Liquidity Management of Islamic Banks- The Evidence from Malaysian Practice

Abstract

Islamic banks, similar to their conventional counterparts face plethora of risks, which ultimately affect their operations and hence the pe"rformance. They are also required to take additional measures for scaling liquidity management due to their unique characteristics and requirements of the strict compliance of Shari 'ah principles. Banks without having adequate liquidity.face various forms of risks such as those of fiduciary, displaced commercial, and other risks associated to them, which might lead to affect their financial stability as a whole. The key objective of this paper is to analyse the management of liquidity risk in Islamic banks' liabilities. Malaysian Islamic banking sector has been chosen as a case study. Keeping in view of this, the study examines inter alia the significance of size of the firm, capitalization, bank specialization and loan loss reserve ratio of some selected Islamic banks in Malaysia. The results show that the liquidity management of these Islamic hanks is formed by the bank specif,cationfactors. The study recommends the concerned authority to implement all necessary means of integrated and comprehensive program in order for the management of liquidity risk to improve.