Liquidity Risk Management of Islamic Banks in Bangladesh

Abstract

Banking sector is the life blood of the economy. Today most banks conventional or Islamic  face many types of risks.  One of the risks is Liquidity risk. One of the prime functions of the bank is to collect short term deposit from depositors in order to finance long term loans and advances. Falling to fulfilling the condition creates a situation for banks where the banks face liquidity risk. Liquidity risk as the risk where an organization is unable to meet their obligations to depositors. The liquidity risk arises from management weakness of proper forecasting of needs of funds in future. As Islamic banking is gaining popularity day by day Islamic banks are also facing liquidity risk. The study is done to see the relationship between Size of the bank, Nonperforming loan, Return on asset, Return on equity, Capital adequacy ratio, Investment to deposit ratio with liquidity risk of 6 Islamic Banks from 2012 to 2016. Secondary data is used to do the study. The study found a relationship between Size of the bank, Non- performing loan, Return on asset, Return on equity, Capital adequacy ratio, Investment to deposit ratio with liquidity risk by rejecting null hypothesis .The study also found that Size and NPL have negative relation with liquidity risk and ROA, ROE, CAR and Investment to deposit ratio have a positive relationship with liquidity risk.

Keywords: Liquidity, Liquidity Risk