This document summarizes a research article that examines the relationship between the development of sukuk (Islamic bond) markets and the financial stability of Islamic banks. It hypothesizes that this relationship can be one of either complementarity or competition. The study finds that sukuk market development positively impacts the financial stability of Islamic banks by expanding complementarity between them and encouraging stability. This adds to limited existing research on the interaction between growing Islamic financial sectors.
How The Growth In Bond Market Affect The Performance Of Banks In Briics?inventionjournals
When it comes to raising capital, corporates have two major sources of external funds: Equity and Debt. Corporate debt consists of broadly two types – bank borrowings and bonds. A bond is a formal contract between a borrower and a lender whereby the borrower promises to repay borrowed money with coupons at fixed intervals and at maturity in which the participants are provided with the issuance and trading of debt securities. The main objective of this study is to understand how the growth in bond market affects the performance of the Bank in BRIICS countries. The variables like Bank’s capital to asset ratio, Domestic credit to private sector, NPA, Portfolio investment and Bond market size has been analysed and Panel regression has been used to find the results. The results showed that all the variables analysed have a positive impact on the bond market growth and a leading effect on the banks
Financial Risk, Capital Adequacy and Liquidity Performance of Deposit Money B...ijtsrd
The objective of this study was to examine the effect of financial risk on liquidity performance of Deposit Money Banks DMBs in Nigeria, with capital adequacy as a moderator. The study specifically examined the mediating role of capital adequacy on the effect of operational risk, market risk and credit risk on liquidity performance. The study adopted the ex post facto research design as the goal was not to manipulate any variable but rather to establish effect and mediation. The population comprised listed Deposit Money Banks and the sample restricted to a purposive sample of ten 10 banks whose annual reports were accessible for the period of 13 years from 2010 2022 which was the time scope of this study. The data were analysed using structural equation model. The study found that capital adequacy does not significantly mediate the effect of operational, market and credit risks on liquidity performance. Based on these findings, the study recommended that Banks need to create a capital adequacy mechanism necessary for hedging against operating risks inherent in the financial market Banks need to develop a capital adequacy framework to guide them to optimally disclose their market risks, enhance the quality of their disclosure practices, improve the quality of their financial reports and more efficiently manage their liquidity The Nigerian Central Bank need to develop a statutory requirement that will demand a certain level of capital adequacy by the banks before granting a certain level of credit. Odinaka Frank Igbojindu | Gloria Ogochukwu Okafor | Chinedu Jonathan Ndubuisi "Financial Risk, Capital Adequacy and Liquidity Performance of Deposit Money Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-8 | Issue-1 , February 2024, URL: https://www.ijtsrd.com/papers/ijtsrd61356.pdf Paper Url: https://www.ijtsrd.com/management/accounting-and-finance/61356/financial-risk-capital-adequacy-and-liquidity-performance-of-deposit-money-banks-in-nigeria/odinaka-frank-igbojindu
The Influence of Good Corporate Governance Mechanisms, Liquidity, Firm Size, ...AJHSSR Journal
ABSTRACT : This study aims to determine the effect of Good Corporate Governance Mechanisms,Liquidity,
Firm Size, and Impact of Covid-19, on Firm Value with Financial Performance as a mediating variable. This
study uses secondary data from 35 sample banking companies listed on the Indonesian Stock Exchange for the
2017-2021 period. Sampling using purposive sampling technique. The research data analysis method uses SPSS
v.26 software. The results of this study are the Good Corporate Governance Mechanism (board of directors),
liquidity, and financial performance hava a significant effect on firm value. Meanwhile, the indirect effect of
firm size and impact of covid-19 has a significant effect on financial performance (mediation variable). From
the calculation of the sobel test and direct or indirect effect, its found that financial performance cannot mediate
form the GCG mechanisms, liquidity, firm size, and the impactof Covid-19 on firm value.
KEYWORDS : Good Corporate Governance Mechanisms, Financial Performance, Liquidity, Firm Value,
Firm Size
Characteristics of Nigerian Deposit Money Banks and Their Financial Outcomeijtsrd
The purpose of this research was to examine the connections between DMB profitability and various company characteristics in Nigeria. This study used panel data regression to evaluate five hypotheses on how market share, liquidity, credit risk, interest rate spread, and leverage affect bank profitability. Secondary data was gathered from the financial statements of the 19 deposit money banks listed on the international and local markets of the Nigerian Stock Exchange NSE between 2012 and 2021. The success of Nigerian banks is strongly influenced by their market share, liquidity, interest rate spread, and leverage. There was a connection between credit risk and ROA, however it was weak and not statistically significant. The report recommended that the Central Bank of Nigeria CBN create policies to enable banks increase their market share, rather than seeking to limit the number of firms in the banking sector. Dr. Confidence J. Ihenyen | Okpobo, Timinipre Joseph | Monron, Ezekiel Lawrence "Characteristics of Nigerian Deposit Money Banks and Their Financial Outcome" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-7 | Issue-3 , June 2023, URL: https://www.ijtsrd.com.com/papers/ijtsrd56303.pdf Paper URL: https://www.ijtsrd.com.com/management/accounting-and-finance/56303/characteristics-of-nigerian-deposit-money-banks-and-their-financial-outcome/dr-confidence-j-ihenyen
Islamic Finance and Economic Growth in the Kingdom of Saudi Arabia (KSA): An ...scmsnoida5
This paper examines the relationship between
the development of Islamic finance system and
economic growth in the Kingdom of Saudi
Arabia. The relationship between Islamic
banking and economic growth is done using
econometric analysis. In this analysis, we use
Islamic banks’ financing credited to private
sector through modes of financing as a proxy for
the development of Islamic finance system and
Gross Domestic Product (GDP), Gross Fixed
Capital Formation (GFCF) and Foreign Direct
Investment inflow (FDI) as proxies for real
economic growth. For the analysis, the unit root
test, co-integration test and Granger causality
tests were done. Based on the availability of data,
time series data from 1990 to 2010 is used to
examine the relationship between Islamic banks’
financing and GDP, FDI, and GFCF. Data for
all variables are stationary after first difference.
The co-integration results provide an evidence of
a unique cointegrating vector. In other words, there is a long-term stable relationship between
Islamic banks’ financing and economic growth
in the Kingdom of Saudi Arabia. That means
Islamic banks’ financing and economic growth
relationships are moving together in the longrun.
The results from causality tests show that causality
relation exist from the Islamic banks’ financing
to investment and Foreign Direct Investment
(FDI) of the Kingdom of Saudi Arabia. The
results indicate that Islamic finance is a suitable
environment for attracting FDI and FDI
reinforces economic growth.
The Islamic Banking, Asset Quality: “Does Financing Segmentation Matters” (I...Mercu Buana University
Bank stability becomes one of the crucial pillars in maintaining economic growth. Therefore, the segmentation strategy is needed because it aims to improve the financial stability of the bank (decrease Non-Performing Loan-NPL / Non-Performing Financing-NPF). This study aims to determine the effect of segmentation on the quality of Islamic banks proxied with NPF. The method used is a quantitative method with multiple regression test and statistical tool Stata version 13. From the results of statistical data, it is known that the retail segment has a more significant influence than the wholesale segment, which is 92.61% and 56.05%. Therefore, sharia banks should have their business priorities in the retail segment, especially business in the microfinance segment by maintaining the quality of financing through selective financing channeling.
mpact of Foreign Shares to Profitability in Turkish Participation Banksinventionjournals
Covering the period 2006 to 2015, this paper aims at empirically studying the impact of foreign shares on the profitability of participation banks. Several econometrical models have been implemented to reveal this relation among variables. There is no co-integration result between profitability on the one hand, and foreign shares, deposits, loans and equity on the other hand. According to the Granger causality test lag 1, a bidirectional relationship exists between deposits and loans. Meanwhile, a unidirectional relationship exists between profitability and foreign shares.
This document discusses a study analyzing the financial performance of selected private sector banks in Bangladesh in light of capital levels. The study examines the impact of factors like total capital/assets, risk-weighted assets, core capital/assets, equity capital/assets, and cost income ratio on the banks' returns on assets and equity. Annual data from 2008-2012 for three banks was used in multiple regression analysis. The study aims to determine if capital adequacy and cost income ratio influence bank profitability, and if Basel II requirements have been effective in reducing non-performing loans and bankruptcy risks in Bangladeshi banks. Previous literature suggests capital adequacy can impact lending, performance, and bankruptcy risk, but markets may better determine optimal capital levels.
How The Growth In Bond Market Affect The Performance Of Banks In Briics?inventionjournals
When it comes to raising capital, corporates have two major sources of external funds: Equity and Debt. Corporate debt consists of broadly two types – bank borrowings and bonds. A bond is a formal contract between a borrower and a lender whereby the borrower promises to repay borrowed money with coupons at fixed intervals and at maturity in which the participants are provided with the issuance and trading of debt securities. The main objective of this study is to understand how the growth in bond market affects the performance of the Bank in BRIICS countries. The variables like Bank’s capital to asset ratio, Domestic credit to private sector, NPA, Portfolio investment and Bond market size has been analysed and Panel regression has been used to find the results. The results showed that all the variables analysed have a positive impact on the bond market growth and a leading effect on the banks
Financial Risk, Capital Adequacy and Liquidity Performance of Deposit Money B...ijtsrd
The objective of this study was to examine the effect of financial risk on liquidity performance of Deposit Money Banks DMBs in Nigeria, with capital adequacy as a moderator. The study specifically examined the mediating role of capital adequacy on the effect of operational risk, market risk and credit risk on liquidity performance. The study adopted the ex post facto research design as the goal was not to manipulate any variable but rather to establish effect and mediation. The population comprised listed Deposit Money Banks and the sample restricted to a purposive sample of ten 10 banks whose annual reports were accessible for the period of 13 years from 2010 2022 which was the time scope of this study. The data were analysed using structural equation model. The study found that capital adequacy does not significantly mediate the effect of operational, market and credit risks on liquidity performance. Based on these findings, the study recommended that Banks need to create a capital adequacy mechanism necessary for hedging against operating risks inherent in the financial market Banks need to develop a capital adequacy framework to guide them to optimally disclose their market risks, enhance the quality of their disclosure practices, improve the quality of their financial reports and more efficiently manage their liquidity The Nigerian Central Bank need to develop a statutory requirement that will demand a certain level of capital adequacy by the banks before granting a certain level of credit. Odinaka Frank Igbojindu | Gloria Ogochukwu Okafor | Chinedu Jonathan Ndubuisi "Financial Risk, Capital Adequacy and Liquidity Performance of Deposit Money Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-8 | Issue-1 , February 2024, URL: https://www.ijtsrd.com/papers/ijtsrd61356.pdf Paper Url: https://www.ijtsrd.com/management/accounting-and-finance/61356/financial-risk-capital-adequacy-and-liquidity-performance-of-deposit-money-banks-in-nigeria/odinaka-frank-igbojindu
The Influence of Good Corporate Governance Mechanisms, Liquidity, Firm Size, ...AJHSSR Journal
ABSTRACT : This study aims to determine the effect of Good Corporate Governance Mechanisms,Liquidity,
Firm Size, and Impact of Covid-19, on Firm Value with Financial Performance as a mediating variable. This
study uses secondary data from 35 sample banking companies listed on the Indonesian Stock Exchange for the
2017-2021 period. Sampling using purposive sampling technique. The research data analysis method uses SPSS
v.26 software. The results of this study are the Good Corporate Governance Mechanism (board of directors),
liquidity, and financial performance hava a significant effect on firm value. Meanwhile, the indirect effect of
firm size and impact of covid-19 has a significant effect on financial performance (mediation variable). From
the calculation of the sobel test and direct or indirect effect, its found that financial performance cannot mediate
form the GCG mechanisms, liquidity, firm size, and the impactof Covid-19 on firm value.
