• Rafia Ayub Institute of Business Management (IoBM) Karachi, Pakistan
  • Syed Musa Alhabshi Institute of Islamic Banking and Finance, International Islamic University of Malaysia
  • Anwar Hasan Abdullah Othman IIUM Institute of Islamic Banking and Finance (IIiBF)



Profitability, Basel III regulations, Net stable funding ratio, Liquidity coverage ratio, Panel ARDL


Basel III imposed restrictive measures on liquidity, targeting both Islamic and conventional banks equally, to strengthen the resilience of the banking industry in the aftermath of the 2008 financial crisis. This study examines the impact of Basel III liquidity regulatory variables, net stable funding ratio (NSFR), and liquidity coverage ratio (LCR) on the profitability of all four full-fledged Islamic banks in Pakistan from 2007 to 2021. Results reveal no short-term impact and a significant long-term impact of liquidity regulations on the profitability of banks by using the panel autoregressive distributed lag model. Specifically, the LCR is found to have a significant positive impact, and NSFR has a significant negative impact on the profitability of Islamic banks in Pakistan. The significance of sustained profitability planning is highlighted by the long-term effects of NSFR and LCR on profitability. Managers of banks should concentrate on tactics that strike a balance between liquidity requirements and the objective of maintaining or enhancing long-term profitability.


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How to Cite

Ayub, R., Alhabshi, S. M., & Anwar Hasan Abdullah Othman. (2023). MANAGING LIQUIDITY AND PROFITABILITY: A STUDY OF THE IMPACT OF BASEL III REGULATIONS ON ISLAMIC BANKS IN PAKISTAN. International Journal of Islamic Economics and Finance Research, 6(2 December), 69-83.