Analysis of Asset Model for Liquidity Risk Management in Islamic Banks of Pakistan
1,2 Superior College, Lahore
3 Hailey college of Commerce, Punjab University
4 Universiti Teknologi Malaysia
5 Punjab HEC, Lahore
Liquidity risk is the potential loss that can arise due to maturity and asset liability mismatch. The purpose of the study is to determine different factors that influence the maturity and asset liability mismatch. For examining such factors, the asset model is adopted. The variables of the asset model are return income from operational financial, sharing paid to depositors, cost of banking operation and profit from non-operational financing. The secondary data is collected from the annual income statements and balance sheets of Islamic banks from the year 2006- 2015. Secondary data was used and different statistical tests were applied for examining the results. These were the descriptive i.e. S. deviation, Mode, Median, skewness and mean. In addition to that Fixed effect and Random effect was used for calculations of simple and multiple regressions. Diagnostic tests: Durbin- Watson Statistics, Hausman test, and cross dependence test are also used for ensuring accuracy of results. The findings indicate that the variables cost of banking operations, return sharing paid to depositors and profit from non- operational finances has positive and significant impact on investments in operational financing. Islamic banks can have made investments when more deposits will be deposited by the depositors therefore if return sharing to depositors will increase then deposits will also be increased then Islamic bank will be able to invest in the operational financing. Secondly if the non- operational profits increase then more investment will be likely in operational financing. Similarly, higher cost of banking operations will lead to the better management of liquidity in the Islamic banks.
Keywords: Islamic Banking, Liquidity Risk, Liquidity Reserves, Shariah Principles, Financial markets.