Implications of Net Stable Funding Ratio (NSFR) on Islamic Bank Margins and Earning Management Practices: A Systematic Literature Review
Keywords:
Net Stable Funding Ratio (NSFR), Islamic Banking, Profit Margin, Profit Management, Systematic Literature Review
Abstract
The implementation of the Basel III Net Stable Funding Ratio (NSFR), although aimed at improving financial stability, has the potential to reduce Islamic bank margins and encourage profit management practices due to funding structure mismatches. This study aims to analyze and synthesize the literature on the implications of NSFR on margins and profit management practices in Islamic banking. Using the Systematic Literature Review (SLR) method based on PRISMA 2020 (Preferred Reporting Items for Systematic Reviews and Meta-Analyses) for articles published between 2020 and 2025, the data were analyzed through narrative synthesis. The synthesis results show that NSFR causally suppresses profit margins through increased funding costs. Based on agency theory, this pressure on profitability creates a strong incentive for managers to engage in earnings management as a strategic response. This study formulates a conceptual framework that integrates liquidity regulations, financial performance, and managerial behavior.
References
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Alam, N., Ramachandran, J., & Nahomy, A. H. (2020). The impact of corporate governance and agency effect on earnings management -- A test of the dual banking system. Res. Int. Bus. Fin., 54(101242), 101242.
Alhammadi, S., Alotaibi, K. O., & Hakam, D. F. (2022). Analysing Islamic banking ethicalJ. Sustain. Finance Invest., 12(4), 1171–1193.
Ashraf, D., Rizwan, S., & L’huillier, B. (2016). A Net Stable Funding Ratio for Islamic Banks and its Impact on Financial Stability: an International Investigation. Journal of Financial Stability, 25. https://doi.org/10.1016/j.jfs.2016.06.010
Ayub, M., & Alhabshi, S. O. (2023). Managing Liquidity and Profitability: A Study of the Impact of Basel III Regulations on Islamic Banks in Pakistan. Journal of Islamic Finance, 12(1), 1–15.
Baker, C. M. (2015). Regulatory reforms and unintended collisions: the case of the Volcker Rule and the over-the-counter derivative markets. Cap. Mark. Law J., 10(4), 433–446.
Berg, J., Boivin, N., Geeroms, H., Pinkus, D., Veron, N., Zenios, S., Zettelmeyer of Bruegel, J., & Overby, L. (2025). The Quickly Fading Memory of Why and When Bank Capital Is Important. https://www.bis.org/baselframework/background.htm.
Bitar, M., Naceur, S. Ben, Ayadi, R., & Walker, T. (2021). Basel compliance and financial stability: Evidence from Islamic banks. J. Fin. Serv. Res., 60(1), 81–134.
Braun, V., & Clarke, V. (2021). One size fits all? What counts as quality practice in (reflexive) thematic analysis? Qual. Res. Psychol., 18(3), 328–352.
Choi, D. B., Holcomb, M. R., & Morgan, D. P. (2020). Bank leverage limits and regulatory arbitrage: Old question‐new evidence. J. Money Credit Bank., 52 (S1), 241–266.
Demirgüç-Kunt, A., & Huizinga, H. (2010). Bank activity and funding strategies: The impact on risk and returns. Journal of Financial Economics, 98 (3), 626–650. https://doi.org/https://doi.org/10.1016/j.jfineco.2010.06.004
Fajar, M. R. A., & Seftarita, C. (2021). Analysis of {Factors} Affecting the Margin Income of Murabahah Sharia Commercial Banks in Indonesia with {NPF} as a Moderating Variable. Islamic Economics Scientific Journal, 7(3), 1545–1554.
Falikhatun, F., Widaningrum, R., & Santoso, A. L. (2024). Do Islamic Financial Resources Affect Profitability of Islamic Banking? JAS (Journal of Islamic Accounting), 8 (2), 438– 458. https://doi.org/10.46367/jas.v8i2.2187
Farooq, M. I., Abbas, U., Noor, A., Murtaza, S., & Ashraf, M. W. (2022). The Impact of Net Stable Funding Ratio (NSFR) Regulations of Basel-III on Financial Profitability and Stability: A Case of Asian Islamic Banks. Indian Journal of Economics and Business, 21(1), 9–25.
