Threshold effects of liquidity risk and credit risk on bank stability in the MENA region

The purpose of this study is to determine the effect of credit risk and liquidity risk on bank stability. This study used the multiple regression analysis to determine the effect of credit risk and liquidity risk as the independent variables, with BOPO (Biaya Operasional Pendapatan Operasional), GDP (Gross Domestic Bruto), BI Rate as the control variables, on Bank Stability as the dependent variable. Using purposive sampling method to collected data from the list of banking companies in OJK (Otoritas Jasa Keuangan) from 2013 to 2017 consisting of 437 observations. The estimated results show that credit risk has a significant negative effect on bank stability, and liquidity risk has a significant negative effect on bank stability. Whereas in the control variable, GDP does not affect bank stability, BOPO has a significant negative effect on bank stability, and the BI-Rate does not affect bank stability. Keywords: Credit Risk, Liquidity Risk, Bank Stability.

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Exploring the role of risk and corruption on bank stability: evidence from Pakistan

Journal of Money Laundering Control ◽

10.1108/jmlc-03-2018-0019 ◽

2019 ◽

Vol 22 (2) ◽

pp. 270-288 ◽

Cited By ~ 2

Author(s):

Muhammad Ali ◽

Amna Sohail ◽

Lubna Khan ◽

Chin-Hong Puah

Keyword(s):

Credit Risk ◽

Positive Impact ◽

Negative Relationship ◽

Banking System ◽

Liquidity Risk ◽

Bank Stability ◽

Content Type ◽

Conventional Banks ◽

Funding Risk ◽

The Impact

Purpose This paper aims to explore the impact of liquidity risk, credit risk, funding risk and corruption on bank stability of the banking system in Pakistan. Design/methodology/approach The empirical analysis is confined to 24 retail banks, which include 5 Islamic and 19 conventional banks during the period of 2007-2015. Findings The findings of this study suggest that bank size, liquidity risk, funding risk and corruption exert a positive impact on bank stability. Additionally, the authors find a negative relationship between credit risk and bank stability. Originality/value As per the knowledge of the authors, the present research is the first attempt that discusses the issues of bank stability related to risk and corruption faced by the banking system.

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Analysis of The Influence of Liquidity, Credit and Operational Risk, in Indonesian Islamic Bank’s Financing for The Period 2007-2013

Gadjah Mada International Journal of Business ◽

10.22146/gamaijb.8402 ◽

2015 ◽

Vol 17 (3) ◽

pp. 279 ◽

Cited By ~ 1

Author(s):

Ousmane Diallo ◽

Tettet Fitrijanti ◽

Nanny Dewi Tanzil

Keyword(s):

Credit Risk ◽

Causal Relationship ◽

Risk Sharing ◽

Banking Sector ◽

Panel Data Analysis ◽

Banking System ◽

Liquidity Risk ◽

Operational Risk ◽

Islamic Banking ◽

Islamic Bank

The purpose of this paper is to analyze the influence of credit, liquidity and operational risks in six Indonesian’s islamic banking financing products namely mudharabah, musyarakah, murabahah, istishna, ijarah and qardh, in order to try to discover whether or not Indonesian islamic banking is based on the “risk-sharing” system. This paper relies on a fixed effect model test based on the panel data analysis method, focusing on the period from 2007 to 2013. The research is an exploratory and descriptive study of all the Indonesian islamic banks that were operating in 2013. The results of this study show that the Islamic banking system in Indonesia truly has banking products based on “risk-sharing.” We found out that credit, operational and liquidity risks as a whole, have significant influence on mudarabah, musyarakah, murabahah, istishna, ijarah and qardh based financing. There is a correlation between the credit risk and mudarabah based financing, and no causal relationship between the credit risk and musharaka, murabahah, ijarah, istishna and qardh based financing. There is also correlation between the operational risk and mudarabah and murabahah based financing, and no causal relationship between the operational risk and musharaka, istishna, ijarah and qardh based financing. There is correlation between the liquidity risk and istishna based financing, and no causal relationship between the liquidity risk and musharaka, mudarabah, murabahah, ijarah and qardh based financing. A major implication of this study is the fact that there is no causal relationship between the credit risk and musharakah based financing, which is the mode of financing where the islamic bank shares the risk with its clients, but there is an influence of credit risk toward mudarabah mode financing, a financing mode where the Islamic bank bears all the risk. These findings can lead us to conclude that the Indonesian Islamic banking sector is based on the “risk sharing” system.

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Analysis of the determinants of bank liquidity risk: The case of Islamic banks in the UAE

SHS Web of Conferences ◽

10.1051/shsconf/202111901008 ◽

2021 ◽

Vol 119 ◽

pp. 01008

Author(s):

Khadija Ichrak Addou ◽

Afaf Bensghir

Keyword(s):

Liquidity Risk ◽

Multiple Linear Regression Model ◽

Capital Adequacy ◽

Annual Data ◽

Islamic Banks ◽

Mena Region ◽

Return On Assets ◽

Return On Equity ◽

Risk Determinants ◽

The Impact

This article aims to examine the principal parameters that impact the liquidity risk incurred by Islamic banks in the UAE. The study examines annual data from four Islamic banks in the UAE. The Data is extracted from their annual activity reports and financial results. A multiple linear regression model is used to assess the impact of six bank-specific variables (Return on Equity, return on assets, size of the bank, liquidity gaps, non-performing loans and capital adequacy ratio) on the liquidity risk of UAE Islamic banks. The designed model shows that ROA and NPL negatively impact the liquidity risk of the studied banks, while the other determinants, namely size, ROE, liquidity gaps and CAR contribute to the improvement of liquidity of UAE banks. Thus, our empirical results complement the existing studies related to the analysis of liquidity risk determinants incurred by Islamic banks operating in the MENA region, especially Emirati banks.

