Equity Financing and Performance of Islamic Commercial Banks in Kuala Lumpur, Malaysia

Abstract

Equity financing plays a crucial role in the performance of banks by providing a stable and reliable source of capital. With equity financing, banks can strengthen their balance sheets, improve their capital adequacy ratios, and enhance their ability to absorb financial shocks. By issuing new shares or raising equity capital from investors, banks can expand their lending activities, invest in technology and infrastructure, and pursue growth opportunities. Moreover, a higher equity base can increase investor confidence and improve credit ratings, enabling banks to access funding at lower costs. A well-capitalized bank through equity financing is better positioned to navigate economic downturns, mitigate risks, and sustain long-term performance. The study used the descriptive research design. The target population was 20 branches of Islamic commercial banks in Kuala Lumpur, Malaysia. The study did sampling of 15 participants that were chosen from the target population of 20 branches of Islamic commercial banks in Kuala Lumpur, Malaysia. Questionnaires were used to collect the data. It was concluded that equity financing enables investors and the bank to share risks and rewards, and understanding how this affects the risk profile, stability, and profitability of Islamic banks is essential. Identifying areas for improvement and growth in the Islamic banking sector will require ongoing evaluation of the impact of equity financing on various performance indicators, including profitability, risk management, and asset quality. The study recommended that Islamic commercial banks in Kuala Lumpur should focus on strengthening their risk management frameworks to effectively manage the risks associated with equity financing. There should be implementation of robust risk assessment and monitoring systems, conducting thorough due diligence on potential shareholders, and diversifying their equity base to minimize concentration risk. Regulatory frameworks should address issues such as corporate governance, disclosure requirements, and risk management standards to promote transparency, investor confidence, and the overall performance of Islamic commercial banks in Kuala Lumpur. Keywords: Equity financing, performance, Islamic commercial banks, Malaysia