ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

Liquidity buffers determinants in GCC’s Islamic banks

Amal Essayem, Wided Khiari and Azhaar Lajmi

Correspondence: Azhaar Lajmi,

University of Tunis, Tunisia

pdf (717.35 Kb) | doi:


The purpose of this paper is to understand determinants of liquidity buffers in the GCC’s Islamic banks. We apply the model of Bonner et al. (2005) on balanced panel data, bank specific data and annual balance sheet data for all reporting banks. The data cover a period of 8 years from 2004 until 2011 for 24 Islamic banks from GCC region that includes mainly Saudi Arabia, United Arab Emirates, Bahrain and Kuwait. Results show that liquidity buffers negatively related to the size of the bank, the capitalization is negatively related to liquidity buffers in Islamic banks in the GCC region and the ratio of deposits is negatively related to liquid assets holding in Islamic banks, but not statistically significant. In addition, we found a positive relationship between the profitability and liquidity buffers in Islamic banks of the GCC region. Finally, we found a different result when it comes to macroeconomic variables. First we noticed a negative impact of the inflation on liquidity buffers and second, a positive significant relationship between GDP real growth and liquidity buffers in Islamic banks in the GCC region. Our findings can serve as a tool for policy makers in the GCC region to adopt sounder strategies of liquidity management.


  Islamic banking, GCC region, Liquidity Buffers, panel regression


Abdul-Rahman, Y. (1999) Islamic instruments for liquidity management. International Journal of Islamic Financial Services, 1(1), 34-46.Adhikari, B.K. & Agrawal, A. (2016) Does local religiosity matter for bank risk-taking. Journal of Corporate Finance, 38(2), 272-293.Ahmad, A.Z. Mhammed, M. T. and Samsudin, M.L. (2013) How Islamic banks of Malaysia managing liquidity? An emphasis on confronting economic cycles. International Journal of Business and Social Science, 4(7), 254-262.Ali, S.S. (2013) State of liquidity management in Islamic financial institution. Islamic Economic Studies, 21(1), 63-98.Almeida, H., Campello, M. and Weisbach, M.S. (2004) The cash flow sensitivity of cash. The journal of finance, 59(4), 1777-1804.Ashref, D., Rizwan, M.S. and L’huilier, B. (2016) A net stable funding ratio for Islamic banks and its impact on financial stability: an international investigation. Journal of Financial Stability, 25, 47–57.Aspachs, O., Nier, E. and Tiesset, M. (2005) Liquidity, banking regulation and the macroeconomy: Evidence on Bank Liquidity holdings from a Panel of UK-Resident Banks. Mimeo, 1-26.Bonner, C., Lelyveld, I. and Zymek, R. (2015) Banks’ Liquidity Buffers and the Role of Liquidity Regulation. Journal of Financial Services Research, 48(3), 215-234.Čihák, M. and Hesse, H. (2010) Islamic banks and financial stability: An empirical analysis. Journal of Financial Services Research, 38(2), 95-113.Delechat, C., Henao, C., Mthoora, P.M and Vtyurina, S. (2012) The determinants of bank’s liquidity buffers in Central America, working paper, IMF.Hassan, M. and Dridi, D. (2010) The effect of the global crisis on Islamic and conventional banks: a comparative study. working paper. IMF.How, J.C., Abdul Karim, M. and Verhoeven, P. (2004) Islamic financing and bank risk, Tunderbird International Business Review, 47(1), 75-94.Iqbal, Z. and Mirakhor, A. (2007) An Introduction to Islamic Finance: Theory and Practice. John Wiley and Sons, Asia.Molyneux, P. and Thornton, J. (1992) Determinants of European bank profitability: a note. Journal of Banking and Finance, 16(6), 1173-1778.Ismal, R. (2008) Shariah issues in liquidity risk management: A survey. Review of Islamic Economics, 12(2), 45-66.Ismal, R. (2010) Assessment of liquidity management in Islamic banking industry. International Journal of Islamic and Middle Eastern Finance and Management, 3(2), 147-167.Shahchera, M. (2012) The impact of the liquidity if Iranian bank on profitability. Money and Economy, 7(1), 140-160.Srairi, S.A. (2010) Cost of efficiency of conventional and Islamic banks in GCC countries. Journal of Productive Analysis, 34(1), 45-62.Vogel, F. and Hayes, S. (1998) Islamic law and finance: religion, risk and return. Kluwer Law International, London.