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House Price Changes And Islamic Bank Stability: Evidence From Malaysia

Author

Listed:
  • Shiau Hui Kok

    (Sunway College)

  • Normaz Wana Ismail

    (University Putra Malaysia)

Abstract

In this paper, we examine the relationship between house price and Islamic bank stability in Malaysia. In particular, in relating to Islamic bank stability to Malaysian house price changes, we evaluate the nature of the relationship from the perspective of nonlinearities. The Autoregressive Distributed Lag (ARDL) modelis applied to a sample that consists of 9 Islamic banks in Malaysia for the period of 2000-2016. Our results indicate that there is an inverted U-shaped relationship between house price and Islamic bank stability in the long run. Meanwhile, the relationship is insignificant in the short-run. To put it differently, initially, the higher house prices, the more stable the bank. Then, the impact of house prices on bank stability becomes negative when house prices surpass the threshold point. As far as the bank-specific characteristics are concerned, the cost to income ratio is found to significantly and negatively related to the bank stability. Such a result has policy implications in which it is crucial for achieving balance in the housing market, and efficiently managing the cost is equally important to ensure Islamic bank soundness.

Suggested Citation

  • Shiau Hui Kok & Normaz Wana Ismail, 2019. "House Price Changes And Islamic Bank Stability: Evidence From Malaysia," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 5(1), pages 1-20, February.
    • Handle: RePEc:idn:jimfjn:v:5:y:2019:i:1a:p:1-20
    DOI: https://doi.org/10.21098/jimf.v5i1.1044
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    Cited by:

    1. JUNG Heonyong, 2022. "Are The Effect Of Housing Prices On Bank Performance Different Among Korean Commercial, Regional And Specialized Banks?," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 17(1), pages 85-90, April.

    More about this item

    Keywords

    House Prices; Islamic Bank Stability; ARDL; Non-Linear; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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