Determinants of Maturity Transformation Risk in Islamic Banks : A Perspective of Basel III Liquidity Regulations

Mahmood, Haroon; Gan, Christopher; Nguyen, Cuong

doi:10.12816/0047346

Cited by 4 publications

(5 citation statements)

References 40 publications

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“…Therefore, given the presence of PLS, studying this type of bank will allow us to understand Islamic banking’s behavior in terms of adjusting a bank’s balance sheet to reduce the reliance on wholesale funding. This issue has not been addressed by earlier research (Abdul-Rahman et al , 2017; Mahmood et al , 2018), so, this study tries to bridge this gap in the literature.…”

Section: Introductionmentioning

confidence: 85%

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Does the deposit structure affect Islamic bank’s maturity transformation activities? The implications of IFSB liquidity guidelines

Ayed¹,

Lamouchi²,

Alawi³

2021

IMEFM

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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.

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Section: Introductionmentioning

confidence: 85%

“…Recently, Mahmood et al (2018) analyzed the main determinants of maturity transformation risk in 55 full-fledged Islamic banks operating in 11 different countries. Their results show that capital, size, external funding dependence and the consumer price index have a positive impact on maturity transformation risk.…”

Section: Literature Reviewmentioning

confidence: 99%

Does the deposit structure affect Islamic bank’s maturity transformation activities? The implications of IFSB liquidity guidelines

Ayed¹,

Lamouchi²,

Alawi³

2021

IMEFM

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“…Penelitian (Mahmood et al, 2018) mengungkapkan ukuran bank, modal, aset likuid yang kurang berisiko, aset likuid berisiko, ketergantungan pendanaan eksternal dan kekuatan pasar sebagai faktor spesifik bank yang signifikan dalam menentukan jatuh tempo risiko transformasi. Namun, hasil penelitian tidak menemukan bukti tentang pengaruh risiko kredit bank terhadap jatuh tempo risiko transformasi dalam sistem perbankan syariah.…”

Section: Kerangka Regulasi Keuangan Islamunclassified

Tantangan Regulasi Keuangan Bagi Perkembangan Perbankan Islam:

Gultom

Pandapotan²,

Majid

et al. 2022

ajeks

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The literature study of this article aims to analyze the challenges that must be considered by financial regulators, especially for Islamic financial institutions (Islamic banking). Literature study through content analysis by discussing the book Intermediate Islamic Finance by Nabil Maghrebi, Abbas Mirakhor, and Zamir Iqbal Wiley publisher in 2016 and 30 articles from emerald and direct science publisher which is the world's best journal publisher with a scopus index. The results of the content search found seven challenges in financial regulation, namely the calculation of profit and loss sharing (PLS) still referring to the interest system, the practice of implementing contracts overshadowed by conventional contracts, capital and minimum liquidity regulations still referring to general regulations, regulatory indicators in assessing efficiency still referring to in the general (conventional) model, weakness of regulations requiring Islamic financial institutions in and supervision, weakness of regulatory control in implementing good corporate governance, weaknes of sharia law courts dealing with violations of sharia law. Financial regulations have not fully sided with Islamic banking (sharia). Financial regulations must continue to be adjusted and rearranged so that Islamic banking can develop and develop in a healthy manner with conventional banking and be resilient in the face of crises. Key words : challenges, finance regulation, islamic banking

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“…According to Mahmood, Gan, & Nguyen (2017) the one of the major cause of recent financial crisis was, maturity transformation risk (where banks acquire short term deposits to finance long term financing).To control this transformation function Basel III has proposed regulations of liquidity requirements for banks. This study was used to analyze the effect of several factors that might affect maturity transformation risk in Islamic banks.…”

Section: Literature Reviewmentioning

confidence: 99%

“…According to Mahmood, Gan, & Nguyen (2017) when studying maturity transformation risk (where banks acquire short-term deposits to finance long-term financing), it was found that higher capital ratio requirements under Basel III helped Islamic banks to reduce their maturity transformation risk. Total loan to asset ratio and maturity transformation risk showed positive relationship indicating financing policies of the banks should be strictly monitored by regulators in order to manage liquidity risk.…”

Section: Impacts Of Basel III On Islamic Financementioning

confidence: 99%

Impacts of Basel III on Islamic Finance

Hidayat¹,

Nadeem²,

AlMadaifa³

et al. 2018

JIFS

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The Basel Committee on Banking Supervision (BCBS) has introduced Basel III which was initiated after the recent global financial crisis in an effort to strengthen the regulatory regime of the banking sector. Basel III has introduced several modifications such as added liquidity requirement ratios in addition to strengthening capital requirements. This paper examines the impact of Basel III regulatory framework on Islamic Finance from a theoretical point of view. Using content analysis, this study finds that the impact of Basel III on Islamic Finance is relatively smaller than conventional finance since their model does not support short selling and non-Shari'ah complaint derivatives and thus they are having this competitive advantage over their conventional counterpart. However, it is important to highlight that deep examination of Islamic Banks' nature, specifications, and the way they conduct business is required to identify issues not considered by the Basel III framework. As Islamic Banks will not be able to fully adopt Basel III framework without any modifications that are in line with their specifications and nature. Thus, recommending IFSB to adapt these new requirements and issue new standards by considering Islamic finance industry when doing so. There is also a need for a robust infrastructure for Islamic financial institutions for their sound liquidity and smooth functioning, which will include development of Islamic money market and securities market. In addition, there is need for innovating new Shari'ah compliant products for Islamic financial institutions instead of just mimicking conventional products.

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Determinants of Maturity Transformation Risk in Islamic Banks : A Perspective of Basel III Liquidity Regulations

Cited by 4 publications

References 40 publications

Does the deposit structure affect Islamic bank’s maturity transformation activities? The implications of IFSB liquidity guidelines

Does the deposit structure affect Islamic bank’s maturity transformation activities? The implications of IFSB liquidity guidelines

Tantangan Regulasi Keuangan Bagi Perkembangan Perbankan Islam:

Impacts of Basel III on Islamic Finance

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