The roles of domestic and foreign Islamic banks in Malaysian monetary transmission
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 10 June 2014
Abstract
Purpose
The aim of this paper is to empirically test the presence of the bank lending channel for the Islamic banking system in Malaysia.
Design/methodology/approach
Distributional effects from monetary policy changes were analyzed by three bank characteristics such as size, liquidity and capital. Using the econometric model by Kashyap and Stein (1995), the implementation of a policy contraction leads to reduction in loan supply because some banks may not able to offset a reduction in deposits. The paper explores the response shown between domestic and foreign Islamic banks in Malaysia using bank-level data from 2005 to 2010.
Findings
The empirical result indicates presence of the bank lending channel in the Islamic banking system in Malaysia, size and liquidity as sources of difference response of financing supply in domestic bank and capital for foreign Islamic bank and Islamic interbank rate as an efficient tool in conducting monetary policy especially in the Islamic banking system.
Originality/value
The paper manages to explore the effectiveness of Islamic the monetary policy tools in the Islamic Banking system in Malaysia. Using Islamic interbank rate as a policy tool, it provides valuable view to policy makers, who are analyzing for efficiency of transmission channel.
Keywords
Citation
Muhammad, F., Ab Rahman, A. and Azam Sulaiman, A. (2014), "The roles of domestic and foreign Islamic banks in Malaysian monetary transmission", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 7 No. 2, pp. 161-169. https://doi.org/10.1108/IMEFM-11-2011-0084
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited