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Open Access
Article
Publication date: 3 February 2023

Mohammad Alsharif

This study aims to extend the literature by extensively investigating the impact of foreign exchange and interest rate changes on the returns and volatility of bank stocks in…

1624

Abstract

Purpose

This study aims to extend the literature by extensively investigating the impact of foreign exchange and interest rate changes on the returns and volatility of bank stocks in Saudi Arabia, which is the largest dual banking industry.

Design/methodology/approach

This study employs the generalized autoregressive conditional heteroscedasticity (GARCH) model on stock returns of four fully Islamic Saudi banks and eight conventional Saudi banks.

Findings

The results showed that the foreign exchange rate return has a positive impact on Saudi conventional bank returns, while it has an adverse impact on Saudi Islamic bank returns. Moreover, a higher interest rate return has a positive impact on Saudi bank stock returns implying that the assets side is more sensitive to changes in interest rates than the liability side. Finally, higher foreign exchange and interest rates volatility increases the volatility of Saudi bank returns, where the former has the largest significant impact. Therefore, Saudi regulators should pay more attention to the risk management of their banks because this could threaten the stability of their financial system.

Originality/value

To the best knowledge of the author, this is the first study that tries to extensively analyze the joint impact of foreign exchange and interest rates on bank stock returns and volatility in Saudi Arabia by applying the GARCH model. The study uses a long data set from 2010 to 2019 that includes all Saudi banks and employs four measures of interest rates to increase the robustness of the results.

Details

Journal of Money and Business, vol. 3 no. 1
Type: Research Article
ISSN: 2634-2596

Keywords

Article
Publication date: 1 July 1995

Iqbal Mansur and Elyas Elyasiani

This study attempts to determine whether the level and volatility of interest rates affect the equity returns of commercial banks. Short‐term, intermediate‐term, and long‐term…

Abstract

This study attempts to determine whether the level and volatility of interest rates affect the equity returns of commercial banks. Short‐term, intermediate‐term, and long‐term interest rates are used. Volatility is defined as the conditional variance of respective interest rates and is generated by using the ARCH estimation procedure. Two sets of models are estimated. The basic models attempt to determine the effect of contemporaneous and lagged interest rate volatility on bank equity returns, while the extended models incorporate additional contemporaneous macroeconomic variables. Contemporaneous interest rate volatility has little explanatory power, while lagged volatilities do possess some explanatory power, with the lag length varying depending on the interest rate series used and the time period examined. The results from the extended model suggest that the long‐term interest rate affects bank equity returns more adversely than the short‐term or the intermediate‐term interest rates. The findings establish the relevance of incorporating macroeconomic variables and their volatilities in models determining bank equity returns.

Details

Managerial Finance, vol. 21 no. 7
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 17 October 2020

Walid Mansour

This paper aims to propose a conceptual framework for the assessment of Islamic financial products’ development.

Abstract

Purpose

This paper aims to propose a conceptual framework for the assessment of Islamic financial products’ development.

Design/methodology/approach

A coordinate grid with two perpendicular axes (profitability and compliance to Shari’ah) is developed and used to produce a nine-zone matrix. The research design is further developed by using a linear, composite index to assess product development feasibility and specifications. Subsequently, three strategic paths are identified: profitability-led strategic path, compliance-led strategic path and intermediate strategic path.

Findings

The findings indicate that the ideal strategic behavior the Islamic financial institutions have to borrow corresponds to the intermediate strategic path because it optimizes the trade-off between the two attributes under consideration. A proper development strategy of Islamic financial products should not ignore the compliance to the substance of Shari’ah and combine it simultaneously with profitability.

Originality/value

The paper’s originality consists in the identification of the portfolio of Islamic financial products’ strategic positioning in the nine-zone matrix and the determination of the most suitable product development strategy.

Details

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

Keywords

Article
Publication date: 1 August 1999

Andreas G. Merikas

Outlines the effect of exchange rate fluctuations on bank performance and investigates the relationship between exchange rate exposure and stock value for eight major Greek banks…

Abstract

Outlines the effect of exchange rate fluctuations on bank performance and investigates the relationship between exchange rate exposure and stock value for eight major Greek banks. Explains the methodological problems involved, develops a mathematical model and applies it to 1995‐1998 data for the banks. Discusses the results for each bank individually and suggests that although their stock returns are affected by exchange rate variations, other factors (e.g. asset/liability structure, management style etc.) are also important. Calls for further research on the impact of changes in exchange rates.

Details

Managerial Finance, vol. 25 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 14 October 2019

Suzanna ElMassah, Ola AlSayed and Shereen Mostafa Bacheer

The purpose of this study is to investigate the main factors that affect liquidity risk in the UAE Islamic banks.

Abstract

Purpose

The purpose of this study is to investigate the main factors that affect liquidity risk in the UAE Islamic banks.