KEYWORDS : Good Corporate Governance Mechanisms, Financial Performance, Liquidity, Firm Value,
Firm Size
Characteristics of Nigerian Deposit Money Banks and Their Financial Outcomeijtsrd
The purpose of this research was to examine the connections between DMB profitability and various company characteristics in Nigeria. This study used panel data regression to evaluate five hypotheses on how market share, liquidity, credit risk, interest rate spread, and leverage affect bank profitability. Secondary data was gathered from the financial statements of the 19 deposit money banks listed on the international and local markets of the Nigerian Stock Exchange NSE between 2012 and 2021. The success of Nigerian banks is strongly influenced by their market share, liquidity, interest rate spread, and leverage. There was a connection between credit risk and ROA, however it was weak and not statistically significant. The report recommended that the Central Bank of Nigeria CBN create policies to enable banks increase their market share, rather than seeking to limit the number of firms in the banking sector. Dr. Confidence J. Ihenyen | Okpobo, Timinipre Joseph | Monron, Ezekiel Lawrence "Characteristics of Nigerian Deposit Money Banks and Their Financial Outcome" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-7 | Issue-3 , June 2023, URL: https://www.ijtsrd.com.com/papers/ijtsrd56303.pdf Paper URL: https://www.ijtsrd.com.com/management/accounting-and-finance/56303/characteristics-of-nigerian-deposit-money-banks-and-their-financial-outcome/dr-confidence-j-ihenyen
Islamic Finance and Economic Growth in the Kingdom of Saudi Arabia (KSA): An ...scmsnoida5
This paper examines the relationship between
the development of Islamic finance system and
economic growth in the Kingdom of Saudi
Arabia. The relationship between Islamic
banking and economic growth is done using
econometric analysis. In this analysis, we use
Islamic banks’ financing credited to private
sector through modes of financing as a proxy for
the development of Islamic finance system and
Gross Domestic Product (GDP), Gross Fixed
Capital Formation (GFCF) and Foreign Direct
Investment inflow (FDI) as proxies for real
economic growth. For the analysis, the unit root
test, co-integration test and Granger causality
tests were done. Based on the availability of data,
time series data from 1990 to 2010 is used to
examine the relationship between Islamic banks’
financing and GDP, FDI, and GFCF. Data for
all variables are stationary after first difference.
The co-integration results provide an evidence of
a unique cointegrating vector. In other words, there is a long-term stable relationship between
Islamic banks’ financing and economic growth
in the Kingdom of Saudi Arabia. That means
Islamic banks’ financing and economic growth
relationships are moving together in the longrun.
The results from causality tests show that causality
relation exist from the Islamic banks’ financing
to investment and Foreign Direct Investment
(FDI) of the Kingdom of Saudi Arabia. The
results indicate that Islamic finance is a suitable
environment for attracting FDI and FDI
reinforces economic growth.
The Islamic Banking, Asset Quality: “Does Financing Segmentation Matters” (I...Mercu Buana University
Bank stability becomes one of the crucial pillars in maintaining economic growth. Therefore, the segmentation strategy is needed because it aims to improve the financial stability of the bank (decrease Non-Performing Loan-NPL / Non-Performing Financing-NPF). This study aims to determine the effect of segmentation on the quality of Islamic banks proxied with NPF. The method used is a quantitative method with multiple regression test and statistical tool Stata version 13. From the results of statistical data, it is known that the retail segment has a more significant influence than the wholesale segment, which is 92.61% and 56.05%. Therefore, sharia banks should have their business priorities in the retail segment, especially business in the microfinance segment by maintaining the quality of financing through selective financing channeling.
mpact of Foreign Shares to Profitability in Turkish Participation Banksinventionjournals
Covering the period 2006 to 2015, this paper aims at empirically studying the impact of foreign shares on the profitability of participation banks. Several econometrical models have been implemented to reveal this relation among variables. There is no co-integration result between profitability on the one hand, and foreign shares, deposits, loans and equity on the other hand. According to the Granger causality test lag 1, a bidirectional relationship exists between deposits and loans. Meanwhile, a unidirectional relationship exists between profitability and foreign shares.
This document discusses a study analyzing the financial performance of selected private sector banks in Bangladesh in light of capital levels. The study examines the impact of factors like total capital/assets, risk-weighted assets, core capital/assets, equity capital/assets, and cost income ratio on the banks' returns on assets and equity. Annual data from 2008-2012 for three banks was used in multiple regression analysis. The study aims to determine if capital adequacy and cost income ratio influence bank profitability, and if Basel II requirements have been effective in reducing non-performing loans and bankruptcy risks in Bangladeshi banks. Previous literature suggests capital adequacy can impact lending, performance, and bankruptcy risk, but markets may better determine optimal capital levels.
Global financial markets: Factors influencing the global financial marketsIJAEMSJORNAL
The worldwide recession began in earnest with a series of acute financial crises in key developed nations that occurred simultaneously with the freezing of financial markets around the world and the steep decline in global trade. The current research focused on assessing the impact of (Global economy, Business growth and development, and Inflation) ton global financial markets. The present thesis was analyzed using a questionnaire. Sample design is the technique or process that the researcher is able to accept in selecting objects for the survey is referred to as sample design. The research sample was chosen using a random sampling method and carried out in various businesses located in Kurdistan region of Iraq. A total of 280 questionnaires were issued, but only 228 participants completed them correctly. In order to examine the aspect of factors (Global economy, Business development and growth, and Inflation) to measure the influence on sustained competitive advantage in small and medium businesses in Kurdistan region of Iraq. Participants were asked to rate the value of each object on a five-point scale ranging from unimportant to highly important. The findings revealed that the implications of the first hypothesis: Global economy strongly predicts global financial markets (Beta is weight 0.801, p.001), implying that Global economy would have a clear beneficial relationship with global financial markets based on these findings, the implications of the second hypothesis: Business development and growth strongly predicts global financial markets (Beta is weight 0.719, p.001), implying that business development and growth would have a clear beneficial relationship with global financial markets based on these findings, and finally the implications of the third hypothesis: inflation strongly predicts global financial markets (Beta is weight 0.689, p.001), implying that Inflation would have a clear beneficial relationship with global financial markets based on these findings.
Profitability Determinants of Go-Public Bank in Indonesia: Empirical Evidenc...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
IMPACT ON INDIAN BANKS’ PROFITABILITY INDICATORS – AN EMPIRICAL STUDYIAEME Publication
The Indian banking system consists of 26 public sector banks, 20 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. The Indian banking sector’s assets reached US$ 1.8 trillion in FY14 from US$ 1.3 trillion in FY10, with 70 per cent of it being accounted by the public sector. Indian banks are increasingly focusing on adopting integrated approach to risk management. Banks have already embraced the international banking supervision accord of Basel II. According to RBI, majority of the banks already meet capital requirements of Basel III, which has a deadline of March 31, 2019. Most of the banks have put in place the framework for asset-liability match, credit and derivatives risk management.
This document discusses a study examining the relationship between banking sector development and economic growth in Lebanon from 1992-2011. The study uses regression analysis to test whether greater banking sector development, as represented by factors like private credit levels and banking efficiency, leads to increased economic growth. Preliminary analysis includes a Granger causality test to determine the direction of the relationship between financial development and GDP growth. Key banking sector variables analyzed are private credit levels, interest rate spreads, banking assets, concentration levels, and deposit growth rates. The goal is to evaluate how Lebanon's banking-centered financial system impacts economic activity and development.
This study examines the factors that determine the financing supply of Islamic banks in multiple countries. It uses panel data from Islamic banks in Pakistan and Malaysia over several years. The study finds that increases in total deposits and GDP positively impact financing, while increases in the market rate of return, money supply, and bank equity negatively impact financing. The results indicate Islamic banks do not always proportionally increase financing when deposits and equity rise, suggesting excess liquidity. Overall the model explains about 31% of the variation in Islamic bank financing.
This document provides an overview of the Pakistani banking sector in 2013. It contains several articles and interviews on topics related to economics, finance, and banking in Pakistan. The editor's note provides commentary on the State Bank of Pakistan's economic review and monetary policies. It questions whether sufficient monitoring of the financial market has occurred and why credit growth has failed to support SMEs and regional development. The banking sector has shown strong performance but economic growth has been sluggish since 2007. Overall, the document examines issues facing the banking industry and economy in Pakistan.
This document outlines a research proposal that examines the relationship between bank governance, financial disclosure, and bank sustainability in Ghana and South Africa. The proposal consists of 7 sections that describe the background and problem statement, objectives, research questions, methodology, significance, and limitations of the study. Specifically, the study aims to investigate how bank governance and financial disclosure relate to bank sustainability, as well as their interactive effects, using annual data from commercial banks in Ghana and South Africa from 2012 to 2022. The findings could provide insights for regulators, banks, and researchers regarding governance and transparency practices.
This paper examines the efficiency dynamics and convergence of Islamic and conventional banks across 23 countries from 1999 to 2014. Using parametric and non-parametric methods, the authors find that on average, Islamic and conventional banks have similar steady state efficiency levels and rates of efficiency convergence. However, classification tree analysis reveals that steady state efficiencies and convergence rates can vary between bank types in some countries. The alignment of Islamic and conventional banking systems is positively related to factors like financial depth, transparency, and economic stability. The paper provides novel insights into differences and similarities between Islamic and conventional banking models across countries.
Role of Development Finance Institutions in Developing the Nigerian Agricultu...AJHSSR Journal
ABSTRACT : This study investigates the role of development finance institutions (DFIs) in agricultural
sector development in Nigeria. African Development Bank (AfDB), World Bank and International Development
Association (IDA) were the underlying DFIs while agriculture value added formed the basis for measuring
agricultural sector development. Data on the variables were sourced from World Development Indicators (WDI)
and analyzed using error correction mechanism (ECM). The unit root test results indicate that all the variables
are not stationary. However, they become stationary after first differencing and as such they all integrated of
order one. The cointegration test results revealed that the variables have long run relationship. The result
showed that the first and second lag of agriculture value added impacted negatively on its current. One-period
lag of AfDB loan has significant positive relationship with current value of agriculture value added. The result
showed that agriculture value added increased by 0.079 percent due to 1 percent increase in lag of AfDB loan. It
was also found that the lagged values of World Bank and IDA loans exert significant negative impact on
agriculture value added. The Parsimonious ECM revealedthat the model has an adjustment speed of 59.2
percent. Based on the findings, it is recommended that policymakers should prioritize the allocation of AfDB
loans into productive sectors of the economy with particular emphasis on agriculture with a view to driving the
development process in the real sector.
Keywords:Development finance, agriculture sector, Institutions, African Development Bank, World Bank and
value addition
The aim of this paper is to examine the impact of bank minimum capital requirement on credit supply in Ivory Coast, over the period from 1982 to 2016. To this end, the ARDL method was used to study the nature of the relationship between our explanatory variables and bank credit supply in Ivory Coast. The study indicates some major results. The results showed that in the short term, real GDP per capita and bank size influence credit supply in Ivory Coast. Real GDP per capita acts negatively on credit supply in the short run while bank size has a positive influence on banks’ capacity to finance the economy. In the long run, the Cooke ratio and the openness rate have an impact on bank credit supply in Ivory Coast. The recovery of bank minimum capital requirements positively influences bank credit supply while the openness of the economy negatively impacts banks’ ability to offer bank credit. In terms of economic policies implications, monetary authorities must enforce and respect the policy of increasing bank minimum capital requirements. They must encourage banks to increase their banking assets.
John Mathiang, Kartika Susilowati Manufacturing companies Bank and Policy 3 ...PublisherNasir
John Mathiang Machar Mathiang, Kartika Dewi Sri Susilowati (2022). The effect of financial ratios on the performance of manufacturing companies (case study on food and beverages companies listed on Idx in 2018-2020). Bank and Policy 2(3): 58-70
The purpose of this study is to measure the impact of penetration of foreign banks in the Indonesian banking industry. The measured effects are limited to competition and efficiency during the years 2000-2011, during which was a recovery from the economic crisis in Indonesia. Panzar-Rosse measures the competition and Conjectural Variation approaches. The efficiency is measured by the Standard Profit Efficiency approach. By using panel regression method with SUR (Seemingly Unrelated Regression), we found that penetration of foreign banks will increase competition and efficiency of banking in Indonesia, especially to medium and small banks through spillover effect on domestic banking system. The increase in total assets, total loans and the amount of third party funds held by foreign banks in Indonesia will increase competition and efficiency of banks in Indonesia.
Impact of profitability, bank and macroeconomic factors on the market capital...inventionjournals
Panel data has been collected for 44 Middle Eastern banks that are operated during 2005 to 2014 in different Middle Eastern countries. Secondary data has been collected primarily through the DataStream database. The study is conducted to investigate the impact of profitability, bank and macroeconomic factors on the market capitalization of the Middle Eastern banks. Results of Hausman test have explained that fixed effect model is appropriate for the analysis. The result of multiple regression have shown that market capitalization has positive relationship with ROI while negative relationship with credit risk, inflation, and year dummy for the Middle Eastern banks. Furthermore, no relationship has been observed between market capitalization and the ROA, ROE, growth and exchange rate for the Middle Eastern banks.
