Assessing the Impact of Liquidity Risk on Performance of Islamic Banks in Germany (2014–2018)

Abstract

Many researchers have proved with their studies that one of the factors affecting economic growth of every country is banking performance, so by improving performance of banks the economy of any country can be improved. Major purpose behind this research study is to figure out the influence of liquidity on performance of Islamic banks in Pakistan. Liquidity Risk increases when bank’s funds decreases to pay their dues on time. Liquidity (independent variable) of banks has been studied by Loan to Deposit Ratio (L-DR), Liquid Risky Assets to Total Assets (LRA-TA) and Capital to Total Asset Ratio (C-TA). The Bank Performance (dependent variable) has been measured by Return on Assets (ROA) and Return on Equity (ROE). Secondary panel data starting from year (2014-2018) has been derived from financial statements of Meezan Bank Ltd and BankIslami Ltd Pakistan. Regression Model (Multiple Linear) has been used to find out the influence on dependent variable by independent variable. This study results that, keeping other factors constant, Liquidity is positively affecting financial performance (ROA & ROE) of Islamic banks in Pakistan but their impact is insignificant. Based on results we can recommend to Islamic Banks for improving performance they should increase their Net Current Assets.