IIRA assesses liquidity position of the Islamic banks

The research was conducted by selecting key Islamic Commercial Banks based in a few countries.

The liquidity indicators for these banks were extracted from the published financial statements and the measurements as at Dec 2007 and Dec 2008 was analyzed.

The study concluded that Islamic Banks face challenges in managing their liquidity in adverse markets. The liquidity indicators have deteriorated compared to 2007, but for some banks it simply means holding less liquid assets and reserves compared to the prior year.

The liquidity indicators, albeit down from the previous year, still indicate adequate liquidity for some of the banks while a few face challenges.

Since the origin of the credit crisis rests in the diminution of asset values, especially interest bearing asset backed securities; the nature of Islamic banking with its prohibition on interest has served to protect Islamic banks to some extent. That is not to suggest they are entirely immune from the impact of declining real estate values and restricted real estate lending.