Nabillah Farras Luthfi

Type of the article: Research Article

Abstract
The instability or failure of financial institutions frequently triggers global financial crises, as exemplified by the 2008 global financial crisis that originated from subprime mortgage defaults in the United States. This study examines the impact of liquidity risk, credit risk, and capital adequacy on the financial stability of Islamic banks in Indonesia and Malaysia and explores the moderating effect of operational efficiency on this relationship. This study utilizes data from 16 Islamic commercial banks in Indonesia and 13 Islamic commercial banks in Malaysia, spanning the period from 2018 to 2024. Data were collected from annual reports and analyzed using panel data regression and System-GMM to address potential endogeneity. The results of panel data analysis indicate that banks with lower liquidity risk and credit risk tend to perform better in terms of stability. Additionally, higher capital adequacy is associated with higher stability. Initially, it was found that efficiency only moderates the effects of liquidity risk and credit risk on bank stability. However, further analysis using System-GMM revealed that efficiency also moderates the relationship between credit risk, liquidity risk, and capital adequacy on bank stability. This outcome confirms that the endogeneity issue has been successfully addressed using Sys-GMM analysis.

Acknowledgment
The authors would like to thank the LPPM of Universitas Pembangunan Nasional Veteran Jakarta for supporting this research. We also thank Dr. Amrie Firmansyah, SE, MM, M.Ak, ME, MA, MH, CSRS, CSRA, who guided and provided advice for this research.