This document summarizes a research study that investigates the effects of bank diversification, size, and the global financial crisis on risk-taking and performance in emerging economies. The study uses data from 542 bank-years in Bangladesh and South Africa between 2004-2015. The key findings are:
1) Higher non-performing loan ratios make banks less profitable and more unstable.
2) Benefits from bank diversification vary and confirm portfolio diversification theory.
3) Small banks in Bangladesh gain more from diversification than large banks, while large banks in South Africa gain more than small banks.
4) During financial crises, emerging economies can use diversification to control risk and improve performance
This document summarizes a research study that compares liquidity risk management between conventional and Islamic banks in Pakistan. The study uses data from 12 banks (6 conventional, 6 Islamic) over 2006-2009. It finds that size of bank and networking capital are positively but insignificantly related to liquidity risk in both models. Capital adequacy ratio is positively significant for conventional banks, while return on assets is positively significant for Islamic banks. The results indicate some differences in factors impacting liquidity risk between conventional and Islamic banking models in Pakistan.
Asset liability management and commercial banks profitability in ethiopiaAlexander Decker
The document examines the effect of asset liability management (ALM) on the profitability of commercial banks in Ethiopia. It uses a statistical cost accounting (SCA) model to analyze the relationship between banks' profitability, measured by return on assets (ROA), and their balance sheet items like loans, deposits and other assets/liabilities. The analysis finds that most assets positively impact profitability while liabilities generally have a negative effect. It also incorporates macroeconomic variables like GDP growth and inflation, finding GDP has a negative influence on bank profits. The study aims to help banks and policymakers better understand factors affecting bank performance in Ethiopia's developing financial system.
The document discusses the concepts and principles of Islamic banking and finance. It provides an overview of Islamic banking since its inception, noting it focuses on risk sharing and limiting unnecessary risk. The document then discusses the emergence and development of Islamic banking specifically in the United Arab Emirates since the 1960s. It notes that currently, Islamic banking accounts for over 20% of banking in the UAE and contributes approximately 8.5% to Dubai's GDP and 10% to the UAE's overall GDP. Regulatory bodies that oversee Islamic banks and ensure Sharia compliance are also summarized.
This document provides an overview and analysis of international banking practices, growth, and prospects, with a focus on comparing State Bank of India (SBI) and ICICI Bank. It finds that while SBI has traditionally been larger and more trusted among customers, ICICI Bank has shown better operational efficiency in some areas like credit deployment and expenses management. The document also outlines trends in international banking historically, factors driving its growth, effects on financial stability and economic development, and reflections on its future amid ongoing globalization.
The Impact Of Bank-Specific And Macroeconomic Characteristics On The Banking ...Mohamed Kenawy
This thesis examines the impact of bank-specific and macroeconomic factors on bank profitability in Egypt from 1996 to 2017. Prior literature on this topic in other countries is reviewed, with mixed results found on factors like bank size, capital, loans, deposits, GDP, inflation, and electronic banking adoption. The researcher aims to extend this literature by analyzing a new country and time period. Using ordinary least squares regression on pooled bank data, the study finds that inflation and net interest margin have a significant positive impact on return on equity as the measure of bank profitability in Egypt. These results are important for individuals, policymakers, and bank management in understanding determinants of profitability and maximizing economic growth.
This document discusses a study that examines the effect of the COVID-19 pandemic on corporate dividend policy in Indonesia. The study uses static and dynamic panel data approaches to analyze data from non-financial companies listed on the Indonesia Stock Exchange from 2014 to 2020. The results of the static panel data regression show that profitability and previous year dividends positively affect dividend policy. The dynamic panel data regressions indicate that in addition to those variables, age affects dividend policy, financial leverage has an effect, and firm size has an effect in different directions, while investment opportunity does not affect dividend policy. The study aims to provide insights for investors on corporate dividend policies during the pandemic.
Global financial markets: Factors influencing the global financial marketsIJAEMSJORNAL
The worldwide recession began in earnest with a series of acute financial crises in key developed nations that occurred simultaneously with the freezing of financial markets around the world and the steep decline in global trade. The current research focused on assessing the impact of (Global economy, Business growth and development, and Inflation) ton global financial markets. The present thesis was analyzed using a questionnaire. Sample design is the technique or process that the researcher is able to accept in selecting objects for the survey is referred to as sample design. The research sample was chosen using a random sampling method and carried out in various businesses located in Kurdistan region of Iraq. A total of 280 questionnaires were issued, but only 228 participants completed them correctly. In order to examine the aspect of factors (Global economy, Business development and growth, and Inflation) to measure the influence on sustained competitive advantage in small and medium businesses in Kurdistan region of Iraq. Participants were asked to rate the value of each object on a five-point scale ranging from unimportant to highly important. The findings revealed that the implications of the first hypothesis: Global economy strongly predicts global financial markets (Beta is weight 0.801, p.001), implying that Global economy would have a clear beneficial relationship with global financial markets based on these findings, the implications of the second hypothesis: Business development and growth strongly predicts global financial markets (Beta is weight 0.719, p.001), implying that business development and growth would have a clear beneficial relationship with global financial markets based on these findings, and finally the implications of the third hypothesis: inflation strongly predicts global financial markets (Beta is weight 0.689, p.001), implying that Inflation would have a clear beneficial relationship with global financial markets based on these findings.
Profitability Determinants of Go-Public Bank in Indonesia: Empirical Evidenc...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
IMPACT ON INDIAN BANKS’ PROFITABILITY INDICATORS – AN EMPIRICAL STUDYIAEME Publication
The Indian banking system consists of 26 public sector banks, 20 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. The Indian banking sector’s assets reached US$ 1.8 trillion in FY14 from US$ 1.3 trillion in FY10, with 70 per cent of it being accounted by the public sector. Indian banks are increasingly focusing on adopting integrated approach to risk management. Banks have already embraced the international banking supervision accord of Basel II. According to RBI, majority of the banks already meet capital requirements of Basel III, which has a deadline of March 31, 2019. Most of the banks have put in place the framework for asset-liability match, credit and derivatives risk management.
This document discusses a study examining the relationship between banking sector development and economic growth in Lebanon from 1992-2011. The study uses regression analysis to test whether greater banking sector development, as represented by factors like private credit levels and banking efficiency, leads to increased economic growth. Preliminary analysis includes a Granger causality test to determine the direction of the relationship between financial development and GDP growth. Key banking sector variables analyzed are private credit levels, interest rate spreads, banking assets, concentration levels, and deposit growth rates. The goal is to evaluate how Lebanon's banking-centered financial system impacts economic activity and development.
This study examines the factors that determine the financing supply of Islamic banks in multiple countries. It uses panel data from Islamic banks in Pakistan and Malaysia over several years. The study finds that increases in total deposits and GDP positively impact financing, while increases in the market rate of return, money supply, and bank equity negatively impact financing. The results indicate Islamic banks do not always proportionally increase financing when deposits and equity rise, suggesting excess liquidity. Overall the model explains about 31% of the variation in Islamic bank financing.
This document provides an overview of the Pakistani banking sector in 2013. It contains several articles and interviews on topics related to economics, finance, and banking in Pakistan. The editor's note provides commentary on the State Bank of Pakistan's economic review and monetary policies. It questions whether sufficient monitoring of the financial market has occurred and why credit growth has failed to support SMEs and regional development. The banking sector has shown strong performance but economic growth has been sluggish since 2007. Overall, the document examines issues facing the banking industry and economy in Pakistan.
This document outlines a research proposal that examines the relationship between bank governance, financial disclosure, and bank sustainability in Ghana and South Africa. The proposal consists of 7 sections that describe the background and problem statement, objectives, research questions, methodology, significance, and limitations of the study. Specifically, the study aims to investigate how bank governance and financial disclosure relate to bank sustainability, as well as their interactive effects, using annual data from commercial banks in Ghana and South Africa from 2012 to 2022. The findings could provide insights for regulators, banks, and researchers regarding governance and transparency practices.
This paper examines the efficiency dynamics and convergence of Islamic and conventional banks across 23 countries from 1999 to 2014. Using parametric and non-parametric methods, the authors find that on average, Islamic and conventional banks have similar steady state efficiency levels and rates of efficiency convergence. However, classification tree analysis reveals that steady state efficiencies and convergence rates can vary between bank types in some countries. The alignment of Islamic and conventional banking systems is positively related to factors like financial depth, transparency, and economic stability. The paper provides novel insights into differences and similarities between Islamic and conventional banking models across countries.
Role of Development Finance Institutions in Developing the Nigerian Agricultu...AJHSSR Journal
ABSTRACT : This study investigates the role of development finance institutions (DFIs) in agricultural
sector development in Nigeria. African Development Bank (AfDB), World Bank and International Development
Association (IDA) were the underlying DFIs while agriculture value added formed the basis for measuring
agricultural sector development. Data on the variables were sourced from World Development Indicators (WDI)
and analyzed using error correction mechanism (ECM). The unit root test results indicate that all the variables
are not stationary. However, they become stationary after first differencing and as such they all integrated of
order one. The cointegration test results revealed that the variables have long run relationship. The result
showed that the first and second lag of agriculture value added impacted negatively on its current. One-period
lag of AfDB loan has significant positive relationship with current value of agriculture value added. The result
showed that agriculture value added increased by 0.079 percent due to 1 percent increase in lag of AfDB loan. It
was also found that the lagged values of World Bank and IDA loans exert significant negative impact on
agriculture value added. The Parsimonious ECM revealedthat the model has an adjustment speed of 59.2
percent. Based on the findings, it is recommended that policymakers should prioritize the allocation of AfDB
loans into productive sectors of the economy with particular emphasis on agriculture with a view to driving the
development process in the real sector.
Keywords:Development finance, agriculture sector, Institutions, African Development Bank, World Bank and
value addition
The aim of this paper is to examine the impact of bank minimum capital requirement on credit supply in Ivory Coast, over the period from 1982 to 2016. To this end, the ARDL method was used to study the nature of the relationship between our explanatory variables and bank credit supply in Ivory Coast. The study indicates some major results. The results showed that in the short term, real GDP per capita and bank size influence credit supply in Ivory Coast. Real GDP per capita acts negatively on credit supply in the short run while bank size has a positive influence on banks’ capacity to finance the economy. In the long run, the Cooke ratio and the openness rate have an impact on bank credit supply in Ivory Coast. The recovery of bank minimum capital requirements positively influences bank credit supply while the openness of the economy negatively impacts banks’ ability to offer bank credit. In terms of economic policies implications, monetary authorities must enforce and respect the policy of increasing bank minimum capital requirements. They must encourage banks to increase their banking assets.
John Mathiang, Kartika Susilowati Manufacturing companies Bank and Policy 3 ...PublisherNasir
John Mathiang Machar Mathiang, Kartika Dewi Sri Susilowati (2022). The effect of financial ratios on the performance of manufacturing companies (case study on food and beverages companies listed on Idx in 2018-2020). Bank and Policy 2(3): 58-70
The purpose of this study is to measure the impact of penetration of foreign banks in the Indonesian banking industry. The measured effects are limited to competition and efficiency during the years 2000-2011, during which was a recovery from the economic crisis in Indonesia. Panzar-Rosse measures the competition and Conjectural Variation approaches. The efficiency is measured by the Standard Profit Efficiency approach. By using panel regression method with SUR (Seemingly Unrelated Regression), we found that penetration of foreign banks will increase competition and efficiency of banking in Indonesia, especially to medium and small banks through spillover effect on domestic banking system. The increase in total assets, total loans and the amount of third party funds held by foreign banks in Indonesia will increase competition and efficiency of banks in Indonesia.
Impact of profitability, bank and macroeconomic factors on the market capital...inventionjournals
Panel data has been collected for 44 Middle Eastern banks that are operated during 2005 to 2014 in different Middle Eastern countries. Secondary data has been collected primarily through the DataStream database. The study is conducted to investigate the impact of profitability, bank and macroeconomic factors on the market capitalization of the Middle Eastern banks. Results of Hausman test have explained that fixed effect model is appropriate for the analysis. The result of multiple regression have shown that market capitalization has positive relationship with ROI while negative relationship with credit risk, inflation, and year dummy for the Middle Eastern banks. Furthermore, no relationship has been observed between market capitalization and the ROA, ROE, growth and exchange rate for the Middle Eastern banks.
