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Interest rate risk management and Islamic Banking: Evidence from Malaysia

Khaliq, Ahmad and Mohd Thas Thaker, Hassanudin and Mohd Thas Thaker, Mohd Asmy and Pitchay, Anwar Allah (2017) Interest rate risk management and Islamic Banking: Evidence from Malaysia. Journal of Islamic Finance, 6 (1). pp. 16-30. ISSN 2289-2109 E-ISSN 2289-2117

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The fluctuation of interest rate in the market has let the Islamic banks becoming more cautious and taking a step ahead in managing good risk management practices. This is an important element when a country adapts a dual banking system. The interest rate is obviously prohibited in Islam; however, it does not mean that the Islamic banks will not encounter any risk due to the interest rate fluctuation in the market. This is due to the nature of the Islamic banking balance sheet where it is fixed on asset side whereas in the conventional banking it looks more flexible to the asset, thus putting the Islamic banks unable to react expeditiously to the fluctuation in market interest rate which later leads to greater exposure to the rate of return risk. Therefore, the present study aims to investigate the effect of the interest rate risk towards the portfolios of the Islamic banks operating in the Malaysia. The quantitative result reveals that the majority of the Islamic banks are exposed to the interest rate risk and it is explained by the financial and economic variables. This study is expected to add value to the existing literature in risk management by proposing policy recommendations and methodological innovation.

Item Type: Article (Journal)
Uncontrolled Keywords: Interest Rate Risk, Islamic Banks, Malaysia
Subjects: H Social Sciences > HG Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Economics and Management Sciences
Depositing User: Prof. Dr. Khaliq Ahmad
Date Deposited: 09 May 2017 09:18
Last Modified: 16 Dec 2020 14:44
URI: http://irep.iium.edu.my/id/eprint/54977

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