Do Internal Bank Factors or Macroeconomic Indices Hinder Loan Growth in Malaysian Commercial Banks

Abstract

This article shed some light on the role between bank-specific factors and loan growth in Malaysia using an unbalanced panel analysis of 80 bank-year observations obtained from Eikon Thompson Reuters. Analyzing loan growth is essential to comprehend the expansion of the money supply caused by the creation of credit through new bank loans. Employing the Pooled Ordinary Least Square (POLS) method, the key finding of this study revealed that the capital adequacy ratio had a detrimental impact on the growth of loans at Malaysian commercial banks. Denoting that credit growth and non-performing loans fluctuate over time, particularly before the start of the financial crisis, we discovered a positive correlation between NPL on loan growth. The size of the bank also has a significant impact on how Malaysian commercial banks behave when it comes to lending. The procyclical nature of Asian banks' non-discretionary loan loss reserves is demonstrated by the negative association between credit risk and lending growth. As we reported opposing effects of NPL and GDP on loan growth, thus further study is needed to confirm these conditions.