This document summarizes a research study that investigates the effects of bank diversification, size, and the global financial crisis on risk-taking and performance in emerging economies. The study uses data from 542 bank-years in Bangladesh and South Africa between 2004-2015. The key findings are:
1) Higher non-performing loan ratios make banks less profitable and more unstable.
2) Benefits from bank diversification vary and confirm portfolio diversification theory.
3) Small banks in Bangladesh gain more from diversification than large banks, while large banks in South Africa gain more than small banks.
4) During financial crises, emerging economies can use diversification to control risk and improve performance
This document summarizes a research study that compares liquidity risk management between conventional and Islamic banks in Pakistan. The study uses data from 12 banks (6 conventional, 6 Islamic) over 2006-2009. It finds that size of bank and networking capital are positively but insignificantly related to liquidity risk in both models. Capital adequacy ratio is positively significant for conventional banks, while return on assets is positively significant for Islamic banks. The results indicate some differences in factors impacting liquidity risk between conventional and Islamic banking models in Pakistan.
Asset liability management and commercial banks profitability in ethiopiaAlexander Decker
The document examines the effect of asset liability management (ALM) on the profitability of commercial banks in Ethiopia. It uses a statistical cost accounting (SCA) model to analyze the relationship between banks' profitability, measured by return on assets (ROA), and their balance sheet items like loans, deposits and other assets/liabilities. The analysis finds that most assets positively impact profitability while liabilities generally have a negative effect. It also incorporates macroeconomic variables like GDP growth and inflation, finding GDP has a negative influence on bank profits. The study aims to help banks and policymakers better understand factors affecting bank performance in Ethiopia's developing financial system.
The document discusses the concepts and principles of Islamic banking and finance. It provides an overview of Islamic banking since its inception, noting it focuses on risk sharing and limiting unnecessary risk. The document then discusses the emergence and development of Islamic banking specifically in the United Arab Emirates since the 1960s. It notes that currently, Islamic banking accounts for over 20% of banking in the UAE and contributes approximately 8.5% to Dubai's GDP and 10% to the UAE's overall GDP. Regulatory bodies that oversee Islamic banks and ensure Sharia compliance are also summarized.
This document provides an overview and analysis of international banking practices, growth, and prospects, with a focus on comparing State Bank of India (SBI) and ICICI Bank. It finds that while SBI has traditionally been larger and more trusted among customers, ICICI Bank has shown better operational efficiency in some areas like credit deployment and expenses management. The document also outlines trends in international banking historically, factors driving its growth, effects on financial stability and economic development, and reflections on its future amid ongoing globalization.
The Impact Of Bank-Specific And Macroeconomic Characteristics On The Banking ...Mohamed Kenawy
This thesis examines the impact of bank-specific and macroeconomic factors on bank profitability in Egypt from 1996 to 2017. Prior literature on this topic in other countries is reviewed, with mixed results found on factors like bank size, capital, loans, deposits, GDP, inflation, and electronic banking adoption. The researcher aims to extend this literature by analyzing a new country and time period. Using ordinary least squares regression on pooled bank data, the study finds that inflation and net interest margin have a significant positive impact on return on equity as the measure of bank profitability in Egypt. These results are important for individuals, policymakers, and bank management in understanding determinants of profitability and maximizing economic growth.
This document discusses a study that examines the effect of the COVID-19 pandemic on corporate dividend policy in Indonesia. The study uses static and dynamic panel data approaches to analyze data from non-financial companies listed on the Indonesia Stock Exchange from 2014 to 2020. The results of the static panel data regression show that profitability and previous year dividends positively affect dividend policy. The dynamic panel data regressions indicate that in addition to those variables, age affects dividend policy, financial leverage has an effect, and firm size has an effect in different directions, while investment opportunity does not affect dividend policy. The study aims to provide insights for investors on corporate dividend policies during the pandemic.
This document presents a comparative study of the efficiency and stability of Islamic and conventional banks in GCC countries from 2005-2014. It finds that:
1) Conventional banks are more efficient at managing costs, while Islamic banks are more solid in terms of short-term solvency, though there is no difference in long-term stability.
2) Regression analysis shows the operations of Islamic banks are different from conventional banks, even after controlling for bank-specific variables.
3) Larger banks have less intermediation ratios, indicating diseconomies of scale, and highly capitalized banks are more stable but less cost-efficient.
- The document compares bank lending by Islamic and conventional banks during the COVID-19 pandemic using data from 421 banks in 17 countries.
- It finds that while lending growth decreased for both during the initial crisis phase, the decrease was only significant for conventional banks. Islamic bank lending grew about 2.5% faster than conventional banks, especially in countries with macroprudential policies pre-crisis.
- The results suggest Islamic banks sustained lending more during the early COVID-19 crisis compared to conventional banks, and this difference was greater in countries that had implemented macroprudential policies before the pandemic.
This document compares the projected residential demand for very high bandwidth broadband internet in 2025 for Germany, the UK, and the Flemish region of Belgium. It uses a generic market potential model developed by WIK Consulting that predicts future broadband demand based on the bandwidth needs of applications, user profiles in the population, and household structure. The model is applied to each region and finds differences in projected demand, pointing to the relevance of socio-demographic factors and the need for further digital education. The forecast assumes broadband connectivity will not be a bottleneck to meeting demand.
This document summarizes a study that examined the role of trust in reducing margins charged for murabaha financing at Islamic banks in Indonesia. The study surveyed Islamic bank managers about their perceptions of small business managers' benevolence and integrity. The study found that higher levels of perceived trust, as measured by benevolence and integrity, were negatively associated with the margins charged to small businesses. This relationship remained even after accounting for potential endogeneity. The study contributes to understanding the role of trust at Islamic banks and in emerging market contexts with collectivist cultures.
tinjauan historis kerangka konseptual (alwan sri kustono).pdfAgus arwani
Tinjauan sejarah penyusunan rerangka konseptual menjelaskan perkembangan konsep-konsep dasar akuntansi sejak awal 1930-an hingga pengembangan konsep-konsep oleh Paton dan Littleton pada 1940. Beberapa konsep awal diusulkan oleh Hatfield, Canning, Mason, dan Sweeney, sementara Paton dan Littleton memperkenalkan 5 konsep dasar yaitu kesatuan usaha, kontinuitas usaha, kos sebagai bahan olah, kos berdaya ik
Artikel ini membahas pengaruh pemahaman akuntansi, pemanfaatan sistem informasi akuntansi keuangan daerah, dan peran internal audit terhadap kualitas laporan keuangan pemerintah daerah kota Banda Aceh. Penelitian ini menunjukkan bahwa ketiga faktor tersebut berpengaruh positif terhadap kualitas laporan keuangan, meskipun pengaruhnya masih lemah. Pemahaman akuntansi memberikan pengaruh terbesar terhadap kualitas laporan keuangan.
Tulisan ini membahas perekayasaan kerangka konseptual akuntansi dalam pandangan Islam. Kerangka konseptual akuntansi konvensional dibangun berdasarkan prinsip individualisme sedangkan dalam Islam tujuan ekonomi harus mencapai maqashid syariah untuk kesejahteraan sosial. Perlu pendekatan sinergis antara akuntansi filosofis dan praktis agar akuntansi syariah lebih bermanfaat bagi masyarakat.
Dokumen tersebut membahas tentang fungsi manajemen dalam penyajian laporan keuangan dan bagaimana laporan keuangan berfungsi sebagai alat pertanggungjawaban manajemen kepada pihak-pihak yang berkepentingan seperti pemilik perusahaan, investor, kreditur dan pemerintah. Dokumen ini juga menjelaskan bagaimana laporan keuangan dapat disalahgunakan oleh manajemen untuk kepentingan pribadi melalui praktik merekayasa
Artikel ini menganalisis pemahaman akuntansi penyusun laporan keuangan Badan Keswadayaan Masyarakat (BKM) di Kabupaten Malang dan Kabupaten Kota Baru, Kalimantan Selatan. Hasil penelitian menunjukkan bahwa sebagian besar penyusun laporan keuangan BKM di Kabupaten Malang memahami akuntansi dengan baik, namun beberapa penyusun laporan keuangan BKM di Kabupaten Kota Baru masih kurang memahami konsep-kon
Positive and negative hypothesis testing strategies were compared for cooperative groups performing a rule induction task. In the task, groups proposed hypotheses for a hidden rule based on playing cards and received feedback on whether their card selections matched or mismatched the rule. Two experiments varied whether groups were instructed to use positive tests (selecting cards expected to match) or negative tests (selecting nonmatches) on each trial. Positive tests led to more examples being revealed, allowing groups to learn the rule faster. The proportion of groups correctly solving the rule corresponded to the proportion using a positive testing strategy. Positive hypothesis testing may be more effective for inducing rules because it generates additional informative examples.
1) The study investigates whether inheriting a diagnostic hypothesis from a supervisor interferes with auditors' ability to generate additional hypotheses from the same transaction cycle.
2) The experimental results found that auditors who inherited a supervisor's suggestion generated fewer additional hypotheses from the same transaction cycle compared to auditors who did not inherit a suggestion.
3) The interference effect occurred immediately, as the first hypothesis generated by auditors who inherited a suggestion tended to come from a different transaction cycle than the supervisor's suggestion.
Auditors participated in experiments examining how they revise beliefs in response to positive and negative evidence. The experiments tested how presentation mode (sequential vs simultaneous) and direction of evidence (positive vs negative) affected belief revisions.
The results found that auditors were more responsive to negative evidence than positive evidence. They also revised beliefs more when evidence was presented sequentially rather than simultaneously. This suggested auditors were evidence-sensitive.
However, more research was needed to determine if these effects were due to features of the auditing tasks or features of the auditors themselves. The current study aimed to address this by testing auditors and non-auditors on both auditing and non-auditing tasks to see if the effects held across
Dokumen tersebut membahas konsep biaya dan sistem informasi akuntansi biaya. Secara ringkas, dokumen menjelaskan bahwa (1) biaya merupakan pengorbanan sumber daya ekonomi yang diukur dalam satuan uang, (2) terdapat perbedaan antara biaya dan beban, dan (3) sistem informasi akuntansi biaya bermanfaat untuk perencanaan, pengawasan, penetapan harga, dan pengambilan keputusan.
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdfcoingabbar
Introducing BONKMILLON - The Most Bonkers Meme Coin Yet
Let's be real for a second – the world of meme coins can feel like a bit of a circus at times. Every other day, there's a new token promising to take you "to the moon" or offering some groundbreaking utility that'll change the game forever. But how many of them actually deliver on that hype?
The Rise of Generative AI in Finance: Reshaping the Industry with Synthetic DataChampak Jhagmag
In this presentation, we will explore the rise of generative AI in finance and its potential to reshape the industry. We will discuss how generative AI can be used to develop new products, combat fraud, and revolutionize risk management. Finally, we will address some of the ethical considerations and challenges associated with this powerful technology.
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2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
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2. which all transactions and operations are supported by real
economic deals involving tangible assets. This systemic
disparity in business practices between IBs and CBs suggests
that they finance their operations and invest their resources in
different ways. To ensure that IBs comply with sharia (Islamic
laws) principles, every bank has a sharia board made up of
specialists who determine whether an activity is compliant
(Bourkhis & Nabi, 2013; Prima Sakti & Mohamad, 2018).
The growth in IBs has attracted wide attention from scholars
of Islamic finance, especially in terms of financial stability.
Many papers have examined the subject of IBs' riskiness and
stability, finding that IBs have greater financial stability (higher
Z-score) and low risk (particularly during the 2007 financial
crisis) than CBs (Bourkhis & Nabi, 2013; Ghassan &
Guendouz, 2019; Hassan et al., 2021; Kabir & Worthington,
2014; Karim et al., 2018; Prima Sakti & Mohamad, 2018;
Čihák & Hesse, 2010). Čihák and Hesse (2010) measure
financial stability at IBs and CBs in 18 countries using a Z-
score model, findings that small IBs have higher financial
stability than small CBs. Similarly, Bourkhis and Nabi (2013)
explore the impact of the 2007 financial crisis on the financial
stability of IBs and CBs in 16 countries, demonstrating that IBs
maintained financial stability during the 2007 financial crisis.
