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Article
Publication date: 10 May 2018

Haroon Mahmood, Christopher Gan and Cuong Nguyen

Maturity transformation risk is one of the leading causes of the global financial crisis. While endorsing the new Basel III liquidity reforms, the Islamic Financial…

Abstract

Purpose

Maturity transformation risk is one of the leading causes of the global financial crisis. While endorsing the new Basel III liquidity reforms, the Islamic Financial Services Board has suggested a modified NSFR ratio as a structural measure for the maturity transformation function of Islamic banks, allowing for their unique balance sheet structure. The purpose of this paper is to analyze various firm-specific and macroeconomic factors that may significantly affect the maturity transformation risk of these banks.

Design/methodology/approach

Using an annual data set of 55 full-fledged Islamic banks from 11 different countries over a period from 2006-2015, this study utilizes a two-step system generalized method of moments estimation technique on an unbalanced panel data.

Findings

The empirical results reveal bank size, capital, less-risky liquid assets, risky liquid assets, external funding dependence and market power as significant bank-specific factors in determining maturity transformation risk. However, the authors find no evidence for the effect of bank credit risk on maturity transformation risk in Islamic banking system.

Originality/value

This is the first study that focuses on the measurement of maturity transformation risk and its determinants in Islamic banks in a cross-country context, with regards to new liquidity regulatory requirements as proposed by Islamic Financial Services Board (IFSB) in conjunction with Basel III.

Details

Managerial Finance, vol. 44 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 11 February 2021

Wassim Ben Ayed, Rim Ammar Lamouchi and Suha M. Alawi

The purpose of this study is to investigate factors influencing the net stable funding ratio (NSFR) in the Islamic banking system. More specifically, the authors analyze…

Abstract

Purpose

The purpose of this study is to investigate factors influencing the net stable funding ratio (NSFR) in the Islamic banking system. More specifically, the authors analyze the impact of the deposit structure on the liquidity ratio using the two-step generalized method of moments approach during the 2000–2014 period.

Design/methodology/approach

Based on IFSB-12 and the GN-6, the authors calculated the NSFR for 35 Islamic banks operating in the Middle East and North Africa (MENA) region.

Findings

The findings of this study show the following: first, ratio of profit-sharing investment accounts have a positive impact on the NSFR, while ratio of non profit-sharing investment accounts increase the maturity transformation risk; second, the results highlight that asset risk, bank capital and the business cycle have a positive impact on the liquidity ratio, while the returns on assets, bank size and market concentration have a negative impact; and third, these results support the IFSB’s efforts in developing guidelines for modifying the NSFR to enhance the liquidity risk management of institutions offering Islamic financial services.

Research limitations/implications

The most prominent limitation of this research is the availability of data.

Practical implications

These results will be useful for authorities and policy makers seeking to clarify the implications of adopting the liquidity requirement for banking behavior.

Originality/value

This study contributes to the knowledge in this area by improving our understanding of liquidity risk management during liquidity stress periods. It analyzes the modified NSFR that was adopted by the IFSB. Besides, this study fills a gap in the literature. Previous studies have used the conventional ratios to determinate the main factors of the maturity transformation risk in a full-fledged Islamic bank based on an early version of NSFR. Finally, most studies focus on the NSFR as proposed by the Basel Committee, whereas the authors investigate the case of the dual-banking system in the emerging economies of seven Arab countries in the MENA region.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 4 May 2012

Ahmed Arif and Ahmed Nauman Anees

The purpose of this paper is to examine liquidity risk in Pakistani banks and evaluate the effect on banks' profitability.

15513

Abstract

Purpose

The purpose of this paper is to examine liquidity risk in Pakistani banks and evaluate the effect on banks' profitability.

Design/methodology/approach

Data are retrieved from the balance sheets, income statements and notes of 22 Pakistani banks during 2004‐2009. Multiple regressions are applied to assess the impact of liquidity risk on banks' profitability.

Findings

The results of multiple regressions show that liquidity risk affects bank profitability significantly, with liquidity gap and non‐performing as the two factors exacerbating the liquidity risk. They have a negative relationship with profitability.

Research limitations/implications

The period studied in this paper is 2004‐2009, due to availability of the data. However, the sample period does not impair the findings since the sample includes 22 banks, which constitute the main part of the Pakistani banking system. Moreover, only profitability is used as the measure of performance. Economic factors contributing to liquidity risk are not covered in this paper.

