Moderating role of staff efficiency in determining liquidity risk of Islamic banks in the GCC countries

Research on liquidity risk of Islamic banks (IBs) in the GCC countries is very scarce despite being one of the main international banking markets, key international oil suppliers and hold largest Islamic assets share globally. Hence, this study offers fresh insight on Islamic banks liquidity risk using bank-specific and macroeconomic indicators. To highlight the impact of bank-specific and macroeconomic variables on 26 IBs liquidity risk, the generalized methods of moments (GMM) was used over the period of 2002-2016. The study also examines the moderating effect of staff efficiency on the relationship between bank-specific characteristics and liquidity risk using the hierarchical moderated GMM regression. The results show that both indices of changes in oil prices (WTI and Brent) have a positive and significant impact on liquidity risk, indicating that oil prices are directly related to the liquidity risk of IBs in oil-exporting countries. This suggests that a rise in oil prices leads to lower liquidity risk. The hierarchical moderated GMM regression reveals that staff efficiency has a significant moderating effect on the relationship between bank-specific factors and liquidity risk. Furthermore, both macroeconomic including changes in oil prices, GDP, inflation and bank-specific factors play vital roles in determining the liquidity risk of IBs in GCC. Evidently, these banks benefit from increased cash flows caused by positive oil price shocks. The study findings have a clear theoretical implications, the study provides proof to support liquidity creation and risk transformation theory, contingency theory of risk management, and resource-based view theory. In terms of policy implications, the findings of this study have implications to regulators, bankers, investors and market participants. Policymakers could use these findings in formulating appropriate monetary policies regarding capital adequacy requirements and supervisory schemes in managing liquidity risk