Liquidity risk, credit risk and stability in Islamic and conventional banks

M. K. Hassan, A. Khan, Andrea Paltrinieri*

*Corresponding author

Research output: Contribution to journalArticle

32 Citations (Scopus)

Abstract

The aim of this paper is to provide a thorough assessment of Islamic banks’ (IBs) liquidity risk compared to conventional banks (CBs). We firstly investigate the relationship between liquidity and credit risk. Employing a simultaneous structural equation approach, on a comprehensive dataset of 52 IBs and CBs, from selected Organization of Islamic Cooperation Countries for the period of 2007–2015, we find that credit risk and liquidity risk have negative relationship. We then investigate the relationship between liquidity risk and stability, finding a negative relationship just for IBs. We finally show that Islamic banks are better than conventional in managing risks.
Original languageEnglish
Pages (from-to)17-31
Number of pages15
JournalResearch in International Business and Finance
Volume48
DOIs
Publication statusPublished - 2019

Keywords

  • Credit risk
  • Distance to De
  • Islamic banks
  • Liquidity risk
  • Stability
  • Z-score
  • fault

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