A CONCEPTUAL PAPER ON KEY FACTORS INFLUENCING FINANCING OR LOAN GROWTH IN MALAYSIAN ISLAMIC BANKS AND CONVENTIONAL BANKS

Abstract

This conceptual paper aims to develop a comprehensive framework on the key factors influencing the financing growth in Islamic banks and loan growth in conventional banks in Malaysia. This is due to the crucial role of financing or loan growth in contributing significantly to bank income and fostering the expansion of a country's economic growth. Additionally, there exists a research gap on financing or loan growth, particularly Islamic banks financing growth in Malaysia. Study on the key factors influencing financing or loan growth is also being notably limited in developing countries compared to their developed counterparts, reflecting differences in the developmental stages of banking systems. Thus, Malaysian banking system has been chosen for the study. The study proposes the use of panel data analysis, utilising data from 16 Islamic banks and 26 conventional banks in Malaysia spanning from 2007 to 2020 (14 years). The internal factors to be investigated in this study include Impaired Financing or Non-Performing Loan, Bank Size, Liquidity, Capital, and Deposit Growth, while Inflation, GDP, Dummy Government Policy, and Overnight Policy Rate will be examined as external factors. The findings from this future research are expected to give valuable insight for bankers and regulators, enabling informed actions aimed at enhancing financing or loan growth. This may involve refining credit management practices and ensuring operational enhancements, particularly within Islamic banks, for future improvements.