Design/methodology/approach

The study examines the annual data of the seven UAE Islamic banks over the period 2008-2014. Random effects panel data model is used to estimate the impact of four bank-specific variables and two macroeconomic ones on the liquidity risk of the UAE Islamic banks via their impact on five alternative liquidity ratios.

Findings

The paper finds that bank size has a negative impact on liquidity risk according to two liquidity ratios only, and an insignificant impact according to the other three. Both capital adequacy and London interbank offered rate have significant negative impacts on liquidity risk for three liquidity ratios, and insignificant impacts on two. The effect of credit risk is negative for all adopted ratios, while that of return on assets is negative for one ratio only. Finally, real GDP has a positive effect on two ratios and an insignificant one on the others.

Research limitations/implications

The study provides insights for policymakers and practitioners to choose appropriate liquidity management procedures. It emphasizes that identifying efficient procedures or policies depends on the liquidity ratio that is used as a proxy of liquidity risk and its definition, in addition to the correlation between the liquidity ratio and liquidity risk. The study also provides some guidance to Islamic banks in the UAE concerning the main factors impacting their liquidity, which can eventually enable them to support their liquidity management policies, in a way that would expand their customer base according to profitability aspects, and not only religious ones.

Originality/value

The paper adds to the relatively limited literature on liquidity risk in Islamic banks. It also is the first study that investigates the determinants of liquidity risk facing Islamic banks in the UAE using five alternative liquidity ratios.

Details

Journal of Islamic Accounting and Business Research, vol. 10 no. 5
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 10 July 2017

Guido Heineck

The purpose of this paper is to investigate the relationship between religious involvement and attitudinal (importance of helping others and of being socially active) and…

Abstract

Purpose

The purpose of this paper is to investigate the relationship between religious involvement and attitudinal (importance of helping others and of being socially active) and behavioral components of prosociality (volunteering, charitable giving, and blood donations) in Germany.

Design/methodology/approach

The empirical analyses are based on representative, longitudinal data from the German Socio-Economic Panel, which allows avoiding issues of reverse causality.

Findings

The results suggest for a moderate, positive link between individuals’ religious involvement as measured by church affiliation and church attendance and the prosociality aspects addressed. Despite the historic divide in religion, the results in West and East Germany do not differ substantially in terms of the underlying mechanisms.

Originality/value

The paper complements the growing literature from experimental economics on the relationship between individuals’ religiosity and their prosociality. Based on representative longitudinal data, it contributes by providing evidence for Germany for which there is barely any insight yet and by addressing a wider range of attitudinal and (self-reported) behavioral components of prosociality.

Details

International Journal of Social Economics, vol. 44 no. 7
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 16 November 2015

Salma Louati and Younes Boujelbene

The purpose of this paper is to examine and compare the market power and the efficiency-stability of Islamic and conventional banks in the MENA zone and South East Asia during the…

1722

Abstract

Purpose

The purpose of this paper is to examine and compare the market power and the efficiency-stability of Islamic and conventional banks in the MENA zone and South East Asia during the 2005-2012 period.

Design/methodology/approach

The author applied an empirical approach in two steps. First, the author estimates the Lerner indicator, which is a measure of competition. Then, this measure is regressed and other explanatory variables on the banking “stability-efficiency” are derived simultaneously from the estimation of a stability stochastic frontier.

Findings

The author concludes that increased competition in the Islamic banking sector promotes the overall banking stability. Besides, whether there is a low or high competitiveness, the size of an Islamic bank is positively related to financial stability. However, large conventional banks operating in market with limited competitiveness become more involved in the risk behavior. The author concludes that capitalization has a positive effect on stability only in case of low competitiveness.

Originality/value

The originality of this research lies in the application of the stochastic frontier approach (SFA) on the Z-score indicator. This methodology enables to take into account the differences between the current and the optimum stability that each bank can achieve, thus creating a new measure of financial stability called “efficiency-stability”.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

Open Access
Article
Publication date: 15 February 2022

Takwa Zitouni and Khoutem Ben Jedidia

Islamic microfinance is a substantial tool for poverty alleviation and economic empowerment. The paper aims at accessing the potential of Islamic microfinance for the purpose of…

2187

Abstract

Purpose

Islamic microfinance is a substantial tool for poverty alleviation and economic empowerment. The paper aims at accessing the potential of Islamic microfinance for the purpose of achieving the economic empowerment in Tunisia.

Design/methodology/approach

A structured questionnaire survey method is used. The method is intended for some of the beneficiaries of Zitouna Tamkeen (ZT), the only Islamic microfinance institution in Tunisia. Responses are analyzed using the statistical package for the social sciences program.

Findings

The authors infer that though the Islamic and conventional microfinance have similar objectives, the methods are different. What is more, the economic empowerment requires not only financial inclusion and entrepreneurship, but also skill development. The results of the survey reveal that ZT has contributed to certain economic empowerment of most of ZT's beneficiaries. In addition, the authors bring to the fore that providing supportive infrastructure and investment is a prominent component of the economic empowerment process.

