Determining liquidity risk, profitability and cost efficiency of Islamic banks in selected OIC countries

Liquidity risk in banks is a major issue following the 2008 Global Financial Crisis and 2014 oil price fall. The absence of Shariah-compliant liquidity instruments also accentuate liquidity problems in Islamic banks. The banks also face cost efficiency issues in addition to liquidity risk that affec...

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Main Author:	Abdulganiyy, Abdulfattah Kolawole
Format:	Thesis
Language:	eng eng
Published:	2018
Subjects:	HG Finance
Online Access:	https://etd.uum.edu.my/7288/1/s900155_01.pdf https://etd.uum.edu.my/7288/2/s900155_02.pdf
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id	my-uum-etd.7288
record_format	uketd_dc
institution	Universiti Utara Malaysia
collection	UUM ETD
language	eng eng
advisor	Zainol, Zairy Ahmad, Nor Hayati
topic	HG Finance
spellingShingle	HG Finance Abdulganiyy, Abdulfattah Kolawole Determining liquidity risk, profitability and cost efficiency of Islamic banks in selected OIC countries
description	Liquidity risk in banks is a major issue following the 2008 Global Financial Crisis and 2014 oil price fall. The absence of Shariah-compliant liquidity instruments also accentuate liquidity problems in Islamic banks. The banks also face cost efficiency issues in addition to liquidity risk that affect their profitability. The main objective of this study is to examine liquidity risk determinants of Islamic banks in ten countries from Organization of Islamic Co-operation comprising Bahrain, Indonesia, Iran, Kuwait, Malaysia, Pakistan, Saudi Arabia, Sudan, Turkey and United Arab Emirate. Profit and Loss Sharing (PLS) contract and profitability were studied as mediators to explain the process through which relationship between liquidity risk and cost efficiency is affected. The study uses data of banks operating in dual and fully Islamic banking regulatory environments. Generalized Method of Moments was employed on 85 Islamic banks over 2005 to 2016 study period. The results show that cost efficiency and profitability ratios, Capital Adequacy Ratio and PLS are significantly related to liquidity risk. Similarly, Gross Domestic Product, Money Supply and inflation have significant influence on liquidity risk. It further highlights that profitability does mediates but PLS contract does not mediates the relationship between liquidity risk and cost efficiency. The implications of the results are that bank management, government and regulatory bodies of Islamic banks to manage the significant factors influencing liquidity risk effectively because they have direct impact on the banks’ cost efficiency and profitability. This study contributes new findings in terms of reaffirming the reluctance of Islamic banks to use PLS contract since it increases liquidity risk. It is therefore recommended that the practitioners and policy makers to examine closely that PLS contract should be backed by long term capital to mitigate liquidity risk. This will ensure greater profitability of Islamic banks in the dual banking environment.
format	Thesis
qualification_name	Ph.D.
qualification_level	Doctorate
author	Abdulganiyy, Abdulfattah Kolawole
author_facet	Abdulganiyy, Abdulfattah Kolawole
author_sort	Abdulganiyy, Abdulfattah Kolawole
title	Determining liquidity risk, profitability and cost efficiency of Islamic banks in selected OIC countries
title_short	Determining liquidity risk, profitability and cost efficiency of Islamic banks in selected OIC countries
title_full	Determining liquidity risk, profitability and cost efficiency of Islamic banks in selected OIC countries
title_fullStr	Determining liquidity risk, profitability and cost efficiency of Islamic banks in selected OIC countries
title_full_unstemmed	Determining liquidity risk, profitability and cost efficiency of Islamic banks in selected OIC countries
title_sort	determining liquidity risk, profitability and cost efficiency of islamic banks in selected oic countries
granting_institution	Universiti Utara Malaysia
granting_department	Islamic Business School
publishDate	2018
url	https://etd.uum.edu.my/7288/1/s900155_01.pdf https://etd.uum.edu.my/7288/2/s900155_02.pdf
_version_	1747828189546151936
spelling	my-uum-etd.72882021-08-09T02:46:15Z Determining liquidity risk, profitability and cost efficiency of Islamic banks in selected OIC countries 2018 Abdulganiyy, Abdulfattah Kolawole Zainol, Zairy Ahmad, Nor Hayati Islamic Business School Islamic Business School HG Finance Liquidity risk in banks is a major issue following the 2008 Global Financial Crisis and 2014 oil price fall. The absence of Shariah-compliant liquidity instruments also accentuate liquidity problems in Islamic banks. The banks also face cost efficiency issues in addition to liquidity risk that affect their profitability. The main objective of this study is to examine liquidity risk determinants of Islamic banks in ten countries from Organization of Islamic Co-operation comprising Bahrain, Indonesia, Iran, Kuwait, Malaysia, Pakistan, Saudi Arabia, Sudan, Turkey and United Arab Emirate. Profit and Loss Sharing (PLS) contract and profitability were studied as mediators to explain the process through which relationship between liquidity risk and cost efficiency is affected. The study uses data of banks operating in dual and fully Islamic banking regulatory environments. Generalized Method of Moments was employed on 85 Islamic banks over 2005 to 2016 study period. The results show that cost efficiency and profitability ratios, Capital Adequacy Ratio and PLS are significantly related to liquidity risk. Similarly, Gross Domestic Product, Money Supply and inflation have significant influence on liquidity risk. It further highlights that profitability does mediates but PLS contract does not mediates the relationship between liquidity risk and cost efficiency. The implications of the results are that bank management, government and regulatory bodies of Islamic banks to manage the significant factors influencing liquidity risk effectively because they have direct impact on the banks’ cost efficiency and profitability. This study contributes new findings in terms of reaffirming the reluctance of Islamic banks to use PLS contract since it increases liquidity risk. It is therefore recommended that the practitioners and policy makers to examine closely that PLS contract should be backed by long term capital to mitigate liquidity risk. This will ensure greater profitability of Islamic banks in the dual banking environment. 2018 Thesis https://etd.uum.edu.my/7288/ https://etd.uum.edu.my/7288/1/s900155_01.pdf text eng public https://etd.uum.edu.my/7288/2/s900155_02.pdf text eng public Ph.D. doctoral Universiti Utara Malaysia Abdelaziz, H., Mouldi, D., & Helmi, H. (2011). 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