The key objective of this paper is to analyse the management of liquidity risk in islamic banks liabilities. Management liquidity management and profitability in islamic banks of kurdistan region of iraq. Risk analysis for islamic banks hennie van greuning and zamir iqbal. Merchant bradford university school of management abstract numerous precious researches that have been conducted at professional and academia level have established islamic banking to be superior and a viable manner of banking in terms of profitability and stability. The analysis in this study focuses on the comparative liquidity situation of an islamic bank. The case of indonesia rifki ismal islamic banking and finance has shown progressive development all over the world since its inception as a commercial banking model in mid1970s. Risk management in islamic banking deals with minimizing lack of information and maximizing control through sharia approaches such as profit. Pdf liquidity management practices in islamic banking semantic. This aim is fulfilled in the case of indonesian islamic banking industry. The way forward muhammed islami onal abstract even though very small compared with conventional finance, there has been significant growth in islamic financial services during recent years. Apr 27, 2012 report on liquidity management of conventional and islamic banks posted on april 27, 2012 by free4u liquidity is the availability of funds, or assurance that funds will be available, to honor all cash outflow commitments both on and offbalance sheet as they fall due. Pdf risk management in islamic and conventional banks. Developing islamic liquidity management instruments munich.
Thus, achieving this superior award shows us that the local banks are taking risk management very seriously and it testifies the superior risk management practices adopted by the bank and the investment they have made over the years to make risk management as one of their core competency of their overall success. Developing islamic liquidity management instruments. Cihan bank for islamic investment and finance as a case study abdulla ibrahim aziz 1, atheer anwar sharif 2, delan ghafoor salih 3 1 sulaimani polytechnic university, kurdistan region, iraq 2 anbar university, iraq. A shortterm liquidity management tool in islamic banks abstract contrary to the ideal islamic banking model of profitlosssharing pls arrangements between depositors and shareholders of the bank, which should make. As a result of such behaviour, banks are exposed to liquidity risk. Secondly, due to gradual growth of financial instruments, it is difficult for islamic banks to. Liquidity risk, conventional banks, islamic banks, pakistan. The development of new products, such as sukuks islamic bonds, has also broadened the range of products available. Since the last subprime financial crisis, banks pay special attention to liquidity management. Durham etheses the management of liquidity risk in islamic. Liquidity management in islamic financial institutions. Capital adequacy ratio car negatively affects the performance of islamic banks 2.
Resolving the impasse between central bank of nigeria cbn and jaiz bank plc. State of liquidity management in islamic financial institutions. Empirical study of islamic banks versus conventional banks of gcc. Among all the islamic financial institutions, banks emerged. Essentially, regulators thought that in developed countries, a run on the bank was a thing of the past. Liquidity risk, liquidity risk management, islamic banking and finance. The aim of this research, hence, is to analyze the management of liquidity risk in islamic banks through balancing assets and liabilities with the ultimate objective to recommend policies to improve the management of liquidity risk. The nine financial ratios are used under i profitability ii liquidity risk and iii credit risk to measure the efficiency and performance. It is not surprising that this growth is forecast to continue at a rapid pace. Although liquidity shortage is a genuine concern for islamic banks, but practically the excess of liquidity has been the hallmark making liquidity management a case of profit maximization even by. Keywords liquid assets, risk management, banks, banking, liquidity, islam, indonesia. Issues and challenges as a financial intermediation, banking industry has and will always be bound with mismatch maturity problem between asset and liabilities which leads to liquidity issue. Firstly, the trend analysis method is utilized where yearly financial. Financial disintermediation and profitability of global islamic banks.
Muzahidul islam1 hasibul alam chowdhury2 abstract liquidity management is undoubtedly one of the most crucial tasks of a bank. Thus by using a dynamic panel data estimation for 17 islamic banks, this study tried to see how islamic banking of malaysia manage their liquidity in response to changes on the basis of several factors other than providing a realistic number of policy implications. Munich personal repec archive risk management in islamic banks helmy, mohamed eslsca business school 20 april 2012 online at. In this study, the research focuses on car, fexp, flp, npf npl, nim, roa and size by comparing the relationship of these variables between islamic banks and conventional banks.
A comparative study between conventional and islamic banks of pakistan. The issue of liquidity management in islamic finance needs to be addressed against the background of the developments that are taking place in conventional finance. This study employs panel logit regression to assess the determinants of liquidity risk of islamic banks in sudan, during the period 20122016, for 25 banks. Financial disintermediation and profitability of global. Pdf issues management of liquidity of islamic banks. This paper examines the sound practices for the liquidity risk management in banks. Comparison between islamic and conventional banking 310 performance. The demand for islamic banking and islamic products is increasing and these products and services are being introduced by wellknown. Assessment of liquidity risk management in islamic and conventional banks an empirical study article pdf available in international journal of business excellence 11. The impact of global financial crisis on the stability of. Empirical study of islamic banks versus conventional banks of gcc by imtiaz. Through this communication, we will try to present, first, a summary of the dilemma of liquidity management in islamic banks. An instrument for managing liquidity risk in islamic banks sekoni abiola muttalib abstract.
Regulation and supervision of islamic banks prepared by alejandro lopez mejia, suliman aljabrin, rachid awad, mohamed norat, and inwon song1 authorized for distribution by michaela erbenova december 2014 abstract this paper aims at developing a better understanding of islamic banking ib and. Pdf islamic finance as being practiced is losing its meaning and rationale despite its established strengths, due mainly to replication of almost all. Islamic finance and liquidity management the issue of liquidity management in islamic finance needs to be addressed against the background of the developments that are taking place in conventional finance. While we find that islamic banks are more costeffective in a large sample of countries, this advantage turns around when we focus on a sample of countries with both conventional and islamic banks.
Using three measures of liquidity this paper analyses the state of liquidity and the risk management practices of islamic banks. Islamic banking liabilities deposits and assets models, with regard to liquidity management, have found the significant role of following. Abstract the banking sector is viewed as an important source of financing for many businesses. It is clear that the issue of liquidity management had been seriously neglected by regulators. Maturity transformation, that is, conversion of short term liabilities into longer term financing, is the core business of banks, therefore, by the very nature of their business, the banks. Effective liquidity risk management helps ensure a banks ability to meet its obligations as they fall due and reduces the probability of an adverse situation developing. It will give clear understanding of the efficiency and performance of islamic banking to decision makers. The latter is a dilemma and a challenge for all financial institutions.
Indonesia, as the largest moslem nation in the world, has initiated some policies to expand the islamic banking. Pdf bank liquidity stands as a key pillar in the survival of the financial system as it reflects its robustness and maturity. Comsats institute of information technology abbottabad, pakistan. Introduction in the last few decades the increasing significance of islamic finance has been observed. Financing lease by mechanism prevents islamic bank from asset risk damage, loss, defect, etc but it needs more effort compared to operational lease. For a number of causes, islamic banks are assumed to come across with considerable liquidity risk. A survey sabri mohammad abstract one of the most important functions of banks is the transformation of maturities, i.
First, there are limitations from fiqh on the securitization of the present assets of islamic banks, which are principally debt in nature. Pdf on jan 1, 2014, abu umar faruq ahmad and others published liquidity management of islamic banks. This paper investigates different liquidity management aspects of islamic banking industry in pakistan. Pdf liquidity management by islamic banks in pakistan. Absence of an islamic interbank market lack of shariah compliant alternatives both at interbank and central bank level. These ratios are applied on financial statements of these islamic and conventional banks. A comparative study of liquidity management of an islamic. To document the relationship between the performance of islamic banks and financial stability, time series data from 2005 to 2010 for all fledged islamic banks working in ksa are used. Report on liquidity management of conventional and islamic banks. Islamic finance has spread beyond commercial banks, and now spans investment banks, insurance companies, as well as investment e. The core of present paper is the question of whether the liquidity management in islamic banks is efficient or not, the primary dependent variable is the zscore as a measure of islamic banks liquidity management soundness.
The efficiency of liquidity management in islamic banks. Assessment of liquidity management in islamic banking industry. However, the very nature of islamic banks with their objective. Malaysian islamic banking sector has been chosen as a case study. According to a survey on liquidity risk management practices of islamic banks conducted by islamic financial services board technical note, 2008 commodity murabaha, interbank placement of funds under various profit sharing arrangements and islamic mutual funds are the most common instruments used for liquidity management by islamic. Islamic banks may not do and must avoid this created gharar because created gharar means creating problem of uncertainty or playing with uncertainty condition.
Pdf issues management of liquidity of islamic banks issues. Islamic liquidity managementpresen liquidity management specially in short term has been a continuous challenge worldwide for islamic banks and especially in pakistan. State of liquidity management in islamic financial institutions s alman s yed a li abstract liquidity position and liquidity risk of islamic financial institutions has been changing over time. This paper investigates different liquidity management islamic banking aspects of islamic banking industry in pakistan. This paper highlights the special and general risks surrounding islamic banking. A comparative study of liquidity management of an islamic bank and a conventional bank. One of the most essential functions of banks is the transformation. Pdf assessment of liquidity risk management in islamic. Banks with deposit insurance schemes through temporal smoothing of risk include forbidden lending with interest, as well as forbidden insurance sale i. Sukmana and suryaningtiyas 2016 examined the roa, car and npf npl.
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