Munich Personal RePEc Archive

Does interest rate affect the saving account deposits of islamic banks ? evidence from Malaysia

Hussin, Syaryanti and Masih, Mansur (2017): Does interest rate affect the saving account deposits of islamic banks ? evidence from Malaysia.

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Abstract

In theory, the islamic bank saving deposits should not be affected by the conventional interest rate since the interest rate is prohibited in Islamic law. However, in practice it is generally believed that in a dual banking system (both conventional and Islamic banks existing), the interest rate does affect the saving deposits of islamic banks. The focus of this paper is to test whether indeed interest rate does affect or not the islamic bank deposits. The standard time series techniques are employed and Malaysia is used as a case study. Our findings based on the generalized variance decompositions tend to indicate that interest rate did not have any significant effect on the saving deposits of islamic banks at least in the context of Malaysia. This finding has strong policy implications.

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