Title: The determinants of liquidity creation of conventional and Islamic banks

Authors: Turki Alshammari

Addresses: Finance Department, College of Business Administration, Kuwait University, Kuwait

Abstract: This study strives to employ the liquidity creation concept developed recently and empirically identify the determinants of liquidity creation function of banks in the Gulf Cooperation Council (GCC) countries during the period 2003-2018. In order to substantiate the findings, the study employs numerous statistical techniques such as cross-sectional regression models as well as the GMM method. The results of the analysis show that the larger and more profitable conventional banking system creates more liquidity than the more capitalised and credit riskier Islamic banking system in the GCC area. Further, the most notable determinants of liquidity creation of conventional banks are credit risk, capital ratio, inflation rate, and profitability, while those of Islamic banks are only credit risk and equity ratio. The difference in results might be due to the difference in the adopted business model (financial for conventional banks versus commercial for Islamic banks).

Keywords: liquidity creation; Islamic banks; conventional banks; credit risk; GCC countries; inflation rate.

DOI: 10.1504/IJAF.2021.120602

International Journal of Accounting and Finance, 2021 Vol.11 No.1, pp.1 - 17

Received: 28 Jan 2021
Accepted: 28 Jan 2021
Published online: 27 Jan 2022 *

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