Financing structure and insolvency risk exposure of Islamic banks |
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Authors: | Aisyah Abdul Rahman |
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Institution: | (1) International Monetary Fund, Washington, USA |
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Abstract: | This study analyzes the impact of financing structure on Islamic banks’ insolvency risk exposure. By analyzing four models,
we find that an increase in real estate financing decreases insolvency risk; however, an increasing concentration of financing
structure increases insolvency risk. We discover that increasing the stability of the financing structure reduces risk in
the short term, but not in the medium term. Interestingly, our findings show that the level of insolvency risk exposure during
the 1997 Asian financial crisis was lower than it was for the overall period, whereas it is higher than the overall average
in the ongoing global economic crisis. Thus, regulatory bodies, policymakers, and market players in the Islamic banking industry
should take appropriate action to in manage the insolvency risk of Islamic banks. |
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Keywords: | |
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