Predicting the Performance and Survival of Islamic Banks in Malaysia to Achieve Growth Sustainability

Abstract

In Malaysia, the growth of the Islamic financial industry has increased tremendously in line with the Government’s ambition to make Malaysia as an international hub for Islamic finance since 2010. With the increasing number of foreign players in this industry plus with the increasing demand from domestic and foreign customers would further enhance the possibility for Malaysia to achieve this ambition. Currently, according to the Economic Transformation Programme, 2012 Malaysia is the world’s third largest market for Shariah assets that cover Islamic banks, Takaful, and sukuk. Malaysia as one of the main contributors to the global Islamic financial assets with Islamic assets in Malaysia grew by 23.8% in 2011 from RM350.8bil to RM434.6bil. The issues of predicting the performance and the survival of Islamic Banks in Malaysia become amongst crucial issues in academic research. By employing multi – layer perceptron neural network and pooled regression, we found that total assets/ size of the Islamic banks (GROWTH) have high weightage and significantly influence in predicting the performance and the survival of Islamic banks in Malaysia. With the increasing number of Islamic banking institutions in Malaysia, this study can give insight on the sustainability of the Islamic banking system in Malaysia for the benefit of the investors, shareholder and depositors.