Journal of Integrated Socio-Economic Systems and Islamic Finance

Vol. 2 (2026)
Articles

The Influence of Foreign Islamic Banks in The Islamic Banking Industry

PDF
  • Sazana Ab Rahman
Sazana Ab Rahman
Department of Polytechnic and Comuunity Colleges, Ministry of Higher Education, Malaysia

Published 2026-07-15

Keywords

  • Deposit,
  • Islamic deposits,
  • Islamic bank,
  • Bank deposit,
  • Bank’s liquidity

How to Cite

The Influence of Foreign Islamic Banks in The Islamic Banking Industry . (2026). Journal of Integrated Socio-Economic Systems and Islamic Finance, 2, 36-49. https://doi.org/10.65638/2978-8196.2026.2.04

Abstract

This study explores the liquidity creation of 16 Islamic banks in Malaysia from 2008 to 2021. The primary objective of this study is to examine the determinants that contribute to the creation of liquidity in Islamic deposits, which is impacted by the influence of foreign Islamic banks' penetration in the Islamic banking industry. It is motivated by the pressing issue of underperforming conditions amongst foreign Islamic banks in recent years. This study adopts an econometric analysis using panel data regressions with a random effects model applying robust standard error. The finding shows a significant relationship between six independent variables: profit efficiency ratio, return on equity, capital adequacy ratio, bank concentration, financing to deposit ratio, and foreign Islamic banks, with the dependent variable of Islamic deposits. This is a strategic call and requires deliberate analysis to assist liquidity management in understanding the impact of bank-specific financial conditions on Islamic deposits. The study extends the liquidity creation theory by incorporating Shariah-compliant deposit structures and exploring the role of foreign Islamic bank penetration on deposit mobilization in Islamic banking.

PDF

References

  1. Abbas, S., Mahmud, R. and Manan, N. (2017), “Foreign ownership and performance of Islamic banks”, Journal of Computational and Theoretical Nanoscience, Vol. 23 No. 8, pp. 7594–7596. https://doi.org/10.1166/asl.2017.9530
  2. Abduh, M., Omar, M. A., & Duasa, J. 2011. The impact of crisis and macroeconomic variables towards Islamic banking deposits. American Journal of Applied Sciences 8(12), 1413–1418. https://doi.org/10.3844/ajassp.2011.1413.1418
  3. Abdul Karim, M., Hassan, M. K., Hassan, T., & Mohamad, S. 2014. Capital adequacy and lending and deposit behaviors of conventional and Islamic banks. Pacific Basin Finance Journal, 28, 58–75. https://doi.org/10.1016/j.pacfin.2013.11.002
  4. Ab Rahman, S., Ahmad, N. H., & Che Arshad, N. 2021. Bank specific and macroeconomic factors influencing Islamic banks deposits. International Journal of Islamic Business, 6 (No.2), 37–57. https://doi.org/10.32890/ijib2021.6.2.4
  5. Adams-Kane, J., Caballero, J. A., & Lim, J. J. (2017). Foreign bank behavior during financial crises. Journal of Money, Credit and Banking, 49(2–3), 351–392. https://doi.org/10.1111/jmcb.12382
  6. Aswan, A., Jusni, J., & Dewi, A. R. S. 2017. Factors affecting loan supply behavior at the Sharia business unit of Bank Sulselbar, Advances in Economics, Business and Management Research 40 (ICAME 2017), 335–349. https://doi.org/10.2991/icame-17.2017.25
  7. Basri, M. F. (2020). Competition and market structure of the Malaysian Islamic banking industry. Journal of Islamic Accounting and Business Research, 11(3), 721–740. https://doi.org/10.1108/JIABR-08-2017-0127
  8. Bateni, L., Vakilifard, H., & Asghari, F. (2014). The Influential Factors on Capital Adequacy Ratio in Iranian Banks. International Journal of Economics and Finance, 6(11), 108–116. https://doi.org/10.5539/ijef.v6n11p108
  9. Berger, A. N., & Sedunov, J. 2017. Bank liquidity creation and real economic output. Journal of Banking and Finance 81: 1–19. https://doi.org/10.1016/j.jbankfin.2017.04.005
  10. Brooks, C. 2008. Introductory Econometrics for Finance. Cambridge University Press. Cambridge. ISBN-13 (2008), 978–0. https://doi.org/10.1017/CBO9780511841644
  11. Budiman, I. K., Abdulaziz, M., Jaffar, A., & Lo, M. T. (2019). Impacts of the Islamic Financial Services Act 2013 on Investment Account products offered by Islamic Banks in Malaysia. In International Journal of Management and Applied Research (Vol. 6, Issue 4, pp. 317–327). https://doi.org/10.18646/2056.64.19-024
  12. Claessens, S., & Van Horen, N. (2014). Foreign banks: trends and impact. Journal of Money, Credit and Banking, 46(SUPPL.1), 295–326. https://doi.org/10.1111/jmcb.12092
  13. Diamond, D. W., & Rajan, R. G. 1999. Liquidity risk, liquidity creation and financial fragility: A theory of banking. NBER Working Paper 7430. December 1999. National Bureau of Economic Research. Cambridge. https://doi.org/10.3386/w7430
  14. Diamond, D. W., & Rajan, R. G. 2000. A theory of bank capital. Journal of Finance, 55(6): 2431–2465. https://doi.org/10.1111/0022-1082.00296
  15. Drechsler, I., Savov, A., & Schnabl, P. (2017). The deposits channel of monetary policy. Quarterly Journal of Economics, 132(4), 1819–1876. https://doi.org/10.1093/qje/qjx019
  16. Fah, C., & Hassani, A. 2014. A Study of Islamic and conventional banks in Malaysia. Journal of King Abdulaziz University-Islamic Econimics 27(1): 73–99. https://doi.org/10.4197/Islec.27-1.3
  17. Fève, P., Sanchez, P. G., Moura, A., & Pierrard, O. (2021). Costly default and skewed business cycles. European Economic Review, 132, 103630. https://doi.org/10.1016/j.euroecorev.2020.103630
  18. George, D. & Mallery, M. 2010. SPSS for Windows Step by Step: A Simple Guide and Reference, 17.0 update (10a ed.) Boston: Pearson.
  19. Ghosh, S. (2016). Foreign banks in MENA countries: how important? how relevant? Journal of Economic and Administrative Sciences, 32(1), 77–98. https://doi.org/10.1108/JEAS-11-2014-0031
  20. Gorton, G., & Winton, A. 2017. Liquidity provision and the social cost of bank capital. Journal of Money, Credit and Banking 49(1). https://doi.org/10.1111/jmcb.12367
  21. Hair, J., Black, W. C., Babin, B. J. & Anderson, R. E. 2010. Multivariate data analysis. 7th ed. Upper Saddle River, New Jersey: Pearson Educational International.
  22. Haniffa, R. M., & Cooke, T. E. 2005. The impact of culture and governance on corporate social reporting. Journal of Accounting and Public Policy 24: 391–430. https://doi.org/10.1016/j.jaccpubpol.2005.06.001
  23. Hassan, M., Sanchez, B., & Faisal Safa, M. (2013). Impact of financial liberalization and foreign bank entry on Islamic banking performance. International Journal of Islamic and Middle Eastern Finance and Management, 6(1), 7–42. https://doi.org/10.1108/17538391311310716
  24. Hoechle, D. (2014). Robust standard errors for panel regressions with cross-sectional dependence. Stata Journal, 281-312. https://doi.org/10.1177/1536867X0700700301
  25. Islamic Services Financial Act. 2013. Bank Negara Malaysia.
  26. Li, J., Pike, R. H., & Haniffa, R. M. (2008). Intellectual capital disclosure and corporate governance structure in UK firms. Accounting and Business Research, 38(2), 137–159. https://doi.org/10.1080/00014788.2008.9663326
  27. Junjunan, M. I., Nawangsari, A. T., Melania, A. A., & Putikadyanto, A. P. A. (2022). A Comparative Study on Financial Performance between Islamic and Conventional Banking in Indonesia During the COVID-19 Pandemic. Muqtasid: Jurnal Ekonomi Dan Perbankan Syariah, 12(2), 75–88. https://doi.org/10.18326/muqtasid.v12i2.75-88
  28. Kamarudin, F., Sufian, F. and Loong, F.A. (2017), Assessing the domestic and foreign Islamic banks efficiency: insights from selected Southeast Asian countries, Future Business Journal, Vol. 3. https://doi.org/10.1016/j.fbj.2017.01.005
  29. Kamran, H. W., Arshad, S. B. B. M., & Omran, A. 2019. Country governance, market concentration and financial market dynamics for banks stability in Pakistan. Research in World Economy 10(2 Special Issue): 136–146. https://doi.org/10.5430/rwe.v10n2p136
  30. Khan, T. 2018. Deposit performance analysis: A comparison of conventional and Islamic banks in Bangladesh. International Journal of Economics, Finance, and Management Sciences 6(4): 165. https://doi.org/10.11648/j.ijefm.20180604.14
  31. Law, S.H. 2018. Applied Panel Data Analysis: Short Panel. Universiti Putra Malaysia Press. Serdang. ISBN 978-967-344-868-5
  32. Linn, F. S., & Ang, V. (2016). Evolving dynamics of banks’ funding and liquidity management. Financial Stability and Payment Systems Report 2016. Bank Negara Malaysia
  33. Maji, S. G., & Hazarika, P. 2018. Capital regulation, competition and risk-taking behavior of Indian banks in a simultaneous approach. Managerial Finance 44(4): 459–477. https://doi.org/10.1108/MF-09-2017-0340
  34. Mdaghri, A. A., & Oubdi, L. 2022. Bank-Specific and Macroeconomic Determinants of Bank Liquidity Creation: Evidence from MENA Countries. Journal of Central Banking Theory and Practice 11(2): 55–76. https://doi.org/10.2478/jcbtp-2022-0013
  35. Mohammad, S., Asutay, M., Dixon, R., & Platonova, E. 2020. Liquidity risk exposure and its determinants in the banking sector: A comparative analysis between Islamic, conventional and hybrid banks. Journal of International Financial Markets, Institutions and Money 66: 101196. https://doi.org/10.1016/j.intfin.2020.101196
  36. Munir, M. (2018). Analisis Pengaruh CAR, NPF, FDR dan Inflasi terhadap Profitabilitas Perbankan Syariah di Indonesia. Ihtifaz: Journal of Islamic Economics, Finance, and Banking, 1(1), 89. https://doi.org/10.12928/ijiefb.v1i1.285
  37. Mushtaq, S., & Siddiqui, D. A. 2017. Effect of interest rate on bank deposits: Evidence from Islamic and non-Islamic economies. Future Business Journal 3(1): 1–8. https://doi.org/10.1016/j.fbj.2017.01.002
  38. Nugroho, L., Badawi, A., Nugraha, E., & Putra, Y. M. (2021). What Determines Islamic Performance Ratio of Islamic Banking in Indonesia? an Analysis Using Financing To Deposit Ratio As Moderator. Share: Jurnal Ekonomi Dan Keuangan Islam, 10(1), 104. https://doi.org/10.22373/share.v10i1.9314
  39. Oktaviani, N. R., & Riyadi, S. 2021. The influences of non-performing financing to deposit ratio, and capital adequacy ratio towards profit sharing rate of mudharaba deposits. Jurnal Ilmu Manajemen, 10(2), 123. https://doi.org/10.32502/jimn.v10i2.3260
  40. Rahman, M. L., & Banna, S. H. (2016). Liquidity Risk Management: A Comparative Study between Conventional and Islamic Banks in Bangladesh. Journal of Business and Technology (Dhaka), 10(2), 18–35. https://doi.org/10.3329/jbt.v10i2.29465
  41. Renfiana, L. (2022). What Most Influences on Mudharabah Deposit in Indonesian Islamic Commercial Banks? FINANSIA : Jurnal Akuntansi Dan Perbankan Syariah, 5(2), 119. https://doi.org/10.32332/finansia.v5i02.5379
  42. Saw, A. T. W., Law, S. H., Ribed, R. V., & Chang, S. L. (2023). Ownership in Islamic banks: how home country development influences the performance of foreign Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 16(1), 19–33. https://doi.org/10.1108/IMEFM-08-2021-0323
  43. Solarin, S. A., Hammoudeh, S., & Shahbaz, M. 2018. Influence of economic factors on disaggregated Islamic banking deposits: Evidence with structural breaks in Malaysia. Journal of International Financial Markets Institutions and Money 55: 13–28. https://doi.org/10.1016/j.intfin.2018.02.007
  44. Sufian, F. (2010). Does foreign presence foster Islamic banks’ performance? Empirical evidence from Malaysia. Journal of Islamic Accounting and Business Research, 1(2), 128–147. https://doi.org/10.1108/17590811011086723
  45. Sufian, F., & Haron, R. (2008). The sources and determinants of productivity growth in the Malaysian Islamic banking sector: a nonstochastic frontier approach. International Journal of Accounting and Finance, 1(2), 193. https://doi.org/10.1504/IJAF.2008.020303
  46. Ünvan, Y. A., & Yakubu, I. N. 2020. Do bank-specific factors drive bank deposits in Ghana? Journal of Computational and Applied Mathematics 376: 112827. https://doi.org/10.1016/j.cam.2020.112827
  47. Wilkins, S., Neri, S., & Lean, J. (2019). The role of theory in the business/management PhD: How students may use theory to make an original contribution to knowledge. International Journal of Management Education, 17(3), 100316. https://doi.org/10.1016/j.ijme.2019.100316
  48. Xia, Y., Liu, P., & Huang, G. 2021. Bank deregulation, environmental regulation and pollution reduction: evidence from Chinese firms. Economic Research-Ekonomska Istrazivanja 34(1): 2162–2193. https://doi.org/10.1080/1331677X.2020.1860800