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Profitability and liquidity: an empirical investigation of Islamic banks in Malaysia and United Kingdom

Dabiri, Mohammad Alfurqan Olamilekan (2020) Profitability and liquidity: an empirical investigation of Islamic banks in Malaysia and United Kingdom. Doctoral thesis, Universiti Utara Malaysia.

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The banking sector plays a significant role in the economy of a country, Islamic banking has proven itself to be feasible and sustainable during the last decades. However, with the uncertainties that the world economies are facing in the last few
years, the feasibility and sustainability of Islamic banking finance remains debatable. Hence this study aims to investigate macroeconomic and bank-specific factors that affect the Islamic banks profitability and liquidity in United Kingdom and Malaysia.
The bank-specific indicators include capital adequacy, asset quality, liquidity, bank size; while the macroeconomic factors are GDP growth rate, inflation rate and lending rate. The study utilized balanced data between 2006 and 2018 of 12 Malaysian Islamic banks 4 UK Islamic banks. Panel Autoregressive Distributive Lag
and Panel Vector Autoregressive models were employed to estimate indicators effects and relationship among variables. Impulse Response Function and Toda-Yamamoto were used to assess the impact of global financial crisis and causal relationships among the variables. The study reveals that capital adequacy has
negative influence and asset quality has moderate negative effect on profitability of Islamic banks in both countries and global financial crisis was found to have no significance effect. Furthermore, profitability causes GDP and lending rate and
Liquidity causes GDP and inflation rate while there exists a bidirectional relationship between liquidity and lending rate. This study also supports earlier studies that indeed, Islamic banks to a certain extent are also insulated against the financial crisis. The implication of our finding is that Islamic banks do not require high capital and asset quality to be liquid and profitable and thus for sustainability. Bank Negara and Bank of England may formulate policies that will facilitate new entries into Islamic banking since they are found to be less affected by financial crises

Item Type: Thesis (Doctoral)
Supervisor : Mohd Yusof, Rosylin and Abd-Wahab, Norazlina
Item ID: 9418
Uncontrolled Keywords: Profitability, liquidity, panel, macroeconomic, bank-level.
Subjects: H Social Sciences > HG Finance
Divisions: Awang Had Salleh Graduate School of Arts & Sciences
Date Deposited: 29 May 2022 10:00
Last Modified: 10 Apr 2023 01:55
Department: Awang Had Salleh Graduate School of Arts & Sciences
Name: Mohd Yusof, Rosylin and Abd-Wahab, Norazlina
URI: https://etd.uum.edu.my/id/eprint/9418

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