Liquidity risk exposure and its determinants in the banking sector: A comparative analysis between Islamic, conventional and hybrid banks

Mohammad, Sabri; Asutay, Mehmet; Dixon, Rob; Platonova, Elena

doi:10.1016/j.intfin.2020.101196

Cited by 39 publications

(47 citation statements)

References 80 publications

(77 reference statements)

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“…Our empirical analysis contributes to the literature in three ways. First, this study extends the work of Mohammad (2014) and Berger et al (2018) by including almost all banks of 18 MENA countries. Second, this work is the first to analyse the relationship between liquidity creation and performance of conventional and Islamic banks in MENA.…”

Section: Introductionmentioning

confidence: 82%

“…Khan (2010) argues that by creating effective and productive financial activities, Islamic banks help to achieve equitable distribution of national income and thus contribute to improving the standard of living in a society. In addition, profit and loss contracts operated by Islamic banks promote long-term investments and create more liquidity (Mohammad, 2014). In sum, the nature of the activities and principles of Islamic banks lead to the following hypothesis:…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…Rather, it favours the channelling of funds to real economic activities that benefit the society and prohibits their employment in areas that are forbidden in Islam such as the selling and buying of alcohol, weapons or pork (Beck et al, 2013). These main differences lead Islamic banks to have significantly different balance sheets from their conventional counterparts, leading to different implications in relation to liquidity creation compared to conventional banks (Mohammad, 2014).…”

Section: Introductionmentioning

confidence: 99%

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Liquidity creation and bank performance: evidence from MENA

Sahyouni

Wang

2019

IJIF

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Purpose Islamic banks have significantly different balance sheets from their conventional counterparts, leading to different implications in relation to liquidity creation compared to conventional banks. This work, first, investigates the liquidity creation of conventional and Islamic banks in Middle Eastern and North African (MENA) countries between 2011 and 2016. It then tests the relationship between liquidity creation and performance of these banks. Design/methodology/approach It uses the data of 491 commercial banks across 18 MENA countries between 2011 and 2016. The analysis is based on panel data techniques. Findings The banks created US$18.596 trillion of liquidity, about 28.4% of total assets. Conventional banks created more liquidity compared with Islamic banks. Nevertheless, Islamic banks created more liquidity per asset compared with conventional banks. The regression analysis revealed a significant and negative correlation between liquidity creation and performance of the banks using return on average equity (ROAE) measure. However, no significant relationship is observed between liquidity creation and return on average assets (ROAA) of MENA banks. Moreover, there is no difference between Islamic and conventional banks in the relation between liquidity creation and bank performance. Research limitations/implications The data are limited to the period 2011-2016; the period of this study was selected based on yearly data availability from the data source. Accounting measures were used to study the effect of liquidity creation on bank profitability, and the market-based measures were excluded, as there is no uniform sources in these countries that can be used to collect market-based data. Practical implications Bank managers must reach a trade-off between the advantages and disadvantages of liquidity creation, as well as consider the negative relationship between liquidity creation and bank performance when making their decisions. Originality/value First, to the best of the authors’ knowledge, this work is the first to analyse the relationship between the liquidity creation and performance of conventional and Islamic banks in MENA. Second, this study uses a sample of Islamic and conventional banks in MENA that have detailed information on the Orbis Bank Focus dataset, which is the most comprehensive database of commercial banks in the MENA region.

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Section: Introductionmentioning

confidence: 82%

Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Liquidity creation and bank performance: evidence from MENA

Sahyouni

Wang

2019

IJIF

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“…These studies proliferated after the GFC and provide mixed results. Farooqi and O'Brien (2019) indicate that Islamic banks have lower operating risk and higher market risk compared to conventional ones in the Gulf State region, while Mohammad, Asutay, Dixon & Platonova (2020) and Abdel Megeid (2017) find higher liquidity risk for Islamic banks. With regard to credit risk, Ferhi (2018), Chamberlain, Hidayat & Khokhar (2020), Chamberlain et al (2020), and Akram and Rahman (2018) find that this is lower for Islamic banks.…”

Section: Previous Studiesmentioning

confidence: 99%

Does Islamic Banking Promote Financial Stability? Evidence From an Agent-Based Model

Tekdoğan¹,

Atasoy²

2021

JIMF

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Islamic banking has come to the forefront as being one of the fastest growing branch of the global financial industry in recent years. In this study we evaluate whether coexistence of Islamic and conventional banks promote financial stability. In this respect, we evaluate two types of financial systems: (1) A system solely comprised of conventional banks, (2) a dual system in which conventional and Islamic banks coexist and interact with each other. Accordingly, we design two agent-based models representing aforementioned systems and examine possible contagious effects and causes of bank failures by employing the volatility spillover methodology. We find that Islamic banks greatly promote stability by providing liquidity during financial shocks and create more liquidity per asset compared to conventional banks. We also find that they tend to hold more cash than conventional banks, which cushion the effects of a possible liquidity squeeze. Conventional banks, on the other hand, tend to have reserve deficits, which intensify during shock periods. We conclude that coexistence of both bank types creates a win-win situation and contributes to financial stability.

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“…The third study conducted by Mohammad and Austay (2010)[6] compared liquidity creation of IBs with conventional and hybrid banks as well as examined the determinants of liquidity creation. The authors used a sample of 58 commercial banks operating in the Gulf Cooperation Council (GCC) countries over the period 1992-2011.…”

Section: Literature Reviewmentioning

confidence: 99%

Determinates of Islamic banks liquidity

Al-Harbi¹

2020

JIABR

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Purpose The purpose of this paper is to investigate the determinants of Islam banks (IBs) liquidity. Design/methodology/approach In this paper, the author uses a generalized least square fixed effect model on an unbalanced panel data set of all IBs operating in the Organization of Islamic Cooperation countries over the period 1989-2008. Findings The estimation results show that all the determinants have statistically significant relationships with IBs’ liquidity but with different signs. On the one hand, foreign ownership, credit risk, profitability, inflation rate, monetary policy and deposit insurance negatively affected IBs liquidity. On the other hand, capital ratio, size gross domestic product growth and concentration have a positive nexus with IBs’ liquidity. Originality/value According to the best of the author’s knowledge, this is the first empirical study to investigate the determinants of IBs liquidity using cross-country data with a large sample of IBs (110 banks) and over a long period (19 years). Also, the paper included variables that had not been discussed on the previous studies, which used cross-country data, such as efficiency, deposit insurance, monetary policy, concentration and market capitalization.

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Liquidity risk exposure and its determinants in the banking sector: A comparative analysis between Islamic, conventional and hybrid banks

Cited by 39 publications

References 80 publications

Liquidity creation and bank performance: evidence from MENA

Liquidity creation and bank performance: evidence from MENA

Does Islamic Banking Promote Financial Stability? Evidence From an Agent-Based Model

Determinates of Islamic banks liquidity

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