The Regulatory Framework on Liquidity Risk Management of Islamic Banking in Malaysia

By Rashid, Ummi Sulaim Ahmad; Rahman, Aisyah Abdul et al. | International Journal of Business and Society, January 1, 2018 | Go to article overview

The Regulatory Framework on Liquidity Risk Management of Islamic Banking in Malaysia


Rashid, Ummi Sulaim Ahmad, Rahman, Aisyah Abdul, Markom, Ruzian, International Journal of Business and Society


1.INTRODUCTION

Liquidity risk refers to the likelihood of certain events happening such as funds being insufficient to meet the demands of depositors or borrowers being acutely lower than actual value and the assets could not be disposed timely within the specified period. (Alfisyahrin, 2014). On the other hand, based on Maybank Berhad, it is the ability of bank to finance the increase in assets and the responsibility towards obligations in a timely manner that would prevent losses which may not be sustainable to the bank. Such risks could lead to negative implications where the income and capital of the bank are under uncontrollable threshold which would lead to the financial instability of the bank. Thus, it is the obligation of the bank to maintain sufficient funds to meet the demands of depositors and borrowers at the relevant cost of financing.

Potentially, the banking institution might face difficulty in fulfilling the requests of depositors when there are issues with liquidity which would impact the performance and reputation of the bank (Jenkinson, 2008). Hence, when funds requested by depositors are not disbursed timely, confidence towards the bank will be affected. In fact, poor liquidity situation may result in action to penalize the bank to be taken by the regulators (Jenkinson, 2008). In addition, changes in the structure of financing and risk management due to fierce competition to attract deposits, various financing products as well as advancement in technology would impact the bank (Akhtar, 2007). A bank that does not maintain sufficient liquidity can cause instability to its institution even with high quality assets, sufficient capital and stable earnings (Crowe, 2009; Andrew, 2012). It is submitted that poor Liquidity Risk Management (LRM) can be established from events in economic crisis relating to weaknesses in the corporate governance system, risk management and internal control. Therefore, it is incumbent on the bank to adopt a regulatory framework (RF) as a tool to discipline compliance to manage liquidity risk effectively.

Central banks throughout the world adopt various guidelines in order to prevent systemic risk in line with safeguarding of depositors and to ensure financial and economic stability. 1 In recent years, studies relating to the banking system worldwide revealed that the factors that led to the financial sector collapse are due to the weaknesses in the law and in the implementation of the supervisory structures (Alam, 2012). As a result, the adoption of the best and suitable RF is one of the ways for banking institutions to execute the implementation of the LRM efficiently, and subsequently, control the strength and stability of their institutions.

Research by Ulrich Bindseil & Jeroen Lamoot (2011) shows that there are related functions and interests in each other within the framework of liquidity risk and monetary policy operations of the central banks. Therefore, there is a large number of reviews and improvements to the legislation being constantly conducted in Malaysia within the financial industry to ensure the guidelines stay relevant and effective in maintaining the stability and growth of the Malaysian financial system. Over the last decade, there was a significant development locally and internationally in the control and supervision of the financial sector (Bindseil & Lamoot, 2011). Financial control evolves with the advancement in the financial system.

The rationale to adopt Basel III within Islamic banking has created an LRM initial study issue deemed controversial in RF aspects. Studies have concluded that Basel III is only for conventional banking without any consideration for Islamic banking (Harzi, 2012). On the other hand, the IFSB which is dedicated to Islamic banking institution is not a mandatory regulatory body for Islamic banking institutions in Malaysia. Therefore, harmonization of both RFs are recommended to generate an appropriate regulatory framework which is mandatory for all Islamic banking institution. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

The Regulatory Framework on Liquidity Risk Management of Islamic Banking in Malaysia
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.