Asset Securitization and Risk: Does Bank Type Matter?

45 Pages Posted: 16 Mar 2017 Last revised: 6 Feb 2018

See all articles by Omneya Abdelsalam

Omneya Abdelsalam

Durham University

Marwa Elnahass

Newcastle University Business School

Sabur Mollah

Sheffield University Management School, University of Sheffield; Swansea Management School, Swansea University; Hull University Business School; Hull University Business School

Date Written: March 14, 2017

Abstract

This study is among the first attempts to tests for the relative differences between Islamic and conventional asset securitizations on bases of bank’s capitalization and risk (credit risk and liquidity risk) during two evidential crises, financial crisis (2007-2009) and the political crisis (2011-2012). We employ GMM estimation for uniquely constructed data for global asset securitization of commercial banks in 22 countries in the years 2003 to 2012, data of 672 global banks (4889 year-observations). We find that on average, securitized banks are less capitalized but more liquid than non-securitized banks. Islamic banks (IBs) involved in securitization hold higher quality loan portfolios and are more prudent but less liquid than securitizing conventional banks (CBs). We find no relative differences between the two sectors with respect to capitalization. Results are robust during the financial crisis. Additional tests, distinguishes between retained and non-retained interests for asset securitizations to test whether the level of control of the securitizing assets affect banks’ risk and capital adequacy. We find that non-retain interests by banks over securitization indicate significantly high prudence by banks however; this is associated with lower liquidity Our results are of importance to both local and international regulators as well as different stakeholders in banks. The bank type does not matters but the relative size of retained interests to the total issuance is that matters because it shows that there is impact on credit risk. Constrained model of IBs do not improve their liquidity though but helped with loan portfolio.

Keywords: Securitisation, Islamic banks, Conventional banks, Bank Risk, Capitalization

JEL Classification: C23, G01, G21, G28, L50, M41

Suggested Citation

Abdelsalam, Omneya and Elnahass, Marwa and Mollah, Sabur, Asset Securitization and Risk: Does Bank Type Matter? (March 14, 2017). Available at SSRN: https://ssrn.com/abstract=2933133 or http://dx.doi.org/10.2139/ssrn.2933133

Omneya Abdelsalam

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Marwa Elnahass

Newcastle University Business School ( email )

5 Barrack Road
Newcastle University Business School
Newcastle Upon Tyne, NE1 4SE
United Kingdom

Sabur Mollah (Contact Author)

Sheffield University Management School, University of Sheffield ( email )

Conduit Road
Sheffield, Sheffield S10 1FL
United Kingdom

Swansea Management School, Swansea University ( email )

Singleton Park
Swansea, Wales SA2 8PP
United Kingdom

Hull University Business School ( email )

Cottingham Road
Hull, Great Britain HU6 7RX
United Kingdom

Hull University Business School ( email )

Cottingham Road
Hull, Hull HU6 7RX
United Kingdom

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