Volume 18, Article 4

Comparative Analysis of Liquidity Risk Management: A Study on Selected Islamic and Conventional Banks in Bangladesh

Md. Alamgir Hossen*
Mohammad Arifur Rouf**

Abstract: Funding liquidity risk is referred as the risk that a firm will be incapable to meet its present and future cash flow and collateral needs without disturbing its regular operations or its financial condition. This paper would explore whether conventional banks (CBs) and Islamic banks (IBs) of Bangladesh face different kinds of challenges in managing funding liquidity risk using ratio analysis of Liquidity Risk Indicators (LRI) and Key Performance Indicators (KPI) and using Econometric Models involved with liquidity Risk. The data from the year 2005 – 2014 of 12 banks, of which 6 are Islamic banks and 6 are conventional banks was used for this purpose. The selection criterion is based on CAMELS rating of Bangladesh Bank, 2011. CBs have about 107% more balances with central banks than IBs. The ROE and ROA of CBs were higher than the IBs Over the period 2006-2012. But in last three years, IBs are
in a competing position with the CBs.

Key words: Key performance indicator, Liquidity risk, Non-performing loan, Capital adequacy, Working capital

* Assistant Professor, Institute of Business Administration, Jahangirnagar University, Savar, Dhaka, Bangladesh.
** Officer, Human Resources Department, Panjeree Publications Limited, Dhaka, Bangladesh.