Publication:
An examination of factors affecting excess liquidity problem of Islamic banking in Malaysia
Abstract
After the global financial crisis, liquidity management has been a great concern to both Islamic and conventional banks, as liquidity management is linked to the bank's profitability and overall sustainability of financial system. While shortage of liquidity has taken centre-stage in Basel 3 reforms as a consequence of the US subprime loan crises, the problem of excess liquidity in Islamic banking remains unresolved in view of the lack of product offerings like medium term sukuk that should give relatively higher yields than short-term Islamic securities. Evidently, few literatures have examined the problem of excess liquidity in Islamic banks and no empirical evidence on the factors leading to the excess liquidity has been found. To shed light on that gap, this paper endeavours to find the catalysts of excess liquidity in Islamic banks using fixed effect and random effect model. The sample is taken form Malaysia considering homogeneous sample. Interestingly enough, both Islamic banks as well as conventional banks have been found to hold excess liquid assets. The availability and issuance of short-term Islamic securities and long-term sukuk, which was focused variable in this study has been found significantly affecting the excess liquidity in Islamic finance. Hence, based on this findings, the availability of short-term Islamic securities and long term sukuk have saved Islamic banks from inefficiency arising from low asset utilization and hence lower profitability. To increase efficient use of assets, it is recommended that Islamic financial institutions and Shariah compliant companies be more diligent in offering medium term sukuks.
Keywords
Islamic banking , Liquidity management , Bank liquidity , Malaysia , Project paper (MSc)
Citation
Ali, M. H. (2017). An examination of factors affecting excess liquidity problem of Islamic banking in Malaysia (Master dissertation). INCEIF, Kuala Lumpur. Retrieved from https://ikr.inceif.org/handle/INCEIF/2636
Publisher
INCEIF
Available in physical copy (Call number: t HG 1656 A3 M478) and PDF format. Kindly email to kmc@inceif.org to access the item