ASSET ALLOCATION AND FINANCING INTENSITY IN A SHARIACOMPLIANT BANK: EVIDENCE FROM JAIZ BANK PLC

Abstract

This study examines the impact of asset allocation on financing intensity of Jaiz Bank Plc

in Nigeria within the period of quarterly data from second quarter of 2016 to first quarter

1. The study is a correlational research design which uses secondary data gathered from

the published financial statements of Jaiz Bank Plc. Data analysis was done using

Autoregressive Distributed Lag (ARDL) model. The results show that there is a long run

equilibrium relationship between the variables. The Cash Holding Ratio in the long run has

a significant negative effect on financing intensity, whereas the Equity Ratio has a

significant positive effect. In contrast, the Investment Allocation Ratio and Deposit Ratio

have negative, but not statistically significant, effects. The changes in the Investment

Allocation Ratio and Equity Ratio have considerable impact on financing intensity in the

short-term period, and the phenomenon of error correction term shows that the short-term

shocks are quickly corrected by about 78.3% in the long run. The study concludes that

strategic asset allocation is an important financial management tool that influences

financing intensity in Jaiz Bank Plc. It recommends that the Bank must have an optimum

cash holding policy, build up the equity base of the bank, review investment allocation

policy on regular basis, and efficiently utilize the deposits of the customers to optimise

financing activities and sustain financial stability in the long run without compromising

liquidity and capital adequacy.