐Muslim countries.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 1 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 6 August 2020

Mehmet Asutay and Jaizah Othman

The global financial crisis of 2008 still has an impact on the financial systems around the world, for which funding liquidity has been mentioned as one of the main concerns…

Abstract

Purpose

The global financial crisis of 2008 still has an impact on the financial systems around the world, for which funding liquidity has been mentioned as one of the main concerns during that period. This study aims to consider the impact of and extent to which the funding structure of Islamic banks along with deposit structure, macroeconomic variables, other bank-specific variables, including alternative funding mix variables (in terms of funding structure measured as financing/deposit ratio), could play a part in explaining the financial conditions and predicting the failures and performances of Islamic banks in the case of Malaysia under the distress created by the global financial crisis.

Design/methodology/approach

Multivariate logit model was used with a sample including 17 full-fledged Islamic banks in Malaysia for the period from December 2005 to September 2010 by using quarterly data.

Findings

This study found that the funding mix variable (financing/deposit ratio), the composition of deposits, alternative bank-specific variables and alternative funding mix variables are statistically significant. In contrast, none of the macroeconomic variables is found to have a significant impact on bank liquidity. In the final models, the variables that showed significant performance were selected as explanatory variables. The results of McFadden R-squared for both selected models showed an excellent fit to predict the Islamic banks’ performance.

Originality/value

This empirical study contributes to the literature in two ways: to the best of the authors’ knowledge, this is the first study to examine the role of the funding structures of Islamic banks in determining their performance; and it also examines the effect of deposit composition (the mudharabah and non-mudharabah deposits) on Islamic banks’ performance.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 9
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 1 April 2014

Lukasz Prorokowski and Paulina Roszkowska

The purpose of this paper is to examine the extent to which Central European emerging stock markets (focusing on Poland) have been affected by the recent international financial…

1272

Abstract

Purpose

The purpose of this paper is to examine the extent to which Central European emerging stock markets (focusing on Poland) have been affected by the recent international financial crisis, and how the current investment climate (barriers, risks, challenges and opportunities) influences appetite for investments in Polish equities. In doing so, the study aims to report timely findings in relation to the determinants of the safety and profitability of international portfolio diversification to the Polish stock market.

Design/methodology/approach

Based on qualitative empirical research, the authors analyse the differences between the foreign (UK) and domestic (Poland) investors' views on equity investments in Poland. The study builds on questionnaires and interviews with practitioners associated with the Polish stock market.

Findings

The authors report that the global financial crisis influenced changes to domestic and international investors' appetite for risk related to equity investments in emerging stock markets: investors are more prudent about emerging markets but the Polish stock market has shown substantial growth potential and positively distinguished itself from other Central European stock exchanges; particular types of investment risks associated with equity investments in the Polish stock market have abated. Polish equities are an attractive component of the international portfolio diversification, provided that trading strategies are adjusted to the contemporary investment environment.

Originality/value

This paper addresses the absence of the academic literature devoted to the analysis of equity investments in the contemporary Central European emerging stock markets. The authors discuss the differences in appetite for risk between the UK and Polish investors and assumptions about investments in Poland. The authors also contribute to the international debate on investor protection and regulations that can improve investment processes.

Details

Baltic Journal of Management, vol. 9 no. 2
Type: Research Article
ISSN: 1746-5265

Keywords

Open Access
Article
Publication date: 10 June 2019

Beebee Salma Sairally

697

Abstract

Details

ISRA International Journal of Islamic Finance, vol. 11 no. 1
Type: Research Article
ISSN: 0128-1976

Article
Publication date: 20 February 2020

Aisyah Abdul Rahman, Shifa Mohd Nor and Mohd Fadzli Salmat

This paper aims to explore the strategies used by venture capital (VC) firms in assisting entrepreneurs who have business potential but lack capital. The study also aims to…

1036

Abstract

Purpose

This paper aims to explore the strategies used by venture capital (VC) firms in assisting entrepreneurs who have business potential but lack capital. The study also aims to investigate whether the VC strategy can be adopted by Islamic banks through musharakah financing.

Design/methodology/approach

Apart from content analysis, primary data were gathered from several interview sessions with the management of three VC firms and two Islamic banks.

Findings

Islamic banks in Malaysia have great potential to offer musharakah financing and mitigate risk by adopting the following five VC strategies: method of selection, channelling of funds, monitoring, non-capital assistance and period of investment. We propose the channelling of corporate social responsibility funds for musharakah financing as an initial step in applying VC strategy.

Research limitations/implications

Given the limited number of willing and eligible respondents in Malaysia, the scope of this study can be widened to a cross-country analysis where musharakah financing is widely adopted.

Practical implications

This study motivates regulatory bodies and Islamic banks to consider musharakah financing using the risk monitoring strategy adopted from the VC industry.

Originality/value

This study is the first to empirically explore the strategy adopted by VC companies and evaluate whether such a strategy is suitable for the concept of musharakah financing.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 4
Type: Research Article
ISSN: 1759-0817

Keywords

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