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How money laundering (ML) affects the loan portfolio quality of Islamic banks?

Author

Listed:
  • Ijaz Hussain Shah
  • Kinza Aish
  • Islam Kashif

Abstract

Purpose - This research aims to examine the impact of money laundering (ML) and corruption on the asset quality of conventional and Islamic banks. Design/methodology/approach - The current study used the data of conventional and Islamic banks of Pakistan from 2012 to 2018. In this study, we used fully modified ordinary least squares, dynamic ordinary least squares and pooled ordinary least square methods to analyze the data. Findings - The results found that corruption and ML positively affect the conventional banking non-performing loans (NPLs). In contrast, corruption and ML harm the Islamic bank’s loan portfolio quality. Originality/value - To the best of the authors’ knowledge, the relationship between corruption, ML and NPLs in conventional and Islamic banks of Pakistan are examined for the first time. Practical Implications - According to the study’s findings, bank authorities should establish an effective method for monitoring loan activities and developing new and innovative products in Islamic banks. Additionally, the Pakistani government needs to improve anti-corruption and anti-ML policies to earn investors’ trust.

Suggested Citation

  • Ijaz Hussain Shah & Kinza Aish & Islam Kashif, 2022. "How money laundering (ML) affects the loan portfolio quality of Islamic banks?," Journal of Money Laundering Control, Emerald Group Publishing Limited, vol. 26(2), pages 309-323, April.
    • Handle: RePEc:eme:jmlcpp:jmlc-11-2021-0130
    DOI: 10.1108/JMLC-11-2021-0130
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    More about this item

    Keywords

    Corruption; Money laundering; Non-performing loans; Islamic banks; Conventional banks; C33; D73; G2; G21; G28; G32;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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