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Does Cost Efficiency Affect Liquidity Risk in Banking? Evidence from Selected OIC Countries

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  • Mohd Amin, Syajarul Imna

    (School of Management Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM, Bangi, Selangor MALAYSIA)

  • Mohd, Shamsher Mohamad Ramadili

    (International Centre for Islamic Finance (INCEIF) The Global University of Islamic Finance Lorong University A, 59100 Kuala Lumpur MALAYSIA)

  • Mohd. Rasid, Mohamed Eskandar Shah

    (International Centre for Islamic Finance (INCEIF) The Global University of Islamic Finance Lorong University A, 59100 Kuala Lumpur MALAYSIA)

Abstract

Cost efficiency plays a significant role in bank risk taking behaviour. This paper examines the effect of cost efficiency on the liquidity risk of Islamic banks and conventional banks in 16 OIC countries from 1999 to 2013. The findings suggest that cost efficiency has a positive effect on liquidity risk. Other significant factors of liquidity risk include capital, bank specialization, credit risk, profitability, size, GDP and inflation whereas market concentration is not significant contributor to banking liquidity risk. There is weak evidence to support the notion that Islamic banks have higher level of liquidity risk than conventional banks. The findings imply the need to provide liquidity, probably through a well-functioning money market to lower liquidity risk in banking.

Suggested Citation

  • Mohd Amin, Syajarul Imna & Mohd, Shamsher Mohamad Ramadili & Mohd. Rasid, Mohamed Eskandar Shah, 2017. "Does Cost Efficiency Affect Liquidity Risk in Banking? Evidence from Selected OIC Countries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 51(2), pages 47-62.
    • Handle: RePEc:ukm:jlekon:v:51:y:2017:i:2:p:47-62
    DOI: http://dx.doi.org/10.17576/JEM-2017-5001-5
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    1. Rania Pasha, 2024. "Bank intermediation efficiency and liquidity risk in Egypt: a two-stage non-parametric analyses," Future Business Journal, Springer, vol. 10(1), pages 1-16, December.

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