The Influence of Fundamental Factors to Liquidity Risk on Banking Industry: Comparative Study between Islamic Bank and Conventional Bank in Indonesia

Muharam, Harjum

doi:10.2139/ssrn.2339598

Cited by 11 publications

(13 citation statements)

References 2 publications

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“…The studies demonstrate major liquidity risk factors, for instance profitability (Akhtar et al, 2011;Iqbal, 2012), size (Iqbal, 2012;Ramzan & Zafar, 2012), financial leverage (Ahmed et al, 2011;Iqbal, 2012), capital adequacy (Iqbal, 2012), and tangibility and age (Ahmed et al, 2012). At the same moment, Muharam and Kurnia (2012) conducted a study on Islamic banks liquidity risk in Indonesia and found that there is a positively significant by profitability factors which measure via return on asset (ROA) and return on equity (ROE), while capital adequacy indicated negative relationship which contradict to Iqbal (2012).…”

Section: Past Studies Of Liquidity Riskmentioning

confidence: 99%

Bank Liquidity Risk and Capital Structure: A Conceptual Review of Theoretical and Empirical Research on Islamic Banking Perspective

Harun¹,

Kamil²,

Haron³

et al. 2021

IJARAFMS

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This paper conducts a comprehensive review of relevant empirical literature on the impact of capital structure on bank's liquidity risk. Based on the existing literature, capital structure has a considerable impact on banks' liquidity risk either in positive or negative thought. However, we discover that empirical evidence on all of this relationship is heavily skewed in favour of conventional banks and firm's perspective. As a result, we urge that further research should be done in this area specifically in Islamic banking standpoint in order to gain a better understanding of the impact of capital structure on banks liquidity risk. This is due to the fact that the optimal capital structure for bank will trade-off the effects of bank capital specifically on the liquidity creation. Therefore, it is hoped that this paper can give a guideline to the policymakers, banking regulators, shareholders and other stakeholders to balance between capital structure and liquidity creation in order to evade from the issues of bank run and insolvency.

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Section: Past Studies Of Liquidity Riskmentioning

confidence: 99%

Bank Liquidity Risk and Capital Structure: A Conceptual Review of Theoretical and Empirical Research on Islamic Banking Perspective

Harun¹,

Kamil²,

Haron³

et al. 2021

IJARAFMS

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show abstract

“…Furthermore, there is a negative and significant association between the gearing ratio, the nonperforming loans ratio, and the liquidity risk. Muharam and Kurnia (2012) investigated Islamic and conventional banks' liquidity in Indonesia for the period 2007-2011. They highlight a positive and significant impact of net interest margin and return on equity on the liquidity risk of Islamic bank.…”

Section: Literature Reviewmentioning

confidence: 99%

Liquidity Risk Management in Full-Fledged Islamic Banking System

Abdo¹,

Onour²

2020

Management and Economics Research Journal

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This study aims to assess the determinants of liquidity risk in the full-fledged Islamic banking system of Sudan, using panel data regression. The dependent variable in this research is the liquidity risk, which is determined as the extreme excess or extreme shortage of liquidity in each bank, based on the VaR approach, and the independent variables are bank size, investment, profit, and the budget deficit during the period 2012-2016. The authors’ findings indicate the bankspecific variables such as the size, investment, and profit are statistically significant, whereas the budget deficit variable is negatively associated with liquidity risk but is insignificant. The insignificance of the budget deficit variable is an indication of the government reliance on its deficit financing on debt financing, i.e., excessive money creation, as contrary to equity financing. Also indicated in the paper is that the investment variable has a positive and significant effect on liquidity risk, indicating that Islamic banks’ investment portfolios are dominated by short-term securities (sikook). This result supports the findings in the literature that investment portfolios in Islamic banks are likely to be dominated by short-term investment securities as a result of the absence of risk-hedging tools in the Islamic banking system, in general. The finding in the paper also indicates a positive and significant sign of profit coefficient with liquidity risk, which is similar to the positive association between higher risk and higher earnings relationships portrayed in the literature of corporate finance. The effect of the size indicator on liquidity risk reveals a positive and significant association, implying that larger banks are more likely to face liquidity risks of shortage as well as excess liquidity.

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“…Given this controversial, a balancing view see that the Islamic and conventional banks have the same number of risk factors although they are differing due to differences in the contractual system and returns' approach. (Muharam, 2013;Effendi & Disman, 2017).…”

Section: Liquidity Riskmentioning

confidence: 99%

“…In contrast, Iqbal (2012) argued that the liquidity position in Islamic banks is better than in conventional banks. Also, Muharam (2013) examined liquidity risk for 6 Islamic banks in Indonesia during the period 2007-2011 by comparing conventional and Islamic banks. The study investigated the influence of CAR, ROA, ROE, Net Interest Margin (NIM), liquidity gaps, and Risky Liquid Assets (RLA) to liquidity risk.…”

Section: Literature Reviewmentioning

confidence: 99%

The Determinants of Liquidity Risk in Islamic Banks: A Case of Sudanese Banking Sector

Mennawi

Ahmed

2020

ijibfr

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Liquidity risk either due to a surplus or serious shortage in liquidity has a significant impact to the performance and sustainability of Islamic banks. Nevertheless, there are still no common agreement on specific factors that determine the liquidity risk in Islamic banking. This study investigates the determinant factors that affect the liquidity risk of Sudanese Islamic banks. A sample of 11 banks has been selected for a period of 7 years (2012 – 2018). The study is based on secondary data that analysed using Pearson correlation and multiple regression analysis for hypotheses tests. It investigated the explanatory variables of the bank’s cash position (CASH), investment in short-term securities (SECA), degree of financing the assets from customers’ deposits (DPAS) and bad financing and credit risk (NPL) as representatives of banks’ specific factors plus one microeconomic factor which is Gross Domestic Product (GDP). The analysis found a significant and negative relation of CASH and SECA with the liquidity risk in Islamic banks. On the other hand, the results reveal that the DPAS and NPL variables have a positive relation and significant, while the GDP seen to be irrelevant to liquidity risk in Islamic bank. The importance of the study is that it touches the most significant type of risk that most of Sudanese Islamic banks face, and the data analysed covers a relatively longer period of time than similar studies for a single country. We target that the study contributes in providing decision-makers with reasonable ground for prediction and managing the liquidity risk. JEL Classification: G21, G17, G32.

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The Influence of Fundamental Factors to Liquidity Risk on Banking Industry: Comparative Study between Islamic Bank and Conventional Bank in Indonesia

Cited by 11 publications

References 2 publications

Bank Liquidity Risk and Capital Structure: A Conceptual Review of Theoretical and Empirical Research on Islamic Banking Perspective

Bank Liquidity Risk and Capital Structure: A Conceptual Review of Theoretical and Empirical Research on Islamic Banking Perspective

Liquidity Risk Management in Full-Fledged Islamic Banking System

The Determinants of Liquidity Risk in Islamic Banks: A Case of Sudanese Banking Sector

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