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Title: Impact of monetary policy and macroeconomic environment on Islamic banking operations in a dual banking system of Malaysia
Author: Mulkiaman, Mohammed Zakkariya
ISNI:       0000 0004 5915 5525
Awarding Body: Durham University
Current Institution: Durham University
Date of Award: 2016
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The emergence of Islamic banking and finance since 1984 had contributed to the financial development leading to economic growth in Malaysia. Since Islamic banks operates within the dual banking system in Malaysia, it is inevitable that Islamic banking operations have interacted with the monetary policies and outcomes of the existing (conventional) system and as a result interact with interest rate related developments as well. In addition, macroeconomic interaction in the sense of Islamic banking contributing to economic growth will be higher if Islamic banks grow and increase their market share in the industry perhaps through applying legitimate Islamic compliance products and valid contracts. This research, hence, aims to assess the impact of monetary policy as well as macroeconomic outcomes on Islamic banking operations and vice versa in the case of Malaysia in particular in the post-1990 period. In doing so, each research question is examined and answered in three separate yet connected empirical papers. Each econometric analysis is based on two steps Engle-Granger tests with different timelines and sampling due to availability of the data. The main tests conducted was two steps Engle-Granger approach which involved Ordinary Least Square estimation, Residual testing, and Cointegration test. Vector Error Correction Model and Granger Casusality were also employed for further investigation of the long and short-run relationship between variables. The finding indicates that the Islamic banks do have long run dynamic relationship with economic growth. However, the conventional banks are the dominion due to small market share of the Islamic banks which is less than 30 per cent. With regards to the interest rate interaction, both conventional and Islamic interbank money market rates moving closely in the long run statistically indicates that Islamic inter-bank money market is co-integrated in long-run because both conventional and Islamic banks are subjected to the same monetary policy. While saving interest rates of the conventional banks and profit rates of the Islamic banks are not associated but moving parallel need to adjust their return rates in the long short and long run either slightly higher or lower to remain competitive in the market. The findings on the relationship between Islamic banks saving profit rates spread show that they are affected by financial factors such as inflation rate and real interest rate. This indicates that Islamic banks are exposed to the interest rates risk, as they operate under the dual banking system and reign by the same monetary policies. The results indicate that there is a close and inevitable interaction between Islamic banking operations and monetary policy outcomes. In particular close operational relationship between Islamic banking profit rates and interest rates should be considered as a source of worry in the face of the religious positioning of the prohibition of interest rate. The outcome reflects that prohibition of riba is only considered as the form nature of Islamic law (Shari’ah), while the operations of Islamic banks are vulnerable to interest rates risk in everyday life. However, in dual banking system such interactions will be inevitable.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available