Similarly, Kabir and Worthington (2017) examine the link
between competition and financial stability at IBs and CBs
using a Z-score model, findings that the market effect on
financial stability is higher at CBs than at IBs. Along the same
lines, using the Z-score method, Prima Sakti and Mohamad
(2018) compare financial stability at IBs and CBs in
Indonesia for the period 2008 to 2012. Their findings indicate
that in Indonesia Islamic banking is more financially stable
than conventional banking. Correspondingly, Ghassan and
Guendouz (2019) measure the financial stability of IBs and
CBs in Saudi Arabia using a Z-score model, showing that IBs
increased financial stability when they diversified their assets.
More recently, Hassan et al. (2021), in a sample of 9 IBs and
23 CBs in Pakistan, show that IBs enjoy higher financial sta-
bility and higher market power than CBs.
Although IBs had high global development with high
financial stability, so far the sukuk market, based on issuance in
2021, has been steady. In the first half of 2021, as the global
economy began to recover from the disruptions due to the
COVID-19 pandemic, the sukuk market was able to adjust. At
the end of 2020 total issuance in the worldwide sukuk market
was USD 174.641 billion, the highest annual sukuk issuance to
date (an improvement of USD 174.641 billion, about 19.86
percent). The major determinants of this growth path were
economic stimulus by governments and a proactive global
economic perspective (IIFM, 2021). Therefore, IBs and sukuk
markets both achieved notable growth. Sukuk markets and IBs
are also experiencing interaction between them, resulting in a
fresh debate among scholars about the effect of sukuk markets
on the Islamic banking sector (Mimouni et al., 2019; Smaoui &
Ghouma, 2020).
Financial markets and the banking sector interact, but the
specific effect of financial markets on the banking sector is an
open question in the literature, and analysis of this issue is still
limited. Therefore, as sukuk markets are financial markets and
Islamic banks are members of the banking sector as a whole,
sukuk markets and IBs interact, sparking a new debate among
researchers regarding the effect of sukuk markets on IBs. Based
on the effect of conventional bond markets on the banking
sector in the literature (competition or complementarity effect),
Mimouni et al. (2019) and Smaoui and Ghouma (2020) state
that the effect of sukuk markets on IBs is also determined by
either the competition effect or the complementarity effect.
Accordingly, despite the rapid rise of IBs and sukuk mar-
kets, little is known about their interaction. For instance, the
link between IBs' financial stability and the sukuk market has
not yet been investigated. This goal of this paper is to fill this
gap in the literature by examining how sukuk market devel-
opment affects the financial stability of IBs.
Given prior conflicting results, this paper examines whether
the effect of sukuk markets on the financial stability of IBs is
positive (complementarity effect) or negative (competition ef-
fect). Hence, the goal of this paper is also to determine whether
the link between sukuk markets and the Islamic banking sector
is characterized by complementarity or competition in terms of
financial stability.
This study contributes to the literature in two main ways.
First, it contributes to the expanding literature on the factors
that influence IB practices. Unlike previous studies that simply
compare the financial stability of CBs and IBs, this paper fo-
cuses on an important exogenous variable, namely, the sukuk
market, which might affect the financial stability of IBs. This
variable has been mostly overlooked so far. This component is
unexpected in that IBs have little regulation of it. Our results
confirm that, to a certain degree, the sukuk market is a sig-
nificant factor that affects IB practices.
Second, unlike previous studies that primarily focus on the
influence of the banking sector, bonds, and equity markets on
economic growth, this paper extends the literature on financial
development by examining the market for Islamic bonds
(sukuk).
These results offer regulators and decision-makers guidance
on the additional aspects to consider as they develop Islamic
finance in the form of IBs and sukuk markets.
The remainder of this paper is organized as follows. The
literature review and the developed hypotheses are discussed in
Section 2. The sample and collected data, variables, and esti-
mation model are addressed in Section 3. The results of the
model, discussion, and robustness check are presented in
Section 4. The conclusion and policy implications are
addressed in Section 5.
2. Literature Review
According to Mimouni et al. (2019) and Smaoui and
Ghouma (2020), the link between financial markets and the
banking sector is determined by complementarity and compe-
tition. The effect of financial markets on the banking sector is
still a topic of debate in the literature, which has little analysis
of sukuk markets and Islamic banking. To the best of our
knowledge, the relationship between IBs' financial stability and
M.A. Ledhem Borsa _
Istanbul Review 22-S1 (2022) S79–S91
S80
3. sukuk markets has not yet been investigated. For this reason,
we study whether the link between the sukuk market and IBs is
characterized by complementarity or competition in terms of
financial stability. In so doing, we fill a gap in the literature.
Based on finance theory and empirical studies, sukuk mar-
kets can positively affect IBs by improving their financial
stability and operational management, which confirms the ex-
istence of the complementarity effect.
According to Demirgüç-Kunt and Maksimovic (1996),
because sukuk markets are complementary to IBs, an expan-
sion in stock markets increases corporate debt, which reflects
more banking operations and activities. Similarly, according to
Demerguç-Kunt and Huizinga (2001), the financial system has
no independent influence on banking profitability. Moreover,
Eichengreen and Luengnaruemitchai (2004) show that bond
markets and banks complement each other. According to Song
and Thakor (2010), the relation between banks and capital
markets is frequently interactive, ranging from basic comple-
mentarity to complete collaboration. As a result, banks address
the certification issue by evaluating and assessing the credit
quality of clients whose debts are securitized, decreasing in-
formation asymmetry and enabling the market to provide
funding at lower prices. Because financial market tensions have
decreased, banks can obtain cheaper stocks, increasing their
capital capacity and allowing them to service riskier customers.
This procedure motivates banks to enhance their evaluation
technologies on a constant basis, reducing the certification
issue even further. Finally, these enhancing repercussions from
banks to capital markets and the opposite benefit their overall
growth. This link is described by Song and Thakor (2010) as
coevolution, in which banks and capital markets both develop
at the same time. In line with the coevolution relationship,
Smaoui et al. (2017) examine the link between CBs and the
sukuk market and demonstrate that sukuk markets and the
banking sector are substitutes.
Anand et al. (2012) investigate the implications of covered
bonds issued by banks on financial stability. Their findings
demonstrate that covered bonds enhance the financial stability
of banks. Likewise, Neyer and Sterzel (2017) investigate
whether a bank's government bond holdings improve banking
system financial stability during sovereign debt crises, and their
results demonstrate that government bonds improve the
banking system's shock-absorbing proficiency and hence
financial stability. In a recent study, based on international
evidence, Park et al. (2021) demonstrate that bond markets of
local currencies and bank loans improve financial stability.
Furthermore, and more directly, the financial stability of IBs
could be enhanced more directly by issuing sukuk, which are
classified as Tier 1 capital. This kind of sukuk is even more
desirable and less expensive than ordinary stocks, which suffer
from negative signaling and underpricing. Simulating Basel III
capitalization to increase stability and capital at financial in-
stitutions, in December 2013 the IFSB (2013) established
sukuk, which are regarded as capital according to IFSB-15.
According to the IFSB (2013), issuing Tier 1 sukuk can help
IBs to improve their financial stability. According to the Basel
Committee, bank capitalization comprises Tier 1 capital (core
capital at any bank), which includes equity capital, permanent
loans, and declared reserves (Cobanoglo, 2015). Simulating
Basel III, IFSB-15 establishes common equity as Tier 1 capital
to the sukuk issued, called “Tier 1 sukuk.” Thus, to qualify
sukuk as Tier 1 capital, the sukuk issuance must operate in
accordance with the Basel Accord requirements (Cobanoglo,
2015).
As stated by the IFSB (2013), Tier 1 sukuk have a high level
of loss absorbency, in particular, mudharabah (profit sharing
agreement), wakala (agency agreement), and musharaka
(partnership agreement). In practice, several IBs have issued
sukuk regarded as additional Tier 1 capital (ijarah (leasing
agreement) and mudarabah Tier 1), which can contribute to the
development of sukuk markets and increase the IBs’ financial
stability (IFSB, 2013; IIFM, 2021). According to a report by
the IIFM (2021), in 2020, the Saudi National Bank issued USD
1.12 billion in mudharabah Tier 1; the Dubai Islamic Bank
issued USD 1.0 billion in mudharabah Tier 1; and the National
Commercial Bank also issued USD 1.25 billion in additional
Tier 1 sukuk. These examples of sukuk issuance indicate that
developed sukuk markets would enhance IBs' capacity to ac-
cess adequate investment opportunities and strengthen their
financial stability. Based on these arguments, we posit that:
Hypothesis 1. The development of the sukuk market has a
positive effect on IBs' financial stability.
Although these arguments support a favorable link between
sukuk market development and IBs’ financial stability, finance
theory suggests the opposite. The stream of literature on
financial intermediation indicates the presence of a competition
effect between capital markets and the banking sector, in which
the growth of one source of financing must unavoidably come
at the expense of the other (Allen & Gale, 1997; Song &
Thakor, 2010). In a notable study, Rajan and Zingales (2003)
argue that, under the theoretical context of an “interest
group,” the banking sector resists the development of financial
markets as a direct risk to itself, particularly if it is concen-
trated. Dickie and Fan (2005) empirically demonstrate this
based on a sample of 30 countries from 1989 to 2002 in which
the banking sector competes with the capital markets. Based on
these arguments, the link between IBs and sukuk markets is
determined by competition.
However, sukuk markets can negatively affect IBs by reducing
their financial stability, resulting in high risk for assets, which
confirms the existence of the competition effect. Mimouni et al.
(2019) investigate the effect of sukuk markets on the profit
ratio of IBs and CBs. Their results reveal that sukuk markets
decrease IBs' profitability resulting from high risk-taking,
which demonstrates that sukuk markets are competitive with
IBs.
Correspondingly, Smaoui and Ghouma (2020) study the effect
of sukuk markets on the capitalization of IBs. Their empirical
results demonstrate that sukuk markets are competitive with
IBs in terms of capitalization. In addition, firms and other
economic players obtain direct and probably less expensive
financing via the sukuk market. The existence of a sophisti-
cated sukuk market can diminish banks' market share and
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4. increase competition among them. Sukuk markets are preferred
and largely relied on by the public and big firms (supposedly
less risky firms) in their funding and investment operations
(Mimouni et al., 2019; Smaoui & Ghouma, 2020). As a result,
banks mostly deal with younger private firms (apparently the
riskiest in the market), which frequently have limited access to
capital markets because of their size, resources, or age. As
indicated by Mimouni et al. (2019) and Smaoui and Ghouma
(2020), banks adopt more assertive lending strategies, result-
ing in worse credit quality, and increase the risky assets of their
financial statements. As a result IBs' financial stability declines.
Keeley (1990) and Jiménez et al. (2013) state that greater
competition among US banks led to higher risk-taking. In re-
ality, when the level of competition is high, banks are more
likely to take risks because competition decreases their profit-
ability, resulting in low financial stability.
Additionally, Cole et al. (1995), Hellmann et al. (2000), and
Kane (1989) indicate that when banks encounter intense
competition from capital markets, banks prefer to take risks and
gamble through investing in risky portfolios with high returns
if they succeed but leaves depositors worse off if the gamble is
unsuccessful. Moreover, Hellmann et al. (2000) state that su-
pervisors who are aware of this practice often employ capital
requirements to push banks to put a large portion of their
capital at high risk to internalize the ineffectiveness of such
gambles. As a result, banks respond and act intelligently in a
manner that decreases their exposed capital, rendering capital
adequacy standards ineffective in strengthening financial sta-
bility. Accordingly, several studies support this viewpoint,
arguing that competition tends to increase banks' risk-taking
behavior, reducing bank financial stability (Allen & Gale,
2004; Hellmann et al., 2000). The influence of competition
on the behavior of IBs can reduce financial stability, reflecting
the competition effect of sukuk markets on IBs. Based on the
reasoning in this paper, the development of sukuk markets
increases competition among IBs, pushing them to increase
their portfolio risk or reduce their financial stability to a min-
imum. In light of this, this study proposes the following
hypothesis:
Hypothesis 2. The development of the sukuk market has a
negative effect on IBs' financial stability.
According to the two different views of the link between sukuk
markets and IBs in the literature, sukuk markets can affect IBs
positively, creating a complementary effect, or it can affect IBs
negatively, creating a competition effect. Nevertheless, to the
best of our knowledge, no prior studies have gone beyond the
paradigm of IBs’ riskiness to investigate additional variables
for IBs' financial stability, in contrast to the plethora of studies
on CBs' financial stability. Which variables influence IBs'
financial stability remains an open question. Therefore, the
adoption of sukuk markets as a significant variable influencing
IBs' financial stability is primarily due to the recent rapid
development in sukuk markets. So, the goal of this paper is to
fill this gap in the literature by exploring the effect of sukuk
market development on the IBs' financial stability in terms of
the complementary effect hypothesis (H1) and competition
effect hypothesis (H2).
