Profitability Condition With Stylized Fact of Banking Industries in Indonesia, Malaysia and Thailand

Helma Malini

doi:10.47312/ambr.v5i2.308

Abstract

The survival of banking industries are determined by many factor including profitability earn during the years. Therefore, this study investigates factors affecting profitability of banks in ASEAN. This study uses 10 banks with the largest assets in Indonesia, Malaysia and Thailand with sample studies of 30 banks in ASEAN with 10 years of operationalization duration. Return on assets (ROA) is the dependent variable and the independent variables used are non-performing loans (NPL), capital adequacy ratios (CAR), total assets (Size), loan-to-deposit ratio (LDR), domestic product growth gross (GDP growth), inflation, interest rates and exchange rates. Data is processed using panel data regression with the Cochrance Orcutt method on the basis of the Common and Fixed Effect Model with the combination of stylized facts among each countries. The final results of this study are varied among countries. In Indonesia only NPLs have a significant significance of ROA, which is a significant negative. In Malaysia, only the exchange rate is significant to ROA, which is a significant negative. In Thailand, only NPI has a significant effect on ROA, which is a significant negative. Overall in Southeast Asia, only NPLs, interest rates and exchange rates significantly affect ROA, which is a significant negative. In other independent variables, it does not have a significant effect on ROA.

Highlights

The world is currently experiencing an era of globalization, an era filled with international integration processes that occur due to the exchange of views, products, thoughts, and other aspects of culture
Malaysia and Thailand are three countries in South East Asia that includes in emerging market while policy, competition and changing business environment could have an impact on the profitability of banking industry in those countries
Malaysia and Thailand are three countries in South East Asia that includes in emerging market while policy, competition and changing business environment could have an impact on the profitability of banking industry in those countries The sample selection is determined by taking ten banks with the largest assets in each country

Summary

Introduction

The world is currently experiencing an era of globalization, an era filled with international integration processes that occur due to the exchange of views, products, thoughts, and other aspects of culture. A study conducted by Berger, et al (2009); Khediri et al (2015); Gelos and Roldos (2004) concludes that assets size, risky assets ratio and Islamic banks management efficiency effect found statistically significant on Islamic banks credit risk. A study conducted by Chin and Ito (2007) examined the internal variables and economic environment impact on the performance of Islamic banks where a positive relationship founds between capital adequacy and profitability of Islamic banks. Malaysia and Thailand are three countries in South East Asia that includes in emerging market while policy, competition and changing business environment could have an impact on the profitability of banking industry in those countries The sample selection is determined by taking ten banks with the largest assets in each country. The linkage of GDP with the banking world is where GDP is related to saving

H8: GDP growth has positive impact on profitability

Analysis Methods

Descriptive Statistics

Model Specification

Results and Discussion

Conclusion