ASSESSMENT AND MANAGEMENT OF LIQUIDITY RISK IN ISLAMIC BANKS OF PAKISTAN

Abstract

Purpose: This paper aims to analyze the liquidity risk and find its determinants in the Islamic banks of Pakistan. Methodology & Design: The study use panel data regression to examine the relationship between liquidity risk with other independent variables (bank size, Non-performing loans, Return on Equity, Capital Adequacy Ratio, Return on Asset, growth in GDP, Inflation) for 2017-2021 by selecting 5 full-fledged Islamic Banks of Pakistan. Findings: The result concluded that only bank size and capital adequacy ratio have an impact on liquidity risk in Islamic banks of Pakistan and all other variables don’t have any impact related to liquidity risk. Limitations: There are many limitations ofthe study. First, as this study is conducted in Pakistan there is a total of 23 Islamic banks but there are limited full-fledged Islamic banks because of which only five Islamic banks are selected for this study. Second, the data selected in this study is for a limited time period which for five years from 2017-2020. Third, this study didn’t work on Some of the variables are an investment in securities and a moderating variable is an institutional environment in more profitable assets and banks involved in bad financing face.