Abstract
Liquidity risk either due to a surplus or serious shortage in liquidity has a significant impact to the performance and sustainability of Islamic banks. Nevertheless, there are still no common agreement on specific factors that determine the liquidity risk in Islamic banking. This study investigates the determinant factors that affect the liquidity risk of Sudanese Islamic banks. A sample of 11 banks has been selected for a period of 7 years (2012 – 2018). The study is based on secondary data that analysed using Pearson correlation and multiple regression analysis for hypotheses tests. It investigated the explanatory variables of the bank’s cash position (CASH), investment in short-term securities (SECA), degree of financing the assets from customers’ deposits (DPAS) and bad financing and credit risk (NPL) as representatives of banks’ specific factors plus one microeconomic factor which is Gross Domestic Product (GDP). The analysis found a significant and negative relation of CASH and SECA with the liquidity risk in Islamic banks. On the other hand, the results reveal that the DPAS and NPL variables have a positive relation and significant, while the GDP seen to be irrelevant to liquidity risk in Islamic bank. The importance of the study is that it touches the most significant type of risk that most of Sudanese Islamic banks face, and the data analysed covers a relatively longer period of time than similar studies for a single country. We target that the study contributes in providing decision-makers with reasonable ground for prediction and managing the liquidity risk.
 JEL Classification: G21, G17, G32.
Highlights
The Islamic financing aspects – especially banking sector – witnessed a tremendous growth, from a phenomenon in mid of last century to a global view for a potential of new solutions adays
It worthy to note that the Central Bank of Sudan (2018) demonstrates that the volume of financing that provided by the commercial banks to the private sector increased by 69.8% from 2017 to 2018 which represents a contribution of 23% of the total increase in the money supply
The associated coefficients show that a decrease of 4.164% in liquidity risk is observed due to 1% increase in the short-term securities, while the liquidity risk decrease by 5.26% at the increase of cash and cash equivalent by 1%
Summary
The Islamic financing aspects – especially banking sector – witnessed a tremendous growth, from a phenomenon in mid of last century to a global view for a potential of new solutions adays. Banking industry exposes to numerous types of risks on a continues basis as far as the internal and external business environment are changing. Out of these risks, the common types are liquidity, credit and market risks as they classified as financial risk, and operational risks that include internal operational (system) risk and business risks. There are other risks that characterized as specific risks associated only with Islamic banking system. Whereas, they have been identified by Islamic Financial Standards Board under equity investment risk, rate of return, displaced commercial risk and Shariah noncompliance risks.
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