Fu, X., & Tang, T. (2016). Corporate debt maturity and acquisition decisions. Financ. Manage., 45(3), 737–768.
Gabinda, G. V, & Ali, M. (2021). The Effect of Liquidity and Non-Performing Loans on Bank Net Profit Margin. Journal of Accounting and Finance Research, 9(1), 141–147.
Gobat, J., Yanase, M., & Maloney, J. (2021). The Net Stable Funding Ratio: Impact and Issues for Consideration. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2468011
Gržeta, I., Žiković, S., & Tomas Žiković, I. (2023). Size matters: analyzing bank profitability and efficiency under the Basel {III} framework. Financ. Innov., 9(1).
Gusenbauer, M., & Haddaway, N. R. (2020). Which academic search systems are suitable for systematic reviews or meta-analyses? Evaluating retrieval qualities of Google Scholar, PubMed, and 26 other resources. Res. Synth. Methods, 11(2), 181–217.
Haddou, S., & Boughrara, A. (2025). How does diversification shape the stability of fully- fledged Islamic banks? A causal inference approach. International Review of Economics & Finance, 102, 104367. https://doi.org/https://doi.org/10.1016/j.iref.2025.104367
Haqqi, A. R. A. (2017). Regulatory Regimes of Islamic Banking in ASEAN Economic Community (AEC): A Uniting Force in the Industry of the Region. Advances in Social Sciences Research Journal, 4 (13), 24–39. https://doi.org/10.14738/assrj.413.3368
Hassan, M. K., & Aliyu, S. (2018). A contemporary survey of Islamic banking literature. J. Fin. Stab., 34, 12–43.
Hatane, S., Octavia, F., & Florentina, J. (2019). The Comparison of Earnings Management Practices in Indonesia’s Islamic Banks and Conventional Banks. https://doi.org/10.2991/teams-18.2019.22
Ihsan, F., Rivani, R., & Parlina, N. (2025). Analysis of Net Stable Funding Ratio (NSFR) in the Banking Sector Listed on the Indonesian Stock Exchange (IDX) on Financial Performance for the Period 2018-2023. Eduvest - Journal of Universal Studies, 5, 9535–9546. https://doi.org/10.59188/eduvest.v5i8.51190
Iqbal, M. S., & Fikri, S. M. (2023). Islamic Banking & Finance Review (IBFR). Islamic Banking & Finance Review (IBFR), 10(1), 1–23.
Krettek, J. (2025). Market reactions to the Basel reforms: Implications for shareholders, creditors, and taxpayers. The Quarterly Review of Economics and Finance, 101
Mohanty, B., & Mehrotra, S. (2018). Relationship between liquidity and profitability: An exploratory study of {SMEs} in India. Emerg. Econ. Stud., 4(2), 169–181.
Mohd Thas Thaker, M. A., Amin, M. F., Mohd Thas Thaker, H., Khaliq, A., & Allah Pitchay, A. (2021). Cash waqf model for micro enterprises’ human capital development. ISRA Int. J. Islam. Finance, 13(1), 66–83.
Page, M. J., McKenzie, J. E., Bossuyt, P. M., Boutron, I., Hoffmann, T. C., Mulrow, C. D., Shamseer, L., Tetzlaff, J. M., Akl, E. A., Brennan, S. E., Chou, R., Glanville, J., Grimshaw, J. M., Hróbjartsson, A., Lalu, M. M., Li, T., Loder, E. W., Mayo-Wilson, E., McDonald, S., … Moher, D. (2021). The {PRISMA} 2020 statement: an updated guideline for reporting systematic reviews. BMJ, 372
Popenoe, R., Langius-Eklöf, A., Stenwall, E., & Jervaeus, A. (2021). A practical guide to data analysis in general literature reviews. Nord. J. Nurs. Res., 41(4), 175–186.
