Commercial Banks In Malaysia Research Articles

Covid-19 and Risks of Malaysian Commercial Banks

The COVID-19 pandemic has affected share prices of public listed companies including banking institutions. However, a bank's share price is of interest mainly because of the systemic risk banks may produce. Using the concept of value-at-risk (VaR) as a measure of risk, this study investigates how COVID-19 impacted the risk of eight commercial banks in Malaysia. The Impulse Response Functions (IRF) indicate that the VaRs at probability 0.05 and 0.10 respond negatively to the shock of COVID-19. The reverse, however, is observed for the VaR at probability 0.01.

Cashless Payments and Banking Performances: A Study of Local Commercial Banks in Malaysia

The banking industry plays a facilitatory role in moving toward a cashless society. This study investigates the impacts of cashless payments (ATM, internet banking, mobile banking, credit card, debit card, charge card and e-money) on banking performance for eight local commercial banks in Malaysia over the period of 2005 to 2018. The findings show that cashless payments are positively related to the return on assets (ROA) and return on equity (ROE) of banks, except e-money. Furthermore, the study demonstrates cashless payments have improved the cost-to-income ratio of banks, except ATMs. Meanwhile, this study disaggregates the sample into subperiod analysis to further examine the transition effect of cashless payments on banks’ performance. The results show that banks’ profitability performance is mainly driven by the usage of cashless payments in the first wave of progressive development, while cashless payments do not show progressive impact on banks’ efficiency performance. This suggests that cashless payments do not add value to