Does Islamic banks' securitization involvement restrain their financing activity?

Roza Hazli Zakaria, Abd. Ghafar Ismail

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Purpose – The purpose of this paper is to validate the concern that banks' increasing involvement in securitization activity restrains banks' lending, as well as their degree of risk tolerance. Theoretical frameworks claim that securitization reduces risk, hence decreasing banks' degree of risk aversion. Subsequently, banks would be motivated to increase their percentage of assets devoted to risky activities, which is lending to economic sectors. However, banking statistics dictates that banks' lending is on the decline while banks' securitization activities are on the rise. Design/methodology/approach – The paper refers specifically to the Malaysian Islamic commercial banks and utilizes standard panel data analysis. Findings – Supportive evidence was found that banks' involvement in securitization activity do restrain their lending activity. In addition, banks tend to have a riskier portfolio composition following their involvement in securitization activity. Taken together, this signals that banks' involvement in securitization activity needs to be regulated or restricted since excessive securitization activities could curtail credit and increase risk inherent in banks' lending portfolio. Originality/value – This study departs from previous literature in the sense that an alternative method is introduced to measure banks' securitization activity.

Original languageEnglish
Pages (from-to)95-109
Number of pages15
JournalHumanomics
Volume24
Issue number2
DOIs
Publication statusPublished - 23 May 2008

Fingerprint

Islamic financial institutions
Securitization
Financing
Bank lending
Lending
Panel data analysis
Portfolio composition
Commercial banks
Economic sectors
Theoretical framework
Inherent risk
Statistics
Risk tolerance
Risk aversion
Banking
Design methodology
Credit
Assets
Tolerance
Methodology

Keywords

  • Banks
  • Investment appraisal
  • Islam
  • Loans
  • Malaysia
  • Securities

ASJC Scopus subject areas

  • Philosophy
  • Economics and Econometrics

Cite this

Does Islamic banks' securitization involvement restrain their financing activity? / Hazli Zakaria, Roza; Ismail, Abd. Ghafar.

In: Humanomics, Vol. 24, No. 2, 23.05.2008, p. 95-109.

Research output: Contribution to journalArticle

Hazli Zakaria, Roza ; Ismail, Abd. Ghafar. / Does Islamic banks' securitization involvement restrain their financing activity?. In: Humanomics. 2008 ; Vol. 24, No. 2. pp. 95-109.
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