Analysis of Liquidity Risk of Islamic Bank in Indonesia Before and After Spin-Off
Abstract Islamic Bank is banking system that is based on the Islamic law that has two principles: sharing of profit and loss and the disallowance of the collection and payment of interest. The regulation stated that conventional bank is allowed to conduct business activities based on sharia guidelines through Unit Usaha Syariah (UUS). In 2008, Bank Indonesia declared a new regulation that one of the provisions is duty of conventional banks to do spin-off their Unit Usaha Syariah and convert into Bank Umum Syariah (BUS). The transformation from Unit Usaha Syariah to Bank Umum Syariah creates several risks. Liquidity risk is one of the several risks that are interesting
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The higher the LAR ratio indicates the loan of bank us up and its liquidity is lowly. So, the higher the ratio, the bank is more risky may be to higher defaults.
Loan to Asset Ratio= (Total Loans)/(Total Assets) X 100% Capital Adequact Ratio (CAR)
Capital Adequacy Ratio (CAR) or also known as KPMM (Kewajiban Penyediaan Modal Minumum) is a measure of a bank’s capital to absorb losses by calculating the ratio of capital to risk. CAR is a ratio that shows how much of the total assets of bank that contain risks (credit, investment, securities bills of other banks) financed part of its own capital in addition to obtaining funds from outside the bank. This ratio is utilized to cover depositors and encourage the effectiveness and substantiality of financial system.
Accordance with standards established by the Bank of International Settlements (BIS), all banks in Indonesia are required to provide a minimum capital of 8% of ATMR (Aset Tertimbang Menurut Resiko).
The higher the Capital Adequacy Ratio (CAR) of the bank, then the chances of banks getting financial difficulties is smaller. Thus, bank has strong financial capability and is able to control the risk of loss
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First part explains about determination of variable used in the research and its measuring tools. The next part is about research design. Research design is systematic plan to study a scientific problem in order to answers to research question. The last part is methodology process. The process of methodology itself will be described in detail every stages.
3.1 Defining the Variables In this study, the variable is liquidity risk and will be measured by cash ratio, financing to deposit ratio, loan to asset ratio, and capital adequacy ratio.
3.2 Research Design
The variables in this research and the relationship will be drawn in the schematic diagram as shown below: Based on the figure 3.1 above, the research design consists of three events. First is liquidity risk before spin-off that the researcher observes. Next is the experiment event which is spin-off process. The last is liquidity risk after spin-off, the observed event. The comparison of the two observed event will be measured by liquidity ratio. The research design will be applied to the Bank BNI Syariah and Bank Jawa Barat dan Banten Syariah to know the performance of liquidity before and after spin-off.
3.3 Methodology
The Hershey manufacturer and the Tootsie Roll company both are firms in confection enterprise; they specialize in a vast form of chocolate sweet products. I compared each companies for the years 2002, 2003, and 2004 towards every different and in opposition to the enterprise averages so as to make a selection about which organization investors would decide on to put money into. The comparisons I used to make this decision were ratios for liquidity, solvency, and
The Stock market crash of 1929 was one of the first reasons why the Great Depression began. The stock market crash lasted ten days where the value of stocks quickly dropped as investors sold off their stock in droves. Because the negative components from the Great Depression, President Franklin Roosevelt felt it was his job to cure America’s Great Depression. A small group of intelligent minds from leading American Universities, known as the Brain Trust, were hired by Roosevelt to come up with strategies to deal with the Great Depression crisis.
The debt to ratio is a ratio that compares a firms total liabilities and shareholders’ equity. It shows the proportion of the amount of money invested by the business owners as well as external entities. Debt to Equity Ratio = Total Liabilities/Shareholders’ Equity = $80,994/$931,490
Banking system is essential in our economics to maintain an effective circulation of money. The bank has functions for regulation of currency to aid strong economy. Distribution of the money is crucial to promote construction of the nation and prevention of bankruptcies. In our modern economic structure is supported and developed by the banking system. However, there was a period that the national bank was shut down by the government the consequence of the bank war.
Unit 22: Market Research The definition of market research: - The definition of market research is: Think of advertising research wherein a selected market is recognized and its size and different characteristics are measured. Used also as an opportunity time period for advertising research. Purpose of market research: -
Case Study 1: Banc One Corporation Asset and Liability Management Gizem Akkan So basically, the main problem Banc One Corporation has falling share prices as it is written from a 48 ¾ to 36 ¾ in April 1993. The basic reason behind this decline is that its exposure to derivative securities. This decline in share prices raises concerns among the Banc One’s Investors as well as its analysts since they are uncomfortable with huge amount of derivative usage particularly swaps. They think they are not able to measure risks they exposed so this create uncertainity about the firm’s financial stability.
Executive Summary Lehman Brothers were an investment bank involved in transactions worth billions of dollars and one of the most powerful investment banks in the world. Lehman Brothers collapsed in 2008 following bad investment in the sub-prime mortgage market and used bad accounting practices called Repo 105 transactions to try and cover up the bad assets. This report sets out the use of the fraud triangle when describing the actions which led to the collapse. The pressure applied on the bank, the opportunity due to the lack of regulation to carry out the actions and the ability of the bank to rationalise their decision making.
Bankruptcy is a time of turmoil and uncertainty in any company, in addition to employees leaving and a loss of confidence from vendors and customers, management is restricted in their ability to make decisions and navigate the company. Because of the heightened uncertainty, many investors abandon the company, greatly reducing the value of the company, making the process even more difficult. However, savvy investors can generate large returns by entering the company at the right time as it begins to rebuild, so long as they can determine which companies will fail, and which will recover. H Partners is currently engaged in this process with Six Flags, having already gathered substantial returns on Six Flags’ senior debt, H Partners is determining
In order to identify red flags for risk management from various financial risk ratios, models, and traditional ratios for Bear Stearns and Lehman Brothers, we list our calculation results below. Based on our calculation, Bear Stearns got 15 red flags, which occupied 68% of total red flags, while Lehman Brothers 12 red flags, occupying 55% of total red flags. These two numbers were high even compared with other investment banks, and companies committed fraudulent activities. In summary, both Lehman Brothers and Bear had high possibility of going bankruptcy.
Introduction During the four-year study in the program of Accounting and Finance, I have gained the professional knowledge, and also obtained the precious experiences in life. This year, I have learned a lot during the process of the working on the capstone project. In order to have a deep understanding of myself, the essay will make a summary of the capstone project and myself.
Analysis of Ratios Liquidity Ratios Current Ratio= CA/CL Current ratio is a financial ratio that evaluates if a business has an adequate amount of resources to cover its debt over the next business cycle (typically 12 months). It does so by relating company's current assets to its current liabilities. Standard current ratio values differ from industry to industry. The higher this ratio, the more proficient the company is to pay its debt.
2.0 SITUATION ANALYSIS Below are Malaysian banking industry’s external environment assessment using Porter’s 5 Forces Analysis. For the purpose of this assessment, 3 top-in-the-league existing domestic banking groups in terms of asset size have been chosen i.e. Maybank, CIMB, and PublicBank. All 8 domestic banking groups have operations in all the 3 segments of banking businesses namely Commercial, Islamic, and Investment bank. Upon analyzing and assessing their immediate surroundings, the banking groups recognize the following important factors that would impact on their competitiveness. THREAT OF RIVALRY AMONG EXISTING BANKS • Too many players in the industry; Each banking group has to contend with 7 other domestic banking groups and 30 other banking intermediaries both local and foreign, comprising 19 Commercial, 8 Islamic, and 3 Investment banks.
Exposure to credit risk is managed in part by obtaining collateral and corporate and personal guarantees. Counterparty limits are established by the use of a credit classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. Liquidity Risk Liquidity risk is the risk that the company is unable to meet its payment obligations associated with its financial liabilities when they hall due and to replace funds when they are withdrawn. GK’s liquidity management process, as carried out within the Group through the ALCOs and treasury departments includes: o Monitoring future cash flows and liquidity on a daily basis o Maintaining a portfolio of highly marketable and diverse assets that can easily be liquidated as protection against any unforeseen interruption to cash flow o Maintaining committed lines of credit Currency Risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The current ratio of the Ajinomoto Berhad is stable. It is because the high current ratio shows that there are many cash in the company. They have extra money to utilize in the other area. Besides, the quick ratio of the Ajinomoto Berhad is higher and it is good for the investor to invest. It means that the company has the ability to cover the current liabilities.
The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its short-term liabilities with its current assets. In the year 2012, KHB had a current ratio of 1.688 but it comes to decrease in 2013 to a 1.642. The ratio in the year 2014 was 1.670 indicating a slight increase. The competitor of KHB, the PMMB had a current ratio of 4.785, 4.012 and 3.622 from the year 2012 to 2014 respectively. A current ratio should be more than 2.0 as a higher current ratio indicates a more promising current debt payments.