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Liquidity Risk Management: A comparative study between Conventional and Islamic Banks of Pakistan

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Author(s): Muhammad Farhan Akhtar, Khizer Ali, Shama Sadaqat

Journal: Interdisciplinary Journal of Research in Business
ISSN 2046-7141

Volume: 1;
Issue: 1;
Start page: 35;
Date: 2011;
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Keywords: Liquidity risk | Conventional Banks | Islamic Banks | Pakistan.

ABSTRACT
The role of Bank is diversified into financial intermediaries, facilitator and supporter. Yet the banks place themselves as a trusted body for the depositors, business associates and investors. Liquidity risk may arise from these diverse operations, as they are fully liable to make available, liquidity when stipulated by the third party.Additional efforts are required by Islamic banks for scaling liquidity management due to their unique characteristics and conformity with sharia principles. The objective of this study is to look into the liquidity risk associated with the solvency of a financial institution, with a purpose to evaluate liquidity risk management (LRM) through a comparative analysis between conventional and Islamic banks of Pakistan. This paper investigates the significance of Size of the firm, Networking Capital, Return on Equity, Capital Adequacy and Return on Assets (ROA), with liquidity Risk Management in conventional and Islamic banks of Pakistan. The study is based on secondary data,that covers a period of four years, i.e. 2006-2009. The study found positive but insignificant relationship of size of the bank and net-working capital to net assets with liquidity risk in both models. In addition Capital adequacy ratio in conventional banks and return on assets in islamic banks is found to be positive and significant at 10% significance level.
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