The mudharabah deposit rate behaviour in relation to the conventional deposit rate

Radziah Abdul Latiff, Noreha Halid

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This study examines the relationship between the conventional and mudharabah deposit rates of Malaysian banks in two separate periods - between January 1996 and September 2004, and between October 2004 and June 2011 - which signify the implementation of a framework for calculating the Islamic bank deposit rate and the proft equalization reserve (PER). Employing the autoregressive distributed lagged (ARDL) approach, this study finds the two rates to be cointegrated in the frst period similar to previous findings. However, for the second period, there is largely no evidence of a long-term relationship. The significance of this finding is that in the second period, when Islamic banks employ a regulated PER as a displacement risk mitigating mechanism, Islamic banks do not benchmark against conventional rates. They possibly engage in income smoothing for economic efficiency or for signalling purposes. An important policy implication is that PER and any type of reserve to smooth income, that is regulated, may be prescribed as it may have a positive behavioural effect.

Original languageEnglish
Pages (from-to)59-68
Number of pages10
JournalJurnal Pengurusan
Volume36
Publication statusPublished - 2012

Fingerprint

Deposit rate
Islamic financial institutions
Equalization
Income
Bank deposits
Economic efficiency
Income smoothing
Long-term relationships
Benchmark
Policy implications

Keywords

  • Conventional deposit rates
  • Displacement risk
  • Islamic banks
  • Mudharabah deposit rates
  • Proft equalization reserves
  • Reserve accounting

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Accounting
  • Business and International Management

Cite this

The mudharabah deposit rate behaviour in relation to the conventional deposit rate. / Abdul Latiff, Radziah; Halid, Noreha.

In: Jurnal Pengurusan, Vol. 36, 2012, p. 59-68.

Research output: Contribution to journalArticle

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