Factors influencing financial stability in Islamic banking in Malaysia / Khadijah Suria

This study examines the relationship between four variables: liquidity risk, credit risk, and bank size. The sample taken was among the Islamic banking system in Malaysia between the bank's financial stability during 2010 – 2018. Data were collected using Eikon Thomson Reuters and analyzed using SPSS. Z-score measures the variables of a bank's s financial stability; liquidity risk is determined by capital to-asset ratio; credit risk is determined by debt to asset ratio; and the natural log of total assets measures bank size. The results show a negative relationship between credit risk and bank size with Islamic banks' financial stability. Bank's financial stability was found to increase when liquidity risk rise. This study attends to contribute to the current literature, mainly on Islamic banking. Moreover, this study provides policymakers insight into drafting guidelines and standards to ensure Islamic banking institutions reach their full potential.