Rethlefsen, M. L., Kirtley, S., Waffenschmidt, S., Ayala, A. P., Moher, D., Page, M. J., Koffel, J. B., & PRISMA-S Group. (2021). {PRISMA-S}: An extension to the {PRISMA} Statement for reporting literature searches in systematic reviews. Syst. Rev., 10(1), 39.
Rezki Zurriah, Masta Sembiring, & Siti Aisyah Siregar. (2025). Real Earnings Management: Study on Manufacturing Sector. Jurnal Akuntansi, 29 (2), 359–376. https://doi.org/10.24912/ja.v29i2.2911
Salsabilla, L. Z., & Jaya, T. J. (2024). The impact of non-performing financing and operational efficiency on the stability of Islamic banks in Persian Gulf countries. Journal of Islamic Economics Lariba, 10 (2), 623–640. https://doi.org/10.20885/jielariba.vol10.iss2.art1
Santillán-Salgado, R. (2015). Global Regulatory Changes to the Banking Industry after the Financial Crisis: Basel III. Journal of Global Economy, 11
Setiyono, B., & Naufa, A. M. (2021). The impact of net stable funding ratio on bank performance and risk around the world. Bul. Ekon. Monet. Dan Perbank., 23(4), 543–564.
Siadat, M., & Hammarlid, O. (2017). Net Stable Funding Ratio: Impact on Funding Value Adjustment.
Siddaway, A. P., Wood, A. M., & Hedges, L. V. (2019). How to do a systematic review: A best practice guide for conducting and reporting narrative reviews, meta-analyses, and meta- syntheses. Annu. Rev. Psychol., 70(1), 747–770.
Suripto. (2022). Earnings management determinants: Comparison between Islamic and Conventional Banks across the ASEAN region. Asia Pacific Management Review. https://doi.org/10.1016/j.apmrv.2022.01.005
Ullah, Q. Y., Mehmood, B., & Ahmad, N. (2024). Consequences of Earnings Management for Islamic Banks: Evidence from Worldwide, the {GCC}, and the {ASEAN} Region. Islamic Banking & Finance Review (IBFR), 1.
Widayawati, E. (2025). The role of corporate governance in moderating the influence of financial distress on earnings management. 29
Xiao, Y., & Watson, M. (2019). Guidance on conducting a systematic literature review. J. Plan. Educ. Res., 39(1), 93–112.
Alam, N., Ramachandran, J., & Nahomy, A. H. (2020). The impact of corporate governance and agency effect on earnings management -- A test of the dual banking system. Res. Int. Bus. Fin., 54(101242), 101242.
Alhammadi, S., Alotaibi, K. O., & Hakam, D. F. (2022). Analysing Islamic banking ethicalJ. Sustain. Finance Invest., 12(4), 1171–1193.
Ashraf, D., Rizwan, S., & L’huillier, B. (2016). A Net Stable Funding Ratio for Islamic Banks and its Impact on Financial Stability: an International Investigation. Journal of Financial Stability, 25. https://doi.org/10.1016/j.jfs.2016.06.010
Ayub, M., & Alhabshi, S. O. (2023). Managing Liquidity and Profitability: A Study of the Impact of Basel III Regulations on Islamic Banks in Pakistan. Journal of Islamic Finance, 12(1), 1–15.
Baker, C. M. (2015). Regulatory reforms and unintended collisions: the case of the Volcker Rule and the over-the-counter derivative markets. Cap. Mark. Law J., 10(4), 433–446.
Berg, J., Boivin, N., Geeroms, H., Pinkus, D., Veron, N., Zenios, S., Zettelmeyer of Bruegel, J., & Overby, L. (2025). The Quickly Fading Memory of Why and When Bank Capital Is Important. https://www.bis.org/baselframework/background.htm.
Bitar, M., Naceur, S. Ben, Ayadi, R., & Walker, T. (2021). Basel compliance and financial stability: Evidence from Islamic banks. J. Fin. Serv. Res., 60(1), 81–134.
Braun, V., & Clarke, V. (2021). One size fits all? What counts as quality practice in (reflexive) thematic analysis? Qual. Res. Psychol., 18(3), 328–352.