Originality/value

This is the first paper addressing the liquidity risk faced by the Pakistani banking system. Past researchers and practitioners have not given the proper attention to liquidity risk. This paper helps in understanding the factors of liquidity risk and their impact on the profitability of the banking system. The authors emphasise contemporary risk managers to mitigate liquidity risk by having sufficient cash resources. This will reduce the liquidity gap, thereby reducing the dependence on repo market.

Details

Journal of Financial Regulation and Compliance, vol. 20 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Abstract

Details

Tools and Techniques for Financial Stability Analysis
Type: Book
ISBN: 978-1-78756-846-4

Book part
Publication date: 16 February 2006

Ilko Naaborg and Bert Scholtens

The banking sector in the new European Union Member States (NMS)1 has changed dramatically since the transition from centrally planned to market-based economies.2 In 1993…

Abstract

The banking sector in the new European Union Member States (NMS)1 has changed dramatically since the transition from centrally planned to market-based economies.2 In 1993, the ratio of average banking assets to gross domestic product (GDP) was 53 per cent, and this had increased to 72 per cent by 2000. However the banking sector in NMS is, however, still relatively small compared to the former European Union 15 (EU-15), for which the same ratio was 140 per cent in 2000. In NMS the level of bank intermediation is also low. In 2000, the ratio of private sector credit to GDP was less than 40 per cent, whereas in the euro area it was 100 per cent. A third distinguishing feature of NMS banks is that foreign investors now dominate ownership. In 1995, 8 per cent of banking assets were in foreign hands, and by 2002 this had increased to 88 per cent.3 In contrast, banks in the former EU-15 are mainly domestically owned or are traded on national stock markets.

Details

Emerging European Financial Markets: Independence and Integration Post-Enlargement
Type: Book
ISBN: 978-0-76231-264-1

Abstract

Details

Understanding Financial Stability
Type: Book
ISBN: 978-1-78756-834-1

Abstract

Details

The Corporate, Real Estate, Household, Government and Non-Bank Financial Sectors Under Financial Stability
Type: Book
ISBN: 978-1-78756-837-2

Article
Publication date: 16 December 2019

Kaouther Toumi

The paper aims to investigate whether the Islamic banks (IBs) and the conventional banks (CBs) could be distinguished from one another on the basis of their capital…

Abstract

Purpose

The paper aims to investigate whether the Islamic banks (IBs) and the conventional banks (CBs) could be distinguished from one another on the basis of their capital structure, profitability and their respective determinants with using a multivariate statistical method for analysis of data.

Design/methodology/approach

The paper provides a comparative study based on a predictive model, the binary logistic regression, using a sample of 53 listed CBs and 45 listed IBs from the Middle East region for the period 2006-2014.

Findings

The binary logistic regression reveals that profitability and capital structure are good predictors that help to distinguish between the two categories of banks. Results suggest that higher are the net margin and capital ratio, higher is the probability that the bank is Islamic. For the return on assets, results show that lower is this value; higher is the likelihood that the bank is Islamic. Regarding their related determinants, the findings suggest first that banks with higher dividend payout policy, financing ratio, costs ratio and insolvency risk are more likely to be Islamic. Second, results suggest that banks with lower collaterals, size and credit risk are more likely to be Islamic.

Research limitations/implications

The study contributes to the growing literature on corporate finance and Islamic banking. Analyzing the capital structure and profitability of the two categories of banks is important for investors, financial analysts and regulators. Understanding the differences contributes to understand how following Islamic finance principles and being under Sharīʿah governance could impact the bank profitability and financial decision, as well as investors behavior.

Originality/value

The study contributes to the scare literature dedicated to the use of the multivariate statistical methods for the analysis of data to compare the financial characteristics of IBs and CBs.

Details

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

Keywords

Abstract

Details

The Impacts of Monetary Policy in the 21st Century: Perspectives from Emerging Economies
Type: Book
ISBN: 978-1-78973-319-8

Content available
Article
Publication date: 22 June 2018

Muhammad Bhatti and Nafis Alam

3229

Abstract

Details

Managerial Finance, vol. 44 no. 6
Type: Research Article
ISSN: 0307-4358

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