Exposure to interbank investment and financing risk by Islamic banks: A dynamic panel analysis of Malaysia

Mohamad, Mohammad Taqiuddin and Sulaiman, Ahmad Azam and Achour, Meguellati (2021) Exposure to interbank investment and financing risk by Islamic banks: A dynamic panel analysis of Malaysia. International Journal of Islamic and Middle Eastern Finance and Management, 14 (1). pp. 1-15. ISSN 1753-8394, DOI https://doi.org/10.1108/IMEFM-11-2017-0289.

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Purpose The Government of Malaysia has developed an Islamic Interbank Money Market since January 1994 with the objective to facilitate funding for the Islamic banking sector in the country. This platform also enables Islamic banks to obtain Shari?ah-compliant funds from other Islamic banks. This study aims to examine the effects of interbank investment and financing risk on the financing decisions of Malaysia's Islamic banks between 1994 and 2015. The financing decisions are used as financing measures to determine the effect of investing in the interbank market and financing risk indicators on financing. Design/methodology/approach The descriptive, correlation and dynamic panel analysis results are derived with the help of LIMDEP 9.0 software. Findings The study found a negative relationship between the interbank investment variable with the financing decisions of Islamic banks. This reflects that an increase in interbank investment leads Islamic banks to reduce their level of financing. These findings prove that the investment activities between Islamic banks had a ``substitution effect'' and decreased their capability of financing because of their tendency to maintain liquidity. Originality/value Islamic banks are confident that they will generate higher profits in the coming financial year. The economic conditions of Malaysia do not influence Islamic banks' financing decisions, whereas Islamic banks in this study are more dependent on the balance sheet indicators.

Item Type: Article
Funders: Universiti Malaya [RP034c-17HNE]
Uncontrolled Keywords: Islamic banks; Financing decision; Financing risk; Interbank investment
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Academy of Islamic Studies > Dept of Syariah & Management
Depositing User: Ms Zaharah Ramly
Date Deposited: 18 Apr 2022 02:33
Last Modified: 18 Apr 2022 02:33
URI: http://eprints.um.edu.my/id/eprint/27044

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