Choi, D. B., Holcomb, M. R., & Morgan, D. P. (2020). Bank leverage limits and regulatory arbitrage: Old question‐new evidence. J. Money Credit Bank., 52 (S1), 241–266.
Demirgüç-Kunt, A., & Huizinga, H. (2010). Bank activity and funding strategies: The impact on risk and returns. Journal of Financial Economics, 98 (3), 626–650. https://doi.org/https://doi.org/10.1016/j.jfineco.2010.06.004
Fajar, M. R. A., & Seftarita, C. (2021). Analysis of {Factors} Affecting the Margin Income of Murabahah Sharia Commercial Banks in Indonesia with {NPF} as a Moderating Variable. Islamic Economics Scientific Journal, 7(3), 1545–1554.
Falikhatun, F., Widaningrum, R., & Santoso, A. L. (2024). Do Islamic Financial Resources Affect Profitability of Islamic Banking? JAS (Journal of Islamic Accounting), 8 (2), 438– 458. https://doi.org/10.46367/jas.v8i2.2187
Farooq, M. I., Abbas, U., Noor, A., Murtaza, S., & Ashraf, M. W. (2022). The Impact of Net Stable Funding Ratio (NSFR) Regulations of Basel-III on Financial Profitability and Stability: A Case of Asian Islamic Banks. Indian Journal of Economics and Business, 21(1), 9–25.
Fu, X., & Tang, T. (2016). Corporate debt maturity and acquisition decisions. Financ. Manage., 45(3), 737–768.
Gabinda, G. V, & Ali, M. (2021). The Effect of Liquidity and Non-Performing Loans on Bank Net Profit Margin. Journal of Accounting and Finance Research, 9(1), 141–147.
Gobat, J., Yanase, M., & Maloney, J. (2021). The Net Stable Funding Ratio: Impact and Issues for Consideration. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2468011
Gržeta, I., Žiković, S., & Tomas Žiković, I. (2023). Size matters: analyzing bank profitability and efficiency under the Basel {III} framework. Financ. Innov., 9(1).
Gusenbauer, M., & Haddaway, N. R. (2020). Which academic search systems are suitable for systematic reviews or meta-analyses? Evaluating retrieval qualities of Google Scholar, PubMed, and 26 other resources. Res. Synth. Methods, 11(2), 181–217.
Haddou, S., & Boughrara, A. (2025). How does diversification shape the stability of fully- fledged Islamic banks? A causal inference approach. International Review of Economics & Finance, 102, 104367. https://doi.org/https://doi.org/10.1016/j.iref.2025.104367
Haqqi, A. R. A. (2017). Regulatory Regimes of Islamic Banking in ASEAN Economic Community (AEC): A Uniting Force in the Industry of the Region. Advances in Social Sciences Research Journal, 4 (13), 24–39. https://doi.org/10.14738/assrj.413.3368
Hassan, M. K., & Aliyu, S. (2018). A contemporary survey of Islamic banking literature. J. Fin. Stab., 34, 12–43.
Hatane, S., Octavia, F., & Florentina, J. (2019). The Comparison of Earnings Management Practices in Indonesia’s Islamic Banks and Conventional Banks. https://doi.org/10.2991/teams-18.2019.22
Ihsan, F., Rivani, R., & Parlina, N. (2025). Analysis of Net Stable Funding Ratio (NSFR) in the Banking Sector Listed on the Indonesian Stock Exchange (IDX) on Financial Performance for the Period 2018-2023. Eduvest - Journal of Universal Studies, 5, 9535–9546. https://doi.org/10.59188/eduvest.v5i8.51190
Iqbal, M. S., & Fikri, S. M. (2023). Islamic Banking & Finance Review (IBFR). Islamic Banking & Finance Review (IBFR), 10(1), 1–23.
Krettek, J. (2025). Market reactions to the Basel reforms: Implications for shareholders, creditors, and taxpayers. The Quarterly Review of Economics and Finance, 101
Mohanty, B., & Mehrotra, S. (2018). Relationship between liquidity and profitability: An exploratory study of {SMEs} in India. Emerg. Econ. Stud., 4(2), 169–181.
