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Provision for Bad & Doubtful Financing and Contingency Reserve Management: Assessing Resilient and Stable Islamic Banks

Mohd Afandi Abu Bakar*, Noormahayu Mohd Nasir, Farrah Dina Abd Razak, Nor Samsinar Kamsi and Asmalia Che Ahmad
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Mohd Afandi Abu Bakar*: Department of Business Management, Universiti Teknologi MARA, Perak Branch, Seri Iskandar Campus, 32610, Seri Iskandar, Perak, Malaysia
Noormahayu Mohd Nasir: Department of Economics, Universiti Teknologi MARA, Perak Branch, Tapah Campus, 35400, Tapah Road, Perak, Malaysia
Farrah Dina Abd Razak: Department of Economics, Universiti Teknologi MARA, Perak Branch, Tapah Campus, 35400, Tapah Road, Perak, Malaysia
Nor Samsinar Kamsi: Department of Economics, Universiti Teknologi MARA, Perak Branch, Tapah Campus, 35400, Tapah Road, Perak, Malaysia
Asmalia Che Ahmad: Green Safe Cities Research Group, Universiti Teknologi MARA, Shah Alam Campus, 40450, Shah Alam, Selangor, Malaysia

The Journal of Social Sciences Research, 2018, 621-627 Special Issue: 6

Abstract: Banks will not be resilient and stable if the provision for bad and doubtful financing (PBD) and contingency reserve (CR) failed to play its role as bank operational buffers whenever there is an economic condition disorder. Every firm has to face the financial uncertainties and the sudden shock of economic activity disorder, which will directly affect their operations. The management of PBD and CR is necessary to make the bank well protected. To verify the resiliency and stability of the Islamic bank, hence, this paper empirically examines the bank management of PBD and CR. An unbalanced panel data analysis was conducted on 67 Islamic banks from various countries for the period of 2000-2014. The empirical evidence shows, although the bank PBD does fulfil the resiliency and stability behaviour conditions, the insignificant relationship of the M2 growth and CPI growth to the PBD growth need some consideration from the banks and policy makers. The finding also provides an indication that only the current year profit growth behaviour is positively correlated to the CR growth. The findings recommend the Islamic bank PBD and CR management need to be sound to make it more resilient and stable.

Keywords: Business cycle; Bank Resiliency; Bank stability. (search for similar items in EconPapers)
Date: 2018
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