On the role of Islamic and conventional banks in the monetary policy transmission in Malaysia: Do size and liquidity matter?

Abdul Rashid (), M. Kabir Hassan and Muhammad Abdul Rehman Shah

Research in International Business and Finance, 2020, vol. 52, issue C

Abstract: This paper empirically investigates the impact of monetary policy on the credit supply of Islamic versus conventional banks of Malaysia using an unbalanced panel dataset over the period 2005-2016. While estimating the effects of three alternative measures of monetary policy on banks' credit supply, we include several bank-specific and macroeconomic variables in the specification as control variables. We provide strong evidence on the existence of the credit channel of monetary policy transmission mechanism in Malaysia. Yet, we show that Islamic banks respond considerably less to changes in monetary policy instruments as compared to their conventional counterparts. We also find that the monetary policy measures affect small-sized banks and less-liquid banks more as compared to large-sized and more-liquid banks. Our findings suggest that for an effective monetary policy, there is a vital need to consider the nature of Islamic banking while devising any monetary policy instruments to manage credit supply in the economy.

Keywords: Islamic banking; Loan supply; Bank credit channel; Monetary policy; Transmission mechanism; Bank size; Liquidity position (search for similar items in EconPapers)
JEL-codes: E42 E52 G15 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919304489

DOI: 10.1016/j.ribaf.2019.101123

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