Abstract
This study aims to investigate the impact of liquidity, credit, and financial leverage risks on the financial performance of Islam banks in Sudan during the period of 2008 - 2018. Panel dataset of 143 observations from (13) banks has been used in this study. Two models of ROA and NPM have been constructed using robust random effects estimates for testing the study hypotheses. The independent variables consist of liquidity and credit risks plus the financial Leverage ratio. Credit risk that measured by nonperformance of loan (financing) and provision of loan (financing) loss ratios; while the liquidity risk measured by cash to deposits ratio, liquid assets to total assets ratio and total loan (financing) to total deposits ratio. The financial performance of Islamic banks in Sudan measured by the ratios of return on assets and net profit margin. The results reveal that the credit risk and financial leverage have significant and negative impact on the financial performance of Islamic banks in Sudan, whereas the liquidity risk generally found to be insignificant. Despite that, the liquidity risk in term of liquid assets to total assets ratio provides a significant and positive influence on the financial performance of Sudanese banks. Finally, the importance of this study is that it touches the most significant types of risks that Sudanese Islamic banks face during their operational cycles.
Highlights
1.1 BackgroundIslamic finance has gained a significant attention at the global arena during recent decades, and especially after its resistance to recent global crisis
This study aims to investigate the impact of liquidity, credit, and financial leverage risks on the financial performance of Islam banks in Sudan during the period of 2008 - 2018
The results reveal that the credit risk and financial leverage have significant and negative impact on the financial performance of Islamic banks in Sudan, whereas the liquidity risk generally found to be insignificant
Summary
1.1 BackgroundIslamic finance has gained a significant attention at the global arena during recent decades, and especially after its resistance to recent global crisis. It is not surprising that Islamic financing system is seen as an alternative to conventional financing system through statistics that underscore a rapid growth of Islamic financial assets and institutions that prohibit to deal with interest rates. The Islamic finance assets grew by 6% from 2012 to 2017 to reach US$ 2.44 trillion, and expectation of further growth to US$3.8 trillion by 2023. It is worth mentioning that Islamic banks share an approximately of 70% to 72% out of Islamic finance assets during 2017 and 2018 (Thomson Reuters, 2018). Islamic banking is seen to be a systemically important in 12 jurisdictions that account for 92% of the global Islamic banking assets, with the largest ones are Iran, Saudi Arabia, United Arab Emirates, Malaysia, Kuwait and Qatar (IFSB, IFSI Stability Report, 2018)
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