Off-Balance Sheet Risk : Evidence from Malaysian Islamic and Conventional Banks

Ahmad, Wahida; Misman, Faridah Najuna

doi:10.12816/0004297

Cited by 7 publications

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“…According to Ahmad and Ariff (2007) the ratio of the aggregated OBS activities to aggregated total assets in Eastern Europe, South and Central America, Africa and Far East and Central Asia equals 15%, 12%, 18%, 12% in 2005, respectively, compared to 60%, 63%, 41% for North America, NAFTA, and G7 countries, respectively. Similarly, studies carried out by Aktan et al (2013) on Turkey, Pushkala et al (2017) on India, and Ahmad and Misman (2012) in Malaysia in their findings they reported that the OBSA are showing an increasing trend. As part of the world financial system, there has been a shift in the sources of income of the South Asian commercial banks.…”

Section: Why Banks Engage In Obsamentioning

confidence: 67%

“…Researchers (Ahmad and Misman, 2012;Duran and Lozano-Vivas, 2013;Karim et al, 2013;Lozano-Vivas and Pasiouras, 2014;Perera et al, 2014;Du et al, 2015;Firth et al, 2016;Meng et al, 2017) have reported that around the world, the OBSA in commercial banking sectors has shown a rapid increase. Now, the question arises as to why commercial banks use OBSA.…”

Section: Why Banks Engage In Obsamentioning

confidence: 99%

“…However, OBSA is very risky, and their associated risk can transform them into an opportunity or a threat. For example, guarantees which are a source of an additional income also add the risk of future payments even in acute stress situation or unfavourable circumstances whereas banks consider OBSA a risk management tool and justify their overweighted figures as a tradeoff between the risk of losses arising from interest-based or conventional banking activities (Ahmad and Misman, 2012;Aktan et al, 2013;Pushkala et al, 2017;Venkatesh et al, 2017).…”

Section: Why Banks Engage In Obsamentioning

confidence: 99%

“…Another reason of banks engaging in these activities is to avoid regulatory costs such as the minimum reserve, the deposit insurance, and capital adequacy requirement (Ahmad and Ariff, 2007;Lozano-Vivas and Pasiouras, 2010;Ahmad and Misman, 2012). Since these activities are not shown on the bank's balance sheet under current accounting standards and reserve requirements and deposit insurance premiums that are not levied on OBS activities (Ahmad and Ariff, 2007).…”

Section: Why Banks Engage In Obsamentioning

confidence: 99%

“…Since these activities are not shown on the bank's balance sheet under current accounting standards and reserve requirements and deposit insurance premiums that are not levied on OBS activities (Ahmad and Ariff, 2007). Even if the most frequently cited explanation for the growth of these activities is that they provide banks with a way of avoiding reserve requirements and bank capital adequacy requirements and these regulations may provide incentives to go "off-balance sheet," non-regulatory factors such as real GDP, international trade, bank size, profitability and credit risk are also important (Ahmad and Ariff, 2007;Hassan and Khasawneh, 2009;Ahmad and Misman, 2012). Addressing the aftermath of the crisis, governments around the world to avoid any such event again, imposed a certain regulatory restriction on their financial sectors.…”

Section: Why Banks Engage In Obsamentioning

confidence: 99%

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Untitled

2019

Asian Economic and Financial Review

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In recent decades, off-balance sheet activities have emerged as an innovation in banking and finance as it is the easiest source of additional fee income that is beyond a bank's balance sheet activities that avoids regulatory costs, and so they are increasingly popular in banking industries around the world. This paper presents a discussion of the determinants of using off-balance sheet activity in commercial banks in South Asia. The paper also presents an in-depth insight of different theoretical justifications, and empirical literature answers the whys and wherefores of off-balance sheet usage in commercial banks of south Asia. The conceptual model considers the impact of capital size, profitability, loan, credit risk, market concentration, capital adequacy, reserve requirement, real GDP, interest rate spread and inflation on off-balance sheet activities of banks. The Fixed effect and Arellano-Bond GMM method are used on the balance panel of 81 banks to achieve the research objectives of the current study. The results of the bank-specific factors on the off-balance sheet activities (OBSA) support the Market Power Theory. However, the positive and significant relationship between loan ratio and OBSA also supports the market portfolio theory, which argues that the increasing loans offer a continuous risk and can enhance credit risk. Therefore, banks must diversify their portfolios. The positive relationship between the reserve ratio and OBSA provides support for the regulatory and tax hypothesis. Contribution/ Originality: This study is a pioneer study, providing details about the factors that determine the off-balance sheet activities of South Asian commercial banks. The study has taken a comprehensive set of factors to determine the effects of these bank specific regulatory factors on the bank's off-balance sheet engagement decisions. This study would help in policy building to improve asset quality and optimal portfolio selection for income generation.

