Liquidity Determinants of Islamic and Conventional Banks
By Oussama Gafrej, Mouna Boujelbene Abbes
Abstract
This paper investigates the impact of specific banking factors and macroeconomic factors on banks’ liquidity of Islamic and conventional banks using generalized least squares (GLS). We show that Islamic banks hold more liquidity, can absorb the excessive withdrawal of funds and can pay its shorter maturity obligations better than conventional banks for the period from 2006 to 2013. For Islamic Banks, we found a positive and significant influence of past liquidity, return on assets and capital to total assets ratio on banks’ liquidity. Also, we found a negative and significant influence of size to banks’ liquidity. The loan loss reserves to gross loans ratio and the inflation rate have a positive and insignificant impact on liquidity, whereas the age has a negative and insignificant impact on liquidity. While the results of growth of loans, growth of gross domestic product and deposit interest rate are ambiguous. On the other hand, for conventional banks we found a positive and significant influence of past liquidity and return on assets on banks’ liquidity. Also, we found a negative and significant influence of capital to total assets ratio, growth loans, size, age and inflation rate on banks’ liquidity. The deposit interest rate has a positive and insignificant impact on liquidity. On the contrary, the growth of gross domestic product has a negative and insignificant impact on liquidity. While, the result of loan loss reserves to gross loans ratio is ambiguous.
Contents
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