Are Bank Profits Determined by Bank-Specific Factors or Bank External Factors? Evidence from Malaysian Banks

Abstract

Are Bank Profits Determined by Bank-Specific Factors or Bank External Factors? Evidence from Malaysian Banks Abdus Samad, Ph.D. Abstract This paper first obtained the bank technical efficiency applying the stochastic frontier function and then applied the heteroscedasticity corrected Ordinary Least Square for determining the significant determinants of the commercial bankprofitability of Malaysia during 2008-2011. The paper found that bank risk averse factor, bank efficiency, bank employee incentive factor, and bank diversification ability were positively related to bank profits and were significant factors for the profitability of the commercial banks of Malaysia whereas the bank nonperformance loan and the loan loss provisions were significantlynegative factors for the determinant of bank profitability. Bank external factors such as market structure measured by HHI index, concentration ratio, and the macroeconomic variable were not significant determinants for the profitability of the commercial banks of Malaysia. The paper provides policy prescriptions for bank managements. Full Text: PDF DOI: 10.15640/jibe.v5n1a1