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Identifying Threshold Effects in Credit Risk Stress Testing

SSRN Electronic Journal ◽

10.2139/ssrn.878975 ◽

2004 ◽

Author(s):

J. Giancarlo Gasha ◽

R. Armando Morales

Keyword(s):

Credit Risk ◽

Stress Testing ◽

Threshold Effects

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Does the deposit structure affect Islamic bank’s maturity transformation activities? The implications of IFSB liquidity guidelines

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-05-2019-0209 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Wassim Ben Ayed ◽

Rim Ammar Lamouchi ◽

Suha M. Alawi

Keyword(s):

Risk Management ◽

Positive Impact ◽

Generalized Method Of Moments ◽

Banking System ◽

Liquidity Risk ◽

Profit Sharing ◽

Arab Countries ◽

Mena Region ◽

Content Type ◽

Deposit Structure

Purpose The purpose of this study is to investigate factors influencing the net stable funding ratio (NSFR) in the Islamic banking system. More specifically, the authors analyze the impact of the deposit structure on the liquidity ratio using the two-step generalized method of moments approach during the 2000–2014 period. Design/methodology/approach Based on IFSB-12 and the GN-6, the authors calculated the NSFR for 35 Islamic banks operating in the Middle East and North Africa (MENA) region. Findings The findings of this study show the following: first, ratio of profit-sharing investment accounts have a positive impact on the NSFR, while ratio of non profit-sharing investment accounts increase the maturity transformation risk; second, the results highlight that asset risk, bank capital and the business cycle have a positive impact on the liquidity ratio, while the returns on assets, bank size and market concentration have a negative impact; and third, these results support the IFSB’s efforts in developing guidelines for modifying the NSFR to enhance the liquidity risk management of institutions offering Islamic financial services. Research limitations/implications The most prominent limitation of this research is the availability of data. Practical implications These results will be useful for authorities and policy makers seeking to clarify the implications of adopting the liquidity requirement for banking behavior. Originality/value This study contributes to the knowledge in this area by improving our understanding of liquidity risk management during liquidity stress periods. It analyzes the modified NSFR that was adopted by the IFSB. Besides, this study fills a gap in the literature. Previous studies have used the conventional ratios to determinate the main factors of the maturity transformation risk in a full-fledged Islamic bank based on an early version of NSFR. Finally, most studies focus on the NSFR as proposed by the Basel Committee, whereas the authors investigate the case of the dual-banking system in the emerging economies of seven Arab countries in the MENA region.

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Financial Risk of Conventional and Islamic Banks: Does Institutional Quality Matter?

Turkish Journal of Computer and Mathematics Education (TURCOMAT) ◽

10.17762/turcomat.v12i3.757 ◽

2021 ◽

Vol 12 (3) ◽

pp. 510-524

Author(s):

Normaizatul Akma Saidi Et.al

Keyword(s):

Credit Risk ◽

Financial Risk ◽

Liquidity Risk ◽

Islamic Banks ◽

Government Effectiveness ◽

Regulatory Quality ◽

Level Data ◽

Conventional Banks ◽

The Relationship ◽

Conventional And Islamic Banks

Banks play a significant role in financing the economy and take on risky financial activities based on information and trust as they specialized companies with their own specificities. This study was propelled to unravel the determinants that affect financial risk (liquidity risk and credit risk) for conventional and Islamic banks. The bank-level data of conventional and Islamic banks in the regions of Middle East, Southeast Asia, and South Asia between 2006 and 2014 were collected from the Bankscope, which is a commercial database produced by the Bureau van Dijk. Thus, for conventional banks the obtained results exhibited significantly positive relationship between regulatory quality towards liquidity risk. Then, the relationship between regulatory quality towards credit risk was negatively significant for conventional banks. Meanwhile, as for Islamic banks, the relationship between government effectiveness and regulatory quality towards financial risk was insignificant. Hence, the regulators or policymakers are able to identify specific mechanism to improve the risk management of these banks as well through this study.

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Risk Behavior, Country Governance, and Bank Stability in Pakistan

Recent Applications of Financial Risk Modelling and Portfolio Management - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-7998-5083-0.ch009 ◽

2021 ◽

pp. 185-203

Author(s):

Hafiz Waqas Kamran ◽

Abdelnaser Omran

Keyword(s):

Economic Growth ◽

Credit Risk ◽

Risk Behavior ◽

Commercial Banks ◽

Financial Stability ◽

Operational Risk ◽

Bank Stability ◽

Regression Methods ◽

The Stability ◽

Control Of Corruption

Keeping risk behavior and country governance in observation, this study has investigated the trends in financial stability for a sample of 22 commercial banks in Pakistan while controlling the effect of economic growth. Over the period of 2007 to 2016, the authors have applied OLS, FE, and RE regression methods to investigate which risk and governance factors are influencing the stability measures of the banks. It is found that financial stability in overall banks is affected by credit risk, operational risk, country risk, and financial crisis risk while control of corruption is also affecting ZROA in an adverse way.

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