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Islamic Banking and Financial CrisisReputation, Stability and Risks$
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Habib Ahmed, Mehmet Asutay, and Rodney Wilson

Print publication date: 2013

Print ISBN-13: 9780748647613

Published to Edinburgh Scholarship Online: May 2014

DOI: 10.3366/edinburgh/9780748647613.001.0001

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PRINTED FROM EDINBURGH SCHOLARSHIP ONLINE (www.edinburgh.universitypressscholarship.com). (c) Copyright Edinburgh University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in ESO for personal use.date: 26 May 2020

Liquidity Risk Management and Financial Performance of Islamic Banks: Empirical Evidence

Liquidity Risk Management and Financial Performance of Islamic Banks: Empirical Evidence

Chapter:
(p.124) 7 Liquidity Risk Management and Financial Performance of Islamic Banks: Empirical Evidence
Source:
Islamic Banking and Financial Crisis
Author(s):

Noraini Mohd Ariffin

Salina Hj. Kassim

Publisher:
Edinburgh University Press
DOI:10.3366/edinburgh/9780748647613.003.0007

This chapter investigates how Islamic banks manage liquidity risk and handle maturity mismatches, as well as the relationship between liquidity risk management and financial performance as measured by return on assets. In particular, it examines the extent of liquidity risk in the Islamic banks in Malaysia, whether the current financial crisis has a significant effect on the liquidity risk of these banks, the extent of liquidity risk management disclosure in the annual report, and whether liquidity risk is correlated with the financial performance of Islamic banks. The chapter first reviews the existing literature on liquidity risk and its management as well as the link between risk and return on equity. It then analyses data from 2006 to 2008 for the leading six Islamic banks in Malaysia. The results show that the banks’ return on equity declined due to the global crisis, and that investors in the banks with the highest liquidity risk expected and obtained the highest return on their equity.

Keywords:   liquidity, risk management, financial performance, return on assets, Islamic banks, Malaysia, financial crisis, return on equity, investors

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