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Section: Why Banks Engage In Obsamentioning

confidence: 67%

Section: Why Banks Engage In Obsamentioning

confidence: 99%

Section: Why Banks Engage In Obsamentioning

confidence: 99%

Section: Why Banks Engage In Obsamentioning

confidence: 99%

Section: Why Banks Engage In Obsamentioning

confidence: 99%

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Untitled

2019

Asian Economic and Financial Review

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Justice in the workplace: Islamic principles for wage determination

Yasmeen

2023

IES

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PurposeThe objective of this study is to construct a theoretical framework concerning wage determination, grounded in principles and supplemented by conventional theories. It discusses the Islamic perspectives on minimum wage and examines contemporary challenges and intricacies in its application.Design/methodology/approachThis study uses thematic analysis to create the conceptual framework, drawing upon a review of pertinent literature such as academic papers, books and articles published up to 2023.FindingsThe framework encompasses various categories, namely, employee characteristics, job characteristics, market factors, compensation practices and Islamic principles. Each category consists of multiple variables. The resulting framework offers a holistic and ethically grounded methodology for wage determination, aligning with both Islamic and conventional perspectives. This study notes the absence of a universally agreed-upon minimum wage. Islamic economics faces challenges due to the unclear application of principles, limited awareness, legal constraints and a lack of empirical evidence on wage systems, along with complexities in their implementation.Research limitations/implicationsThe paper’s limited scope focuses solely on the Islamic perspective on wage determination, without comparing it to the conventional viewpoint. This may have implications for future research.Practical implicationsThe insights on Islamic principles and wage determination guide scholars and policymakers interested in promoting just and equitable wages.Originality/valueThis study is distinct in its integration of various factors to propose an all-encompassing framework for wage determination, rooted in the Quran and principles, while also reinforcing the framework with conventional theories. Additionally, it adds to the growing body of literature by investigating the Quran’s stance and principles on minimum wage, as well as discusses the challenges involved in implementing an Islamic approach to wage determination, which has received limited attention in Islamic literature.

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Cushion hypothesis and credit risk: Islamic versus conventional banks from the MENA region

Abdeljawad,

Rashid,

Abu Alia

et al. 2024

PLoS ONE

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Conventional banks are ‘indirectly’ allowed to take more risk under the shadow of sovereign guarantees. Banks commit moral hazards as any major banking crisis will be ‘cushioned’ by deposit insurance and bailed out using the taxpayer’s money. This study offers an alternative explanation for the determinants of banks’ credit risk, particularly those from the Islamic regions. Although conventional banks and Islamic banks may share state and social cushioning systems, Islamic banks are strictly prohibited by moral and religious principles from gambling with depositors’ funds, even if there is a cushion available to bail them out. However, banks belonging to collective societies, such as those in the MENA area, may be inclined to take more risks due to the perception of having a larger safety net to protect them in the event of failure. We analyse these theoretical intersections by utilising a dataset consisting of 320 banks from 20 countries, covering the time span from 2006 to 2021. Our analysis employs a combination of Ordinary Least Squares (OLS), Fixed Effects (FE), and 2-step System-GMM methodologies. Our analysis reveals that Islamic banks are less exposed to credit risk compared to conventional banks. We contend that the stricter ethical and moral ground and multi-layer monitoring system amid protracted geopolitical and post-pandemic crises impacting Islamic countries contribute to the lower credit risk. We examine the consequences for credit and liquidity management in Islamic banks and the risk management strategies employed by Islamic banks, which can serve as a valuable reference for other banks.

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Off-Balance Sheet Risk : Evidence from Malaysian Islamic and Conventional Banks

Cited by 7 publications

References 0 publications

Untitled

Untitled

Justice in the workplace: Islamic principles for wage determination

Cushion hypothesis and credit risk: Islamic versus conventional banks from the MENA region

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