Adif Muhammad Iqbal

14/EK/361136/19680

Seminar in Finance Mid-Term Examination Assignment

Thesis Plans
Topic Title:
Funding Luquidity Risk and Banks Risk Taking in Conventional Banks and Islamic
banks in Indonesia.

Background :
Liquidity risk is a risk that always present to any company with a liability in their capital
structure. Whether a company can make the payment of the obligations due is a very
important questions to how a company took risks in their decisions. Islamic banks and
convestional banks are different in ways, mainly in how they view lending and inveting
ethically. Though a deeper section in how they differ would be written. This paper would
delve deeper in how the islamic banks are diferent than conventional banks, how the
liquidity risk in both banks differs. And how do they approach risk taking given the
certain level of risks.

Concise Literature Review

We can differenctiate funding liquidity and funding liquid risk. Funding liquidity is the
ability to settle obligations with immediacy. Whereas, Funding liquidity risk can be
defined as the the possibility that over a spesific horizon the bank will become unable to
settle obligations with immediacy (Drehmann and Nikoloau, 2012), a research conducted
by Khan finds that banks with lower funding liquidity risk tend to take more risks (Khan,
et al., 2016) we can use several variables as a proxy of liquidity, such as deposits to
measure the firm’s capability of paying obligations in a certain time horizon. Then we
can use another proxy to test risk by using risk bearing asset to total assets ratio as it is
used widely in many research journal.

Data
The data that the writer plan to take is the deposits and the assets, both interest bearing
and none interest bearing, that a company owned. The companies that will be tested are
banks in Indonesia. The banks that fits the profile will be banks that giving out loans and
keep deposits in thei balance sheet.

Variables
Adif Muhammad Iqbal
14/EK/361136/19680

The variables (as of now) will only include risk as a dependent variable, islamic banks
and conventional banks as an independent dummy variables, deposits as the proxy of
funding liquidity risk proxy.

Plan
Further research to differenciate between islamic banks and conventional banks in
Indonesia (more spesifically their liquidity source, for example whether islamic banks do
take interbank money market as a source of liquidity, and how they take risk. Basically
all that can affect the variables.).

Journal Refrences :
 Khan, Muhammad Saifuddin, et al. “Funding liquidity and bank risk
taking.” Journal of Banking & Finance, North-Holland, 21 Sept. 2016,
www.sciencedirect.com/science/article/pii/S0378426616301558.
 Drehmann, Mathias, and Kleopatra Nikolaou. Funding Liquidity Risk: Definition
and Measurement. Journal of Banking and Finance, 8 Jan. 2012. (M.D; K.N.)