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Sukuk BI as liquidity tool for Islamic banks
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Bank Indonesia (BI) continues to look for the right formula to deal with growing uncertainty in the financial sector. (Shutterstock/File)
A
ccording to economic theory and in the broadest terms, liquidity refers to the ability of an economic agent to exchange their wealth of goods or services with other assets. Banks possess highly illiquid assets (loans) and generally have an obligation to repay their depositors in full at any moment.
Liquidity is a financial institution’s capacity to readily meet its cash and collateral obligations at a reasonable cost. When it comes to managing liquidity, conventional credit institutions have well-developed interbank markets at their disposal that can be tapped for short-term funding, as well as a plethora of instruments.
Liquidity problems commonly occur because of failure in funds management or unfavorable economic conditions that lead to unpredictable liquidity withdrawals by depositors.
Indeed, maintaining robust liquidity management is very challenging and difficult in today’s competitive and open economic system, which has strong external influences and sensitive market players.