Research limitations/implications

In the paper, the sample is limited.

Practical implications

The authors have highlighted that some structural barriers to entrepreneurship – such as legal, operational and marketing challenges – need to be addressed in a practical way.

Originality/value

This paper establishes the relationship between the Islamic microfinance and economic empowerment. The current paper is the first investigation in this field in Tunisia.

Details

Journal of Business and Socio-economic Development, vol. 2 no. 1
Type: Research Article
ISSN: 2635-1374

Keywords

Article
Publication date: 4 October 2017

Serkan Yuksel

This paper aims to shed light on the risk structure in the presence of Islamic banking. The author concentrates on the relationship between Islamic banking and conventional…

Abstract

Purpose

This paper aims to shed light on the risk structure in the presence of Islamic banking. The author concentrates on the relationship between Islamic banking and conventional banking in Turkey. Islamic banking and conventional banking are considered to be different kinds of sources for funding. Returns in the conventional banking are expected to be heavily influenced by the interest rate in the money market. However, Islamic banking returns are interest-free so that interest rate changes are not expected to affect the deposit returns in Islamic banks. Interest rates in the economy are a proxy to highlight the general risk level of the economy. By looking at the causal relationship between the deposit returns of both Islamic banks and conventional banks, it is possible to address the different types of banking in the general risk structure of the economy. This is one of the first studies to address the mentioned difference in banking sector in Turkish economy.

Design/methodology/approach

This paper tries to identify the direction of causality between Islamic and conventional banking term deposit rates by means of Granger Causality. Also, Granger Causality test results will guide to explore the Islamic and conventional banking deposit return linkages. The author has extended the study with vector autoregressive analysis to understand the correlation structure between conventional deposit rates and the profit–loss sharing ratio of Islamic Banks. The author has also extended this study with impulse response functions to see whether the shocks hitting into the conventional banking affect Islamic banking and vice versa.

Findings

The results suggest that there is no significant clear relationship between both banking sectors. This result can be interpreted, as Islamic banks do not adjust their profit–loss sharing (PLS) ratios pegged to the interest rate offered by conventional banks. Also, conventional banks determine their interest rate without any connection to the Islamic banking PLS ratios. Overall results of this study contradict the findings of studies which conclude that Islamic banking might not be different from the conventional banking. It is reported that inferences from pair-wise Granger causality alone might be spurious, as the analysis based on non-stationary series can be a consequence of time functional characteristics of the time series.

Social implications

The results can be taken as counter evidence to the hypothesis “Islamic banks determine their PLS ratios based on the interest rates offered by conventional banks”. This address that the Islamic banks may offer alternative financing methodology which has different procedure. Hence, Islamic finance can be taken as an alternative method with its asset-based healthier structure.

Originality/value

This is one of the first studies to address the Islamic versus interest-based banking difference in banking sector in Turkish economy. This paper tries to identify the direction of causality between Islamic and conventional banking term deposit rates by means of Granger causality.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 10 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 6 July 2020

Khoutem Ben Jedidia

The purpose of this paper is to empirically assess the impact of the principle of profit- and loss-sharing (PLS) on the exposure to liquidity risk of Islamic banks in Gulf…

Abstract

Purpose

The purpose of this paper is to empirically assess the impact of the principle of profit- and loss-sharing (PLS) on the exposure to liquidity risk of Islamic banks in Gulf Corporation Council (GCC) countries. The Islamic bank activity is distinguished by a PLS principle, which is likely to involve specificities in the bank liquidity issue.

Design/methodology/approach

This paper investigates the determinants of Islamic bank liquidity over the period 2005–2016 using a panel of 23 Islamic banks in GCC. The system of generalized method of moment estimators is applied.

Findings

The findings reveal that while profit-sharing investment accounts (PSIAs) are inversely proportional to Islamic bank liquidity, the PLS investment does not seem to act as a determinant of the bank liquidity. The fact that PSIAs are globally short-run accounts, but finance long-run projects leads to a substantial maturity mismatches, which limits the availability of liquidity buffer and exacerbates the bank’s exposure to liquidity risk. Moreover, capital adequacy ratio has significant and positive association with bank liquidity, as a strong capital ratio helps to strengthen the liquidity control. However, return on assets has a negative significant impact on bank liquidity. For instance, if the bank holds more cash, it deprives itself from placing funds and earning returns, which causes its profitability to decline.

Practical implications

This paper gives further insights to better improve the liquidity risk management in a context of scarcity of Shariah-compliant instruments. Islamic bank needs to determine the PLS purpose and goals to be consistent with the “bank’s financing policy” and convince its depositors to use their deposits for medium and long-run investments.

Originality/value

Unlike previous empirical research, this investigation tries to better grasp the Islamic bank liquidity issue by focusing on the PLS impact on liquidity risk. It aims to fill in the gap in the empirical literature on this topic.

Details

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

Keywords

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