Mohd Thas Thaker, M. A., Amin, M. F., Mohd Thas Thaker, H., Khaliq, A., & Allah Pitchay, A. (2021). Cash waqf model for micro enterprises’ human capital development. ISRA Int. J. Islam. Finance, 13(1), 66–83.
Page, M. J., McKenzie, J. E., Bossuyt, P. M., Boutron, I., Hoffmann, T. C., Mulrow, C. D., Shamseer, L., Tetzlaff, J. M., Akl, E. A., Brennan, S. E., Chou, R., Glanville, J., Grimshaw, J. M., Hróbjartsson, A., Lalu, M. M., Li, T., Loder, E. W., Mayo-Wilson, E., McDonald, S., … Moher, D. (2021). The {PRISMA} 2020 statement: an updated guideline for reporting systematic reviews. BMJ, 372
Popenoe, R., Langius-Eklöf, A., Stenwall, E., & Jervaeus, A. (2021). A practical guide to data analysis in general literature reviews. Nord. J. Nurs. Res., 41(4), 175–186.
Rethlefsen, M. L., Kirtley, S., Waffenschmidt, S., Ayala, A. P., Moher, D., Page, M. J., Koffel, J. B., & PRISMA-S Group. (2021). {PRISMA-S}: An extension to the {PRISMA} Statement for reporting literature searches in systematic reviews. Syst. Rev., 10(1), 39.
Rezki Zurriah, Masta Sembiring, & Siti Aisyah Siregar. (2025). Real Earnings Management: Study on Manufacturing Sector. Jurnal Akuntansi, 29 (2), 359–376. https://doi.org/10.24912/ja.v29i2.2911
Salsabilla, L. Z., & Jaya, T. J. (2024). The impact of non-performing financing and operational efficiency on the stability of Islamic banks in Persian Gulf countries. Journal of Islamic Economics Lariba, 10 (2), 623–640. https://doi.org/10.20885/jielariba.vol10.iss2.art1
Santillán-Salgado, R. (2015). Global Regulatory Changes to the Banking Industry after the Financial Crisis: Basel III. Journal of Global Economy, 11
Setiyono, B., & Naufa, A. M. (2021). The impact of net stable funding ratio on bank performance and risk around the world. Bul. Ekon. Monet. Dan Perbank., 23(4), 543–564.
Siadat, M., & Hammarlid, O. (2017). Net Stable Funding Ratio: Impact on Funding Value Adjustment.
Siddaway, A. P., Wood, A. M., & Hedges, L. V. (2019). How to do a systematic review: A best practice guide for conducting and reporting narrative reviews, meta-analyses, and meta- syntheses. Annu. Rev. Psychol., 70(1), 747–770.
Suripto. (2022). Earnings management determinants: Comparison between Islamic and Conventional Banks across the ASEAN region. Asia Pacific Management Review. https://doi.org/10.1016/j.apmrv.2022.01.005
Ullah, Q. Y., Mehmood, B., & Ahmad, N. (2024). Consequences of Earnings Management for Islamic Banks: Evidence from Worldwide, the {GCC}, and the {ASEAN} Region. Islamic Banking & Finance Review (IBFR), 1.
Widayawati, E. (2025). The role of corporate governance in moderating the influence of financial distress on earnings management. 29
Xiao, Y., & Watson, M. (2019). Guidance on conducting a systematic literature review. J. Plan. Educ. Res., 39(1), 93–112.
Published
2025-10-06
How to Cite
Handayani, Y. I., Dimyati, M., Maspufah, H., & Sari, N. K. (2025). Implications of Net Stable Funding Ratio (NSFR) on Islamic Bank Margins and Earning Management Practices: A Systematic Literature Review. ABM: International Journal of Administration, Business and Management, 8(1), 44-52. https://doi.org/10.31967/abm.v8i1.1680
Section
Articles
Copyright (c) 2025 Yuniorita Indah Handayani, Muhaimin Dimyati, Hayatul Maspufah, Nurshadrina Kartika Sari
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
