Liquidity Risk Management of Islamic Banks in Bangladesh
Date
2019-02Author
Shafir, Zaman
Md. Mohiuddin, Chowdhury
Md. Ashadul, Alam
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The banking sector is the lifeblood of the economy. Today, most banks either conventional
or Islamic banks face many types of risks. One of the risks is liquidity risk. One of the prime
functions of the bank is to collect short-term deposits from depositors in order to finance
long-term loans and advances. Failing to fulfil the condition creates a situation for banks
where the banks face liquidity risk. Liquidity risk is the risk where an organization is
unable to meet their obligations to depositors. The liquidity risk arises from management
weakness of proper forecasting of needs of funds in future. As Islamic banking is gaining
popularity, Islamic banks are also facing liquidity risk. This study was conducted to
investigate the relationship between sizes of the bank, nonperforming loan (NPL), return
on asset (ROA), return on equity (ROE), capital adequacy ratio (CAR), and investment to
deposit ratio (ITD) with liquidity risk of 6 Islamic Banks from 2012 to 2016. Secondary
data are being used in this study. This study found a relationship between the size of the
bank, the NPL, ROA, ROE, CAR, and ITD with liquidity risk by rejecting the null hypothesis.
The study also found that size and NPL have a negative relation to liquidity risk and ROA,
ROE, CAR, and Investment to deposit ratio has a positive relationship with liquidity risk.