Systematic and Unsystematic Determinants of Liquidity Risk of Islamic Banks

Ahmed Hunjra (), Murugesh Arunachalam, Rashid Mehmood and Mahnoor Hanif

Chapter 24 in Islamic Accounting and Finance:A Handbook, 2023, pp 723-744 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We analyze the systematic (macroeconomic) and unsystematic (bank specific) determinants of liquidity risk in Islamic banks. We extract the data from DataStream of Islamic banks in Pakistan, Qatar, Malaysia, UAE, Bangladesh, Bahrain, and Saudi Arabia from 2011 to 2020. We collect macroeconomic variables data from World Development Indicator (WDI). We apply generalized method of moment (GMM) to analyze data. We find that non-performing loans, capital adequacy ratio, leverage ratio, bank size, return on equity, gross domestic product, and inflation have significant impact on liquidity risk. We recommend that Islamic banks should be strong enough to face the liquidity risk come from systematic and unsystematic ways.

Keywords: Islamic Accounting; Islamic Finance; Islamic Banking; AAOIFI (search for similar items in EconPapers)
JEL-codes: G34 M41 (search for similar items in EconPapers)
Date: 2023
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