3. Research Methodology
3.1. Sample and data collection
3.1.1. Sample countries
According to the International Islamic Financial Market
(IIFM, 2021) sukuk database, global sukuk issuance increased
19.84 percent in 2020 (from USD 145.702 billion in 2019 to
USD 174.641 billion in 2020), and the volume in 2020 was
primarily due to the domestic sukuk market, which represent
about 75.80 percent (USD 132.233 billion) of the total. Although
Indonesia, Saudi Arabia, Turkey, Brunei, and the United Arab
Emirates all increased their share of the sukuk market, in 2020
the global sukuk market was dominated by Malaysia, as indi-
cated in Table 1. This database shows that Malaysia, Saudi
Arabia, Indonesia, Turkey, Bahrain, Brunei, United Arab
Emirates, and Oman are the major domestic sukuk-issuing
countries for financing projects, providing liquidity, meeting
financial commitments, and other business requirements, as
shown in Table 1.
IFSB (2021) reported that, in 2020, IBs in Malaysia,
Indonesia, Saudi Arabia, Turkey, and Brunei expanded their
assets and market share of the local banking sector. Malaysia and
Indonesia increased their assets because of a favorable regula-
tory framework and extensive government assistance. Malaysia
remained the largest market of Islamic banking in Southeast
Asia, with a market value of USD 210.0 billion and 28.9 percent
of the Malaysian banking system's market at the end of 2020Q3
(28.4% in 2019Q3). At the end of 2020Q3, Indonesia's IBs were
valued at USD 37.7 billion and represented 6.1 percent of the
market, an increase from 5.8 percent in 2019. Brunei had an
acceptable rate in IBs' assets in 2020 b y holding to 4.8 percent
from 7.5 percent in 2019. In Saudi Arabia, IBs expanded by 17.0
percent year over year, compared to 10.6 percent in 2019Q3, and
the IBs' asset share was 68.0 percent at the end of 2020Q3
(69.0% in 2019Q3). At the end of 2020Q3, Saudi Arabia had the
largest Islamic banking system, with total assets of USD 522.3
Table 1
Major domestic sukuk-issuing countries, 2001–2020.
Country Domestic sukuk
issuance
(USD millions)
Market share of the
global domestic
sukuk market (%)
2001–2020 2020 2001–2020 2020
Malaysia 714,311 53,747 65.50% 40.65%
Saudi Arabia 109,258 18,727 10.02% 14.16%
Indonesia 103,755 23,550 9.51% 17.81%
Turkey 49,998 23,399 4.58% 17.70%
Bahrain 23,807 2502 2.18% 1.89%
Brunei 11,830 881 1.08% 0.67%
United Arab Emirates 8631 307 0.79% 0.23%
Oman 3103 1134 0.28% 0.86%
Source: IIFM (2021).
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5. billion. In Turkey, the share of IBs increased, with assets valued
at USD 54.98 billion at the end of 2020Q3 (USD 45.57 billion in
2019Q3), accounting for 7.10 percent of total local banking as-
sets (6.3% in 2019Q3).
Based on the available data from the IFSB database, we
cover a sample of Islamic banking and sukuk markets in
Malaysia (16 IBs), Saudi Arabia (8 IBs), Indonesia (14 IBs),
Brunei (2 IBs), and Turkey (6 IBs).
3.1.2. Data collection
For the empirical investigation, this paper uses a balanced
panel data from 2013Q4 until 2019Q4; this avoids the period of
the Covid-19 pandemic, which created great global uncertainty
and low investor appetite in Islamic banking and sukuk markets,
as shown in a report by DinarStandard (2021). Because the IFSB
is the most comprehensive, global database of official financial
statements and reports on IBs, sukuk markets, and other Islamic
financial institutions (IFSB, 2021; Rosman & Abdul Rahman,
2015; Ullah et al., 2018), the data on sukuk and IBs were gath-
ered from quarterly statistics in this database on all the working
Islamic financial institutions in the sample countries.
The data on macroeconomic factors are collected from the
database of the International Monetary Fund (IMF). Since all
countries have varied currencies, this study converts each
quarter's financial value to the US dollar using the average ex-
change rate for each quarter extracted from the IMF database.
3.2. Variables
3.2.1. Financial stability as a dependent variable
Many studies support the effectiveness of using the Z-score
model by Altman (1968) for measuring and evaluating the
financial stability, soundness, bankruptcy risk, and solvency in
the banking sector. According to Bourkhis and Nabi (2013)
and Khalil (2021), the Z-score is a distance-to-default metric
that compares the market value of a bank's assets to its book
value of liabilities. Thus, this study employs the Z-score model
for the best assessment of IBs' financial stability: the higher the
Z-score, the lower the potential for a bank's bankruptcy, and
thus the more stable the bank is. This study calculates the Z-
score based on the equation by Boyd et al. (2006) as follows:
Z − score =
ROA + Equity
Assets
σ(ROA)
(1)
where the Z-score is calculated based on the ratio of the sum of
return on assets (ROA) and equity divided by assets to the ratio
of the standard deviation of ROA. This equation is used in
several notable studies to assess the financial stability of con-
ventional banking (Demirgüç-Kunt & Huizinga, 2010;
Fiordelisi & Mare, 2014; González et al., 2017; Turk Ariss,
2010). In addition, this equation is commonly used in empir-
ical studies to assess the financial stability of IBs, as shown in
Table 2. Following Bourkhis and Nabi (2013), Karim et al.
(2018), and Khalil (2021), the financial stability variable of
IBs for the selected sample countries is determined by the Z-
score as shown in Fig. 1.
According to the International Monetary Fund (IMF), the
strength, soundness, and stability of banks can be detected from
several indicators, such as profitability, which is measured by
ROA; asset quality, which is measured by the ratio of nonper-
forming loans (NPLs) to total loans; and capitalization, which is
measured by the capital adequacy ratio (Avlokulov, 2016;
Kasselaki & Tagkalakis, 2014; Nugroho et al., 2020; Pointer &
Khoi, 2019; Rahayu et al., 2018; Čihák & Hesse, 2010). For a
robustness test, this study uses profitability, which is measured
by ROA, as an indicator of financial stability.
3.2.2. Sukuk market development as an independent
variable
Following Ledhem (2020), Yıldırım et al. (2020), and
Ledhem and Mekidiche (2021), this paper uses the total sukuk
holdings as a variable for sukuk market development.
3.2.3. Bank-level factors
To avoid the issue of bias in the estimated model because of
omitted bank-level variables, which could affect IBs’ financial
stability, this section uses the bank level as a control variable
Table 2
Summary of notable literature on financial stability assessment in IBs.
Study Method Contribution
Čihák and Hesse (2010) Z-score Measures the financial stability of IBs and CBs using the Z-score model in 18 banking systems
Bourkhis and Nabi (2013) Z-score Explores the impact of the 2007 financial crisis on the financial stability of Islamic and conventional
banking in 16 countries
Fakhrunnas and Ramly (2017) Z-score Calculates the bankruptcy risk in IBs for examining the link among sharia supervisory and directors
board and risk-taking in Southeast Asia
Karim et al. (2018) CAMELS
model and Z-
score
Measures the bank stability for local IBs and CBs in Malaysia from 1999 to 2015
Prima Sakti and Mohamad (2018) Z-score Compares the financial stability of IBs and CBs in Indonesia (2008–2012)
Ghassan and Guendouz (2019) Z-score Measures the financial stability of IBs and CBs in Saudi Arabia
Qasim (2020) Z-score Examines the Islamic banking performance and bankruptcy in Jordan from 2010 to 2016
Khalil (2021) CAMELS
model and Z-
score
Investigates the effect of sharia and directors board on the financial soundness of IBs
Hassan et al. (2021) Z-score Assesses the financial stability of 9 IBs and 23 CBs in Pakistan
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6. and their predicted impact on the financial stability of IBs.
These control variables are extensively employed in studies on
IBs' financial stability.
3.2.3.1. Capital adequacy ratio. This study employs the cap-
ital adequacy ratio (CAR) to measure the IBs' capitalization.
According to Ledhem and Mekidiche (2020), CAR is calcu-
lated by dividing the total Tier 1 and Tier 2 capital by the risk-
weighted assets. A higher CAR indicates that IBs are well
capitalized regarding their risk level, guaranteeing their
soundness (Karim et al., 2018; Ledhem & Mekidiche, 2020).
As a result, the effect of CAR on IBs’ financial stability is
expected to be positive.
3.2.3.2. Asset quality. As Ledhem and Mekidiche (2020)
stated, asset quality (AQ) is a factor in IBs' financial stabil-
ity, in which good asset quality leads to high profitability and
good financial stability. Therefore, following Ledhem and
Mekidiche (2020), this study employs AQ, which is the ratio
of gross nonperforming financing to total financing. The effect
of AQ on IBs’ financial stability is expected to be positive.
3.2.3.3. Management efficiency ratio. According to Ledhem
and Mekidiche (2020), IBs' financial stability is determined
by the management efficiency ratio. However, Sun et al. (2017)
state that proficient management has a negative influence on
banking profitability, which reduces financial stability. Hence,
following Ledhem and Mekidiche (2020), this study employs
the management efficiency ratio (MER) by dividing total
operating costs by gross income to show the effect of MER on
IBs’ financial stability and is expected to be negative.
3.2.3.4. Liquidity. According to Sun et al. (2017), liquidity risk
can negatively affect banking stability because it motivates
banks to select larger bank intermediation margins as a pre-
mium, particularly when banks are cash strapped and might
accrue debt fees from other banks or financial markets. Hence,
the effect of LIQ on IBs’ financial stability is expected to be
negative. Following Ledhem and Mekidiche (2020), LIQ is
calculated by the ratio of liquid assets to total assets.
3.2.3.5. Riskiness. Following Klepczarek (2015), this paper
employs the ratio of risk-weighted assets to total assets as a
proxy for the riskiness of IBs. To compensate for their risk
tolerance, risk-averse CBs establish larger intermediation
profits (Mimouni et al., 2019). As a result, the effect of RISK
on IBs’ financial stability is expected to be positive.
3.2.3.6. Size. The impact of bank size on financial stability
ratios varies (Kasman et al., 2010). On the one hand, a bigger
bank's fixed expenses can be distributed across a larger asset
base, reducing average expenses and resulting in higher earn-
ings through economies of scale (Regehr & Sengupta, 2016).
On the other hand, small banks can build deeper ties with local
consumers and businesses than big banks, giving them access
to important information that can be used to improve credit
rating and contract conditions (Athanasoglou et al., 2008).
Thus, small banks might be able to achieve better earnings and
more stability than bigger banks as a result of this information
and price advantages, offsetting any loss from economies of
scale. As a result, the influence of bank size on bank earnings
and stability is ambiguous, and therefore so is the effect of
bank size on the financial stability of IBs. Following the IFSB
(2021), IB size is calculated by total assets.
3.2.4. Macroeconomic factors
This paper employs four country-level factors to control for
the impacts of macroeconomic factors on IBs’ financial stability.
Fig. 1. Financial stability assessment in IBs for the selected sample countries.
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7. 3.2.4.1. Economic growth. According to the “demand-
following hypothesis” of Robinson (1952) and the literature on
the link between banking and economic growth, increased
economic growth leads to high demand for banking services
and, therefore, increases bank activity. The consequent increase
in loans and client deposits might have a beneficial effect on
banking stability and profitability (Sufian & Chong, 2008). As
a result, this study supports the concept that economic growth
and IBs’ financial stability are positively correlated. Following
Ledhem (2020), this study uses the gross domestic product
(GDP) to measure economic growth.
3.2.4.2. Inflation. According to the IB literature, inflation
benefits IBs' financial stability because a bigger share of their
income comes from service charges on their financial prod-
ucts and trade deals, as shown and empirically proved by
Asutay and Izhar (2007). Additionally, Bashir (2003) states
that inflation improves IBs' financial stability when a larger
amount of IBs' earnings come from direct investment, equity,
and other commercial activities. Their outcomes show that,
with inflation, bank earnings increase more than their costs.
Thus, IBs predict inflation and subsequently modify their
earnings to exceed expenses, and then, increase their finan-
cial stability (Chowdhury & Rasid, 2015; Trad et al., 2017).
For these reasons, we expect inflation to have a positive
effect on IBs’ financial stability. This paper employs the
consumer price index as a measure of inflation (Zarrouk
et al., 2016).
3.2.4.3. Trade openness. This study adopts trade openness to
control its possible effect on IBs' financial stability. Trade
openness stimulates demand and motivates economies to
implement financial liberalization policies that improve
competition in the banking sector (Adeel-Farooq et al., 2017).
According to Rashid et al. (2017), increased competition is
expected to strengthen IBs' financial stability. In light of this,
this study expects trade openness to have a positive effect on
IBs’ financial stability. Following Ledhem (2020), trade
openness is calculated by dividing total exports and imports of
goods and services by GDP.
3.2.4.4. Investment. Many studies state that investment has a
positive effect on banking stability because it increases prof-
itability of CBs (Almazari, 2014). As well, Zarrouk et al.
(2016) demonstrate empirically that higher levels of invest-
ment have a positive effect on profitability of IBs, which re-
inforces the IBs' financial stability. Therefore, this paper
expects investments to have a positive influence on IBs’
financial stability. Following Ledhem and Mekidiche (2021),
this paper employs gross fixed capital formation (GFCF) as a
measurement of investment. Table 3 defines all the variables
and gives the expected sign of their effect.
3.3. Estimation model
This paper adopts empirical modeling proposed by Ho and
Saunders (1981) and its expansion in terms of banking
Table 3
Definition of the variables and the expected sign of their effect.
Variables Description Variable label Expected sign
Dependent
Financial stability Financial stability is measured by the Z-score:
Z − score =
ROA +
Equity
Assets
σ(ROA)
Z-score
Return on assets For the robustness test, financial stability is measured by profitability:
ROA =
Net income
Total assets
ROA
Independent
Sukuk market development Sukuk market development is measured by total sukuk issued SUKUK +
Bank-level factors
Capital adequacy ratio
CAR =
Total Tier 1 and Tier 2 capital
risk − weighted assets
CAR +
Asset quality
AQ =
Gross nonperforming financing
Total financing
AQ +
Management efficiency ratio
MER =
Total operating costs
Gross income
MER –
Liquidity
LIQ =
Share of liquid assets
Total assets
LIQ –
Riskiness
RISK =
Risk − weighted assets to
Total assets
RISK +
Size SIZE = Total assets SIZE +/−
Macroeconomic factors
economic growth GDP is the proxy for economic growth GDP +
Inflation Inflation is measured by the CPI CPI +
Trade Openness
TRADE =
Total imports + exports
GDP
TRADE +
Investment Gross fixed capital formation represents the investment GFCF +
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8. determinants. However, the estimated model might have
endogeneity problems because of the potential unobserved
individual effects. As a result, panel regression with fixed/
random effects is inappropriate for estimation and can generate
biased estimations and inaccurate results (Baltagi & Kao,
2001). In this case, IB factors that determine financial stabil-
ity, such as riskiness and liquidity, capital, and management
affect sukuk markets (Khoutem, 2014; Said & Grassa, 2013;
Smaoui & Khawaja, 2017). Thus, endogeneity problems might
arise because of the potential effect of the dependent variable
(IB's financial stability) on sukuk market development. To
avoid this problem, Blundell and Bond (1998) develop dy-
namic panel system–generalized method of moments (GMM),
which is an approach developed to determine the first-
difference panel regression, created by Arellano and Bond
(1991). Unlike the approach of Arellano and Bond (1991),
which includes weak instruments with lagged levels, the dy-
namic panel system-GMM has robust instruments at lagged
levels and differences. Therefore, using Stata software, which
provides accurate panel data analysis, particularly for system-
GMM, as stated by Roodman (2009), this study applies the
dynamic panel one-step system-GMM method of Blundell and
Bond (1998), which can eliminate the unobserved individual
effect and then mitigate the possible endogeneity issue, serial
correlation, and heteroskedasticity in residuals as stated by
Bond (2002) and Roodman (2009). Based on this evidence and
following the approach typically employed in the empirical
research on banking stability at both IBs and CBs
(Athanasoglou et al., 2008; Demirgüç-Kunt & Huizinga, 1999;
Ghassan & Guendouz, 2019; Prima Sakti & Mohamad, 2018;
Smaoui et al., 2017; Stavárek & Polouček, 2004), the empirical
model based on the dynamic panel data (including a lagged
variable of the dependent variable lagged Z-score) is defined as
follows:
Yit = α0 + ∂Yi,t−1 + αiPit + βiXit + ζiMit + ξit⋅ ∀⋅ξit = vi + μit
(2)
where for country i at time t, Yit is financial stability (Z.score),
Yi,t−1 is the Z. score lagged one-quarter, and ∂ is the coefficient
of equilibrium speed. Pit is sukuk market development
(SUKUK), Xit denotes bank-level factors (CAR, AQ, MER,
LIQ, RISK, and SIZE), Mit represents macroeconomic vari-
ables (GDP, CPI, TRADE, and GFCF), α0 is a constant, and αi,
βi, and ζi are regression parameters. ξit is an error term in which
vi is the unobserved effect of SUKUK, and μit is individual
error.
4. Results and discussion
4.1. Descriptive statistics
The descriptive statistics for the variables are measured
using Stata software, as shown in Table 4. Each variable has
125 observations for 5 countries, except for 5 missing values of
the bank-level factor LIQ (the missing values are for Saudi
Arabia from 2013Q4 to 2014Q4). Because only a few values of
LIQ are missing, Stata converts the total dataset into balanced
panel data for running the panel regression with dynamic panel
one-step system-GMM. Focusing on the statistics of the main
variables, Table 4 shows that the Z-score for the average
financial stability of IBs in the sample is 49.38, which indicates
the presence of high financial stability and low risk by IBs.
Average financial stability of IBs, measured by ROA, is 1.46
percent. Table 4 further reveals that the financial stability of
IBs of the sample varies widely, with a standard deviation of
30.94 for the Z-score, and 0.58 percent for ROA. In addition,
the average sukuk market development for the countries stud-
ied is USD 7.03 billion for total sukuk holdings issued over the
study period, with a standard deviation of USD 8.56 billion.
Table 5 shows the correlation coefficients of the variables
used for regression. The Z-score is highly positively correlated
with SUKUK, SIZE, and TRADE over a range from 0.784 to
0.918, and ROA is highly positively correlated with CAR. In
addition, the financial stability ratios (Z-score and ROA) are
negatively correlated with AQ, MER, GDP, CPI, and GFCF.
4.2. Empirical results
In this section, we perform a panel regression with dynamic
panel one-step system-GMM using Stata to obtain adjusted
balanced panel data with 116 observations over the period
2013Q4–2019Q4, as shown in Table 6.
Table 6 shows that the effect of sukuk market development
on financial stability (Z-score) of IBs is significantly positive at
the 5 percent level ( p-value of SUKUK = 0.023 < 0.05),
which indicates that sukuk market development improves
complementarity between IBs, helping them to maintain sta-
bility. This finding is consistent with the conclusion of Anand
et al. (2012), who demonstrate that covered bonds improve the
financial stability of CBs, and it is compatible with the findings
of Neyer and Sterzel (2017) that government bonds improve
CBs' shock-absorbing proficiency and financial stability. Also,
Table 4
Summary of descriptive statistics.
Variable N Mean Std. Dev Min. Max.
Dependent variables
Z-score 125 49.38017 30.94437 19.53098 107.2002
ROA 125 0.0146216 0.0058118 0.0039464 0.0327846
Independent variable
SUKUK 125 7034.867 8562.796 74.58109 31,424.05
Bank-level factors
CAR 125 0.180049 0.02647 0.1386601 0.2313424
AQ 125 0.0329021 0.0190574 0.0084121 0.0847224
MER 125 0.5341304 0.1863644 0.2809293 0.9512756
LIQ 120 0.306361 0.1774829 −0.0001496 0.7237573
RISK 125 0.6552348 0.1032558 0.4629566 0.8155739
SIZE 125 299,847.9 236,626.9 7869.331 794,649.8
Macroeconomic factors
GDP 125 142,793.5 89,643.63 2756.005 289,104.6
CPI 125 129.0856 30.41448 98.25291 245.3924
TRADE 125 0.780495 0.3330159 0.3456053 1.426386
GFCF 125 40,890.42 28,213.21 762.7048 97,731.01
M.A. Ledhem Borsa _
Istanbul Review 22-S1 (2022) S79–S91
S86
9. this finding is in line with the evidence by Park et al. (2021)
that bond markets improve financial stability. Because the
positive link of complementarity is demonstrated only between
capital markets and CBs, this finding is the first to reveal a
complementary effect between the two main sectors of the
Islamic finance industry (IBs and sukuk markets) in terms of
financial stability.
As a result, this finding confirms H1, so it rejects H2, which
is compatible with the conclusion by Mimouni et al. (2019) and
Smaoui and Ghouma (2020) that sukuk market development
negatively affects IBs by creating more competition among
them.
Concerning the effect of a lagged Z-score on financial sta-
bility, it is positively significant at the 1 percent level as shown
in Table 6 ( p-value of lagged Z-score = 0.000 < 0.01), which
means that IBs’ financial stability in the sample countries is
adjusted to equilibrium at a speed of 96.90 percent. This in-
dicates that IBs in the sample countries are strongly stable in
the face of external shocks.
Regarding the effect of bank-level factors on financial sta-
bility, Table 6 shows that the CAR affects financial stability
positively at the 1 percent significance level ( p-value of
CAR = 0.001 < 0.01). This finding is confirmed by Karim
et al. (2018) and Ledhem and Mekidiche (2020), who state
that well-capitalized IBs are financially stable. The asset quality
has a positive influence on IBs' financial stability but is not
statistically significant, as shown in Table 6 ( p-value of
AQ = 0.065 > 0.05), which indicates that the asset quality is
not sufficient to enhance the IBs' financial stability in the
sample countries. Moreover, Table 6 shows that the MER
negatively affects the IBs' financial stability but is not statis-
tically significant ( p-value of MER = 0.169 > 0.05). However,
the effect of liquidity on IBs' financial stability is statistically
negative at the 5 percent level ( p-value of
LIQ = 0.045 < 0.05), which indicates that liquidity risk re-
duces IBs' financial stability in the sample countries. Because
liquidity risk may negatively affect CBs stability because of the
high margin intermediation, as stated by Sun et al. (2017) with
respect to IBs, this negative effect can occur when liquidity risk
motivates IBs to pick larger bank intermediation margins as a
premium and may increase debt fees for other IBs or sukuk
markets. Concerning the riskiness factor, Table 6 shows that
riskiness has a positive effect on IBs' financial stability at the 1
percent significance level ( p-value of RISK = 0.000 < 0.01),
which leads to the conclusion that the riskiness stimulates IBs
to augment the profit margins to compensate for the predicted
risk, in line with the evidence by Klepczarek (2015) on this
effect at CBs. Regarding the size effect on IBs’ financial sta-
bility, Table 6 shows that it is positive but not statistically
significant ( p-value of SIZE = 0.867 > 0.05), which indicates
that employed assets at IBs are not adequate to improve their
financial stability in the sample countries.
Concerning the effect of macroeconomic factors on IBs'
financial stability in the sample countries, Table 6 shows that
GDP, which is an economic growth proxy, affects the IBs'
Table 5
Correlation matrix.
Z-score ROA SUKUK CAR AQ MER LIQ RISK SIZE GDP CPI TRADE GFCF
Z-score 1.000
ROA −0.012 1.000
SUKUK 0.918 −0.034 1.000
CAR −0.105 0.698 −0.148 1.000
AQ −0.762 −0.26 −0.729 0.055 1.000
MER −0.450 −0.319 −0.377 −0.208 0.245 1.000
LIQ −0.495 0.199 −0.464 0.232 0.496 −0.498 1.0000
RISK −0.489 0.370 −0.479 0.149 0.093 0.189 0.310 1.000
SIZE 0.813 0.156 0.854 0.007 −0.856 −0.152 −0.572 −0.162 1.00
GDP −0.308 −0.119 −0.133 −0.290 −0.087 0.640 −0.283 0.373 0.145 1.000
CPI −0.312 −0.198 −0.149 −0.283 0.102 0.111 0.208 0.065 −0.065 0.610 1.000
TRADE 0.784 −0.056 0.644 −0.022 −0.358 −0.639 −0.148 −0.650 0.3483 −0.762 −0.469 1.000
GFCF −0.397 −0.204 −0.249 −0.326 0.031 0.730 −0.295 0.319 0.012 0.976 0.590 −0.784 1.000
Table 6
Dynamic panel one-step system-GMM results.
Number of observations = 116 Number of groups = 5
Wald chi2 (12) = 283.17 Prob > chi2 = 0.000
Variables Coefficients Robust Standard Error z-stat P> |z|
Lagged Z-score 0.9690645 0.038986 24.86 0.000**
SUKUK 0.0000703 0.0000309 2.27 0.023**
CAR 17.54935 5.326526 3.29 0.001**
AQ 27.30758 14.78297 1.85 0.065
MER −5.414993 3.936945 −1.38 0.169
LIQ −9.462373 4.714133 −2.01 0.045*
RISK 7.834279 1.111991 7.05 0.000**
SIZE 7.10e-07 4.25e-06 0.17 0.867
GDP −0.0000332 0.0000177 −1.88 0.060
CPI 0.0239379 0.0088635 2.70 0.007**
TRADE 1.62157 1.218684 1.33 0.183
GFCF 0.0000961 0.0000344 2.80 0.005**
Constant −6.14944 4.5922 −1.34 0.181
Tests of serial correlation
Arellano–Bond test for AR (1) z-stat = −1.82 P> |z| = 0.069
Arellano–Bond test for AR (2) z-stat = 0.67 P> |z| = 0.504
Instruments' total validity test
Sargan test Chi2 (68) = 69.19 Pr > chi2 = 0.437
Robustness test
Hansen test Chi2 (52) = 0.00 Pr > chi2 = 1.000
Note: * 0.05 significance, ** 0.01 significance.
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S87
10. financial stability negatively but is not statistically significant
( p-value of GDP = 0.060 > 0.05). Inflation has a positive
effect on IBs' financial stability at the 1 percent significance
level ( p-value of CPI = 0.007 < 0.01), as revealed in Table 6.
This finding is in line with Bashir (2003), who determines that
inflation improves financial stability at IB′ when they achieve
high earnings from direct investment, equity, and other com-
mercial activities that are stimulated by inflation. The effect of
trade on IBs' financial stability is positive but not statistically
significant ( p-value of TRADE = 0.183 > 0.05), as revealed in
Table 6. However, the effect of investment on IBs' financial
stability is positively significant at the 1 percent level ( p-value
of GFCF = 0.005 < 0.01), as revealed in Table 6. This finding
specifies that investment in the selected countries enhances IBs'
financial stability because higher investment fuels earning at
IBs, which reinforce their financial stability, consistent with the
empirical evidence of Zarrouk et al. (2016) on this effect. The
constant is statistically insignificant, which indicates that IBs’
financial stability in this model is not affected by other omitted
variables.
Regarding the diagnostics of dynamic panel system-GMM,
Table 6 shows that the instruments’ total validity is significant,
which indicates that all instruments are exogenous ( p-value is
insignificant: Pr > chi2 = 0.437) and so is the Sargan test of
overidentifying restrictions. Therefore, based on the recom-
mendations by Arellano and Bond (1991), all GMM in-
struments are valid. In addition, Table 6 shows the absence of
panel serial correlation on the first-order AR (1)
(Pr > Z = 0.069) and second-order AR (2) (Pr > Z = 0.504)
based on the Arellano–Bond test. The results in Table 6 show
that the p-value of the Hansen test is highly insignificant
(Pr > Chi2 = 1.00), which indicates that the estimation model
is robust and unbiased, as stated by Roodman (2009).
Because the estimation model is free of serial correlation,
and all instruments in the GMM estimation are robustly valid,
the empirical outcomes are robustly unbiased and accurate.
Consequently, the empirical study is precise, accurate, and
robustly unbiased.
4.3. Robustness test
To check the robustness of the empirical results in Table 6,
we perform another regression. To do so, we focus on the
profitability indicator, which is measured by ROA as an
alternative measure of financial stability. Therefore, Table 7 is
replicated using ROA for investigating whether a structural
change occurred in the effect of sukuk market development on
financial stability (Z-score) of IBs.
The empirical results in Table 7 show that the robustness
test generates results that are similar to the original results in
Table 6. The ROA estimations confirm the original estimated
results about the effect of sukuk market development on the
financial stability of IBs. Table 7 reveals that the effect of
sukuk market development on IBs’ financial stability (ROA) is
significantly positive at the 1 percent level ( p-value of
SUKUK = 0.007 < 0.01), which confirms H1. This finding
confirms the result of Anand et al. (2012), Neyer and Sterzel
(2017), and Park et al. (2021)—that bond markets are com-
plementary to CBs in terms of financial stability. This finding is
in line with the evidence of Smaoui et al. (2017) that sukuk
markets are complementary to the CB sector.
Also, Table 7 reveals that the effect of lagged ROA on
financial stability is positively significant at the 1 percent sig-
nificance level ( p-value of lagged ROA = 0.003 < 0.01). This
estimated result indicates that IBs' financial stability is adjusted
to equilibrium at a speed of 18.16 percent if lagged ROA is
used. Therefore, this finding confirms the original estimated
result in Table 6 that IBs’ financial stability achieves equilib-
rium if the lagged Z-score is used, which confirms that IBs in
the sample countries are strongly stable in the face of external
shocks.
Additionally, the robustness test demonstrates that the effect
of bank-level and macroeconomic variables on the financial
stability of IBs has the same signs and statistical significance
levels for the majority of variables. The bank-level variables in
Table 7 maintain their signs or become statistically insignifi-
cant, with some exceptions to the earlier results. In particular,
the effect of AQ on the financial stability of IBs becomes
negative and loses statistical significance ( p-value of
AQ = 0.780 > 0.05), implying that asset quality is not suffi-
cient for maintaining IBs’ financial stability, measured by
profitability. Additionally, the effect of SIZE on the financial
stability of IBs also becomes negative and has statistical sig-
nificance ( p-value of SIZE = 0.016 < 0.05), implying that
the asset growth decreases profitability, leading to a decline in
the financial stability of IBs. This finding is consistent with
Table 7
Dynamic panel one-step system-GMM results using ROA as the variable.
Number of observations = 116 Number of groups = 5
Wald chi2 (12) = 341.38 Prob > chi2 = 0.000
Variables Coefficients Robust Standard Error z-stat P> |z|
Lagged ROA 0.1816199 0.061339 2.96 0.003**
SUKUK 5.72e-07 2.14e-07 2.68 0.007**
CAR 0.1131861 0.0204863 5.52 0.000**
AQ −0.0137377 0.0491483 −0.28 0.780
MER −0.0362544 0.0060652 −5.98 0.000**
LIQ −0.0366064 0.0070102 −5.22 0.000**
RISK 0.0404596 0.0063171 6.40 0.000**
SIZE −2.04e-08 8.48e-09 −2.41 0.016*
GDP −5.07e-08 2.72e-08 −1.86 0.062
CPI 0.0000429 0.0000152 2.83 0.005**
TRADE −0.011057 0.0058737 −1.88 0.060
GFCF 9.64e-08 8.70e-08 1.11 0.268
Constant 0.0043675 0.0074142 0.59 0.556
Tests of serial correlation
Arellano–Bond test for AR
(1)
z-stat = −1.42 P> |z| = 0.156
Arellano–Bond test for AR
(2)
z-stat = 0.83 P> |z| = 0.405
Instruments' total validity test
Sargan test Chi2 (58) = 52.92 Pr > chi2 = 0.664
Robustness test
Hansen test Chi2 (58) = 0.00 Pr > chi2 = 1.000
Note: * 0.05 significance, ** 0.01 significance.
M.A. Ledhem Borsa _
Istanbul Review 22-S1 (2022) S79–S91
S88
11. Athanasoglou et al. (2008), who state that larger banks do not
achieve higher earnings and more stability than small banks.
Although in Table 7 the macroeconomic variables retain the
same signs, except for the effect of TRADE on the financial
stability of IBs, which turns negative and lacks statistical sig-
nificance, whereas in Table 6 it was positive with no statistical
significance. Following the above-mentioned analysis by
Adeel-Farooq et al. (2017) and Rashid et al. (2017) about trade
openness and financial stability, the empirical results of the
robustness test indicate that trade openness is not sufficient for
maintaining financial liberalization policies, which improve
competition in the IB sector, leading greater financial stability.
Moreover, Table 7 shows that the estimation model for the
robustness check is free of serial correlation (first-order AR (1)
with Pr > Z = 0.156, and second-order AR (2) with
Pr > Z = 0.405). Also, all instruments in the GMM estimation
are robust, valid, and exogenous ( p-value is insignificant:
Pr > chi2 = 0.664), whereas the Hansen test p-value is highly
insignificant (Pr > Chi2 = 1.00), which shows that the esti-
mation model is robust and unbiased. Consequently, the
empirical outcomes in the robustness check are robustly un-
biased and accurate.
In general, the estimated results from the robustness test
show the absence of structural change from the majority of the
earlier empirical results based on using the Z-score as an in-
dicator of the financial stability of IBs. Thus, the robustness test
confirms H1.
5. Conclusion
This paper empirically investigates the effect of sukuk
market development on IBs' financial stability, based on a
sample of the Islamic financial institutions operating in
Malaysia, Saudi Arabia, Indonesia, Turkey, and Brunei over the
period 2013Q4–2019Q4. We posit two opposing hypotheses.
H1 predicts a positive link between sukuk market development
on IBs' financial stability, whereas H2 expects a negative link.
Using dynamic panel one-step system-GMM estimation, the
estimated results support H1, which states that the development
of the sukuk markets has a positive effect on IBs’ financial
stability. The empirical results show that the sukuk markets are
complementary to the IBs and maintain financial stability
among IBs, which results in decreasing risk-taking by these
banks. Moreover, to the best of our knowledge, of all the
existing studies on the link between IBs and sukuk market
development, this paper is the first that finds a complementarity
effect of sukuk market development on IBs. Therefore, this
study contributes to the literature with new evidence.
The conclusions of this study are critical for financial
regulators and policy makers. Policy makers and authorities in
developing economies are unquestionably committed to
developing their finance and banking systems and making
them more resilient to external shocks. Developed sukuk
markets are becoming more widely recognized as an impor-
tant component of stable financial systems. Accordingly, this
study demonstrates that sukuk market development is com-
plementary to IBs and promotes stability and reduces riskiness
at IBs. Consequently, IBs support sukuk market development.
Financial regulators and policy makers in emerging econo-
mies should look for measures to encourage the growth of
sukuk markets, while also supporting cooperation that in-
creases complementary between the main sectors in the Is-
lamic finance industry: sukuk markets and IBs.
This paper has significant implications for IBs managers,
regulators, and investors. Based on the existence of the
complementarity effect of sukuk market development on IBs'
financial stability, this paper recommends that regulators
facilitate the issuance of sukuk by IBs to contribute to the
development of the sukuk market in the framework of a
complementarity link. In addition, this paper suggests that
regulators allow IBs to issue sukuk, especially Tier 1 sukuk
with loss-absorption features to enable IBs to engage in riskier
activities, which usually have larger profits, strengthening
financial stability. Additionally, simulating Basel III capitali-
zation to enhance the financial stability of financial institutions,
IBs' financial stability could be improved more directly by
issuing Tier 1 sukuk, which is reclassified by IFSB-15 as
desirable and less expensive than ordinary sukuk. Therefore, a
practical implication is that in line with the recommendation of
the IFSB (2013), which mirrors the Basel III requirements, IBs
should expand the issuance of Tier 1 sukuk capital, especially
ijarah and mudarabah Tier 1, which contribute to the devel-
opment of sukuk markets and enhance IBs' capacity to access
investment opportunities and strengthen their financial stabil-
ity, as stated by IFSB (2013) and IIFM (2021). Moreover, this
study recommends that investors invest in sukuk issued by IBs,
particularly Tier 1 sukuk, because of their high level of loss
absorbency with a desirable capital adequacy rate.
Funding
We declare that no funds, grants, or other support were
received to carry out this study.
Conflict of interest
None.
Acknowledgments
We are thankful to Prof. Dr. Warda Moussaoui for her
valuable information and continuous encouragement. We are
grateful to the editor, Professor Ali Kutan, and anonymous
referees for their valuable comments. All errors remain our
responsibility.
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