The Impact of Net Stable Funding Ratio (NSFR) Regulations of Basel-III on Financial Profitability and Stability: A Case of Asian Islamic Banks

Ulfat Abbas, Muhammad Imran Farooq, Amna Noor, Sadia Murtaza, Muhammad Waqas Ashraf
2022 Zenodo  
This paper examines the effectiveness of Basel III framework by linking the Net Stable Funding Ratio (NSFR) with profitability and stability of Asian Islamic Banks. The formula for measuring NSFR was introduced in the Basel III accord. Data from 89 Islamic banks for the period of (2011-17), from 20 countries in the (southern, eastern and western) Asian regions where Islamic Banking System is applicable was collected. Two-step Generalized Method of Moments (GMM) model estimator is used in order
more » ... o handle simultaneity bias and endogeniety problem. The result showed that the Islamic banks of Asian regions are stable. All the results validate Basel III NSFR as a significant safeguard regulatory step for stability and insignificant for profitability of the banks. It is proposed that Banking supervision committee must consider the different nature of Islamic banks and formulate a different criteria which will not affect their profitability as Islamic banks has one more layer of supervision in the form of Shariah Advisory board other than Central bank of any country.
doi:10.5281/zenodo.5869801 fatcat:xcqjgsovnbg7vm5ltiboaa7no4