Table of Contents TOC o “1-3” h z u Section 1.0: INTRODUCTION PAGEREF _Toc86875415 h 4RESEARCH AIMS AND OBJECTIVES PAGEREF _Toc86875416 h 4MOTIVATION FOR THIS RESEARCH. PAGEREF _Toc86875417 h 6CHAPTER TWO PAGEREF _Toc86875418 h 102.1 INTRODUCTION PAGEREF _Toc86875419 h 102.2 LITERATURE REVIEW PAGEREF _Toc86875420 h 10Liquidity risk management. PAGEREF _Toc86875421 h 10Shiftability Theory PAGEREF _Toc86875422 h 12Capital structure in Islamic banks and conventional banks PAGEREF _Toc86875423 h 12The global finical crisis PAGEREF _Toc86875424 h 13Performance comparison between Islamic and conventional banks PAGEREF _Toc86875425 h 142.2.1 Empirical studies PAGEREF _Toc86875426 h 152.2.2. Research in GCC countries? banking PAGEREF _Toc86875427 h 18Conclusion of literature review PAGEREF _Toc86875428 h 20CHAPTER THREE PAGEREF _Toc86875429 h 21Introduction PAGEREF _Toc86875430 h 21Methodology PAGEREF _Toc86875431 h 21Variable?s description PAGEREF _Toc86875432 h 22Methodology Breakdown PAGEREF _Toc86875433 h 243.4 DATA COLLECTION PAGEREF _Toc86875434 h 27Sample selection with justification PAGEREF _Toc86875435 h 27Conclusion PAGEREF _Toc86875436 h 30CHAPTER FOUR PAGEREF _Toc86875437 h 304.1 INTRODUCTION. PAGEREF _Toc86875438 h 314.2 DATA ANALYSIS: PAGEREF _Toc86875439 h 314.2.1 Descriptive statistics PAGEREF _Toc86875440 h 314.2.2 Descriptive statistics of Islamic banks and conventional banks 2010-2013. PAGEREF _Toc86875441 h 334.2.3. The correlation of Islamic banks and conventional banks in period 2010- 2013. PAGEREF _Toc86875442 h 35The result of regression for the period 2006 to 2009. PAGEREF _Toc86875443 h 37THE SUMMARY OF THE RESULTS INTERPRETATION PAGEREF _Toc86875444 h 484.4 CONCLUSION PAGEREF _Toc86875445 h 51CHAPTER FIVE PAGEREF _Toc86875446 h 525.1 INTRODUCTION PAGEREF _Toc86875447 h 525.2 SUMMARY FINDINGS PAGEREF _Toc86875448 h 525.3 POLICY RECOMMENDATIONS PAGEREF _Toc86875449 h 545.4 LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCH PAGEREF _Toc86875450 h 54References PAGEREF _Toc86875451 h 56
4.5 CONCLUSION
Liquidity risk management: comparative studies between Islamic and conventional banks during and after the crises in Gulf Cooperation Council Countries
Section 1.0: INTRODUCTION
The banking sector has a crucial role to play in business development, and Islamic banks have a crucial role in Muslim majority countries. The banks also operate in Europe (the United Kingdom, Luxembourg, France) and South Africa, where there are comparatively fewer Muslim populations (Hussain and Turk-Ariss, 2015). For both conventional and Islamic banks, liquidity risk is the most well-known risk area. Liquidity risk stems from differences in maturity between each side of the balance sheet. These differences either increase the quantity of cash you want to invest or decrease the quantity of liquidity you want to fund. The difficulty in obtaining funds at a fair price also contributes to liquidity risk because of the complications involved in obtaining cash at reasonable costs. In Islamic banking, interest-bearing loans are prohibited; therefore, such funds cannot be used for consolidating liquidity commitments in times of need. Debt lending is also prohibited (Anas and Mounira, 2008).
RESEARCH AIMS AND OBJECTIVES
The goal of this research is to establish how liquidity risk relates to a financial company’s solvency, with the goal of evaluating liquidity risk management (LRM) through a comparative examination of Islamic banks andÿconventional banks in the GCC. From 2006 to 2013, this study investigates the significance of firm size, total debt to total equity, return on equity, capital adequacy, and return on assets (ROA) as factors that influence liquidity risk management for both conventional and Islamic banks. It will divide the time period into two groups, the first from 2006 to 2009 and the second from 2010 to 2013, to determine whether the crises had an effect on the result of the independent variables on our dependent variable, liquidity risk, by using regulation, correlation, and descriptive analysis. And to find out if the result will be different during and after the crisis. It seeks to find out whether:
* There is a notable association between liquidity risk and bank size.
* There is a notable association between financial risks and conventional and Islamic banks’ performance in the GCC.
* There is a notable association between the liquidity and independent parameters for both Islamic and conventional banks.
* There is a notable association between liquidity risk and debt to equity ratio
* There is a notable association between liquidity risk and return on equity.
* There is a notable association between liquidity risk and capital adequacy ratio.
* There is a notable association between liquidity risk and return on assets.
* There is a notable association between liquidity risk crises
MOTIVATION FOR THIS RESEARCH.
Banking faces a variety of risks, one of the most significant of which is liquidity risk, which can have a significant impact on the banking system. As a result, proper risk management is required to drive banking growth. The goal of this study is to identify and explain the most important variables that can cause liquidity risk in Islamic and conventional banks, as well as to see if different models can behave differently
in GCC range.
How do the risks differ between conventional and Islamic banks?
Islamic banking is the practice of banking activities conducted in a compliant manner with the axioms and rulings of Shari?ah (Islamic law). Islamic or Sharia-compliant bank products are financial transactions which are not in violation of the prescriptions of the Koran (Beck, Demirg‡-Kunt and Merrouche, 2010). In particular, Islamic financial transactions have no interest payment (Riba) at a fixed or predetermined rate; instead, the Koran requires a profit-loss-risk sharing arrangement, purchasing, and reselling services and goods, and providing financial services for a fee. Secondly, Islamic banks are generally forbidden from trading in any financial risk product, for example a derivative product. For banks and their clients to be Sharia compliant, particular products are available which avoid interest and imply some risk-sharing
Both conventional and Islamic banks are based on risk and profit. However, both types of bank face two types of risk, the first includes credit risk, liquidity risk, market, and does not disagree with Islamic law. Because of Islamic banking strategy, there may be other types of risk associated with conventional banking because of requirements for complying with the teachings of Islam, such as a senior (Murabaha) contract. These types of risk arise from keeping items in inventory for either leasing under an Ijara contract or resale under a Murabaha contract. In the latter, the client can change their mind and may choose not to proceed with the transaction. The client could then return to the terms of the Murabaha or Ijara contracts, which introduces some risk into the transaction. Under an Ijarah contract, an Islamic bank has exposure to the risks of the residual value?s leased assets at the end of the term of the lease, or if the client prematurely ends the lease (Anas and Mounira, 2008).
Academics have indicated the benefits of Sharia-compliant financial products, as the discrepancy between long-term uncertain loan contracts and short-term, on-sight demandable deposits contracts. Moreover, Sharia-compliant products hold great attraction for those demanding consistency of financial services and religious beliefs. In addition, a benefit and loss sharing (PLS) arrangement divides income and loss between banks and depositors or entrepreneurs. The relationship between clients and banks therefore relies on equity instead of debt. In terms of responsibility, Islamic banks use the PLS concept (Hasan and Dridi, 2010). Ghanaian and Goswami (2004) found that Islamic banking schemes can provide support and liquidity in the money creation process as well as adding to transactional accounts and discovered that all developing economies which invest funds based on profit and loss are an attractive choice for banks.
Islamic banks have produced lending products and structures that are Sharia compliant. In a Murabaha contract (i.e., equal to a term loan), the bank buys real assets from a supplier and then sells it to the borrower for a higher price. Interest rate payments are implied as borrowers pay the marked-up price over a specific time period in instalments or in a lump sum when the contract matures. This contract is allowed as trade is generally permitted and the bank is thus exposed to risk from taking legal possession of any underlying assets (first contract) to when the assets are transferred to the borrower (second contract). However, Baele et al. (2014) state that Islamic banks do not charge default fines as this is not authorised by Sharia; rebates are used instead. Firstly, they charge customers a fee which covers the interest rate and penalty rate for default, then, if the obligation is fulfilled, the customer receives the discount. While the default interest rates in conventional banking are calculated over the late period, some Islamic banks may charge the late penalty over the entire financing period. Islamic banks also face collateral limitations. For example, they cannot use interest-based assets, such as bonds, as collateral (Islamic Finance at Bangor University). Loan interest is an unfair payment as, under uncertain conditions, the borrower cannot ensure sufficient profit to pay the required interest. Ambiguity about the future causes an element …

  
error: Content is protected !!