Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia

The aim of this study is to reexamines to what extent capital management and income smoothing through PER. The results are important in assessing financial stability along with the depositors’ confidence. Overall, we find evidence that capital management is an important determinant of PER. By using...

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Main Authors:	Ardiansyah, Misnen, Haron, Razali, Qoyum, Abdul
Format:	Conference or Workshop Item
Language:	English
Published:	2012
Subjects:	HG4001 Financial management. Business finance. Corporation finance.
Online Access:	http://irep.iium.edu.my/24159/ http://irep.iium.edu.my/24159/1/Predicting_Sukuk_default_probability_-_Razali_Haron.pdf

id	iium-24159
recordtype	eprints
spelling	iium-241592012-07-17T00:53:21Z http://irep.iium.edu.my/24159/ Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia Ardiansyah, Misnen Haron, Razali Qoyum, Abdul HG4001 Financial management. Business finance. Corporation finance. The aim of this study is to reexamines to what extent capital management and income smoothing through PER. The results are important in assessing financial stability along with the depositors’ confidence. Overall, we find evidence that capital management is an important determinant of PER. By using a panel of fifteen IBIs, our study indicates that CAR is significant and contrary to current practices of PER. The higher capital ratio, the banks can generate more income from the capital. The higher income can give a higher hibah based on the deposit and smooth the profits attributed to depositors. Second, we find that the Islamic banks follow the income smoothing behavior. This results found that, the reserve (PER and IRR) use by Islamic banks can stable the result and profit payout attributed to the depositors based on hibah. The objective of PER is to stabilizing the rate of return to depositors and to ensure that the rates of return of deposit of the IBIs to remain competitive and stable. Based on our finding, Islamic banks use the PER and IRR to stable the results. The Shariah issue highlighted by Shahruddin (2011) that the practice of having a certain amount of profit as reserve for time of bad business is totally unknown to the classical mudharabah contract. Further research is therefore needed to study the shariah issue regarding the implementation of PER. We support the recommendation by Taktak et al. (2010) that the regulators need to enhance the disclosure on the specific reserve used by Islamic financial institutions to avoid financial system distress. Even though there are empirical evidence on PER and IRR provisioning behavior for Islamic banking institutions, evidence on other type of financial institutions are rather scarce. Based on our study, For instance, for Malaysian case, there are other institutions offering Islamic financial product and services, i.e. developmental financial institutions like Agro Bank, SME Bank, Bank Simpanan Nasional (BSN), as well as cooperative bank like Bank Rakyat. It will be more interesting to investigate these non-commercial banking institutions. Some interesting questions to ask are do they have other mechanism serving as reserves, such as share or insurance to absorb risk or to stabilize return? 2012-05-15 Conference or Workshop Item NonPeerReviewed application/pdf en http://irep.iium.edu.my/24159/1/Predicting_Sukuk_default_probability_-_Razali_Haron.pdf Ardiansyah, Misnen and Haron, Razali and Qoyum, Abdul (2012) Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia. In: International Conference on Islamic Finance 2012 & 6th Regional Shariah Scholars Dialogue (ICIF2012), 15-17 May 2012, Rizqun International Hotel, Brunei Drussalam.
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG4001 Financial management. Business finance. Corporation finance.
spellingShingle	HG4001 Financial management. Business finance. Corporation finance. Ardiansyah, Misnen Haron, Razali Qoyum, Abdul Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia
description	The aim of this study is to reexamines to what extent capital management and income smoothing through PER. The results are important in assessing financial stability along with the depositors’ confidence. Overall, we find evidence that capital management is an important determinant of PER. By using a panel of fifteen IBIs, our study indicates that CAR is significant and contrary to current practices of PER. The higher capital ratio, the banks can generate more income from the capital. The higher income can give a higher hibah based on the deposit and smooth the profits attributed to depositors. Second, we find that the Islamic banks follow the income smoothing behavior. This results found that, the reserve (PER and IRR) use by Islamic banks can stable the result and profit payout attributed to the depositors based on hibah. The objective of PER is to stabilizing the rate of return to depositors and to ensure that the rates of return of deposit of the IBIs to remain competitive and stable. Based on our finding, Islamic banks use the PER and IRR to stable the results. The Shariah issue highlighted by Shahruddin (2011) that the practice of having a certain amount of profit as reserve for time of bad business is totally unknown to the classical mudharabah contract. Further research is therefore needed to study the shariah issue regarding the implementation of PER. We support the recommendation by Taktak et al. (2010) that the regulators need to enhance the disclosure on the specific reserve used by Islamic financial institutions to avoid financial system distress. Even though there are empirical evidence on PER and IRR provisioning behavior for Islamic banking institutions, evidence on other type of financial institutions are rather scarce. Based on our study, For instance, for Malaysian case, there are other institutions offering Islamic financial product and services, i.e. developmental financial institutions like Agro Bank, SME Bank, Bank Simpanan Nasional (BSN), as well as cooperative bank like Bank Rakyat. It will be more interesting to investigate these non-commercial banking institutions. Some interesting questions to ask are do they have other mechanism serving as reserves, such as share or insurance to absorb risk or to stabilize return?
format	Conference or Workshop Item
author	Ardiansyah, Misnen Haron, Razali Qoyum, Abdul
author_facet	Ardiansyah, Misnen Haron, Razali Qoyum, Abdul
author_sort	Ardiansyah, Misnen
title	Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia
title_short	Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia
title_full	Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia
title_fullStr	Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia
title_full_unstemmed	Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia
title_sort	predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in malaysia
publishDate	2012
url	http://irep.iium.edu.my/24159/ http://irep.iium.edu.my/24159/1/Predicting_Sukuk_default_probability_-_Razali_Haron.pdf
first_indexed	2023-09-18T20:36:18Z
last_indexed	2023-09-18T20:36:18Z
_version_	1777409068352143360

Predicting sukuk default probability and its relationship with the sukuk rating level: case study of sukuk in Malaysia

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