The Good and Bad News about the New Liquidity Rules of Basel III in Islamic Banking of Malaysia

Shazleena Mohamed Zainudin, Siti Zaleha Abdul Rasid, Rosmini Omar and Rohail Hassan
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Shazleena Mohamed Zainudin: Azman Hashim International Business School, Universiti Teknologi Malaysia, Kuala Lumpur 54100, Malaysia
Siti Zaleha Abdul Rasid: Azman Hashim International Business School, Universiti Teknologi Malaysia, Kuala Lumpur 54100, Malaysia
Rosmini Omar: Azman Hashim International Business School, Universiti Teknologi Malaysia, Kuala Lumpur 54100, Malaysia

JRFM, 2019, vol. 12, issue 3, 1-15

Abstract: How has Basel III (Bank for International Settlements), regarding the computation, measurement, and management of the liquidity coverage ratio (LCR), vitalized the Islamic banking sector in emerging economies? Vice versa, what is the Islamic banking sector’s capacity to respond in embracing Basel III? This study aims to review the current issues faced by a bank as it discusses the current regulatory guidelines and operational challenges in implementing the system. Based on the implementation of LCR preliminary secondary data of Malaysian banks between 2010 and 2016, this study finds that the readiness of LCR system implementation in the Islamic banking industry is currently low because LCR is still relatively new for all financial institutions and vendors. There is a huge gap between the present system infrastructure of the banks and the LCR model requirements as defined by BNM (Bank Negara Malaysia) under Basel III. Nevertheless, this finding opens new horizons of understanding and practically offers further investigations for the whole banking sector in Malaysia. Thus, policy makers, regulators, and industry players should utilize a unique framework for Islamic banks when strategizing liquidity risk management.

Keywords: Basel III; liquidity coverage ratio; asset liability management; Islamic banking Malaysia; risk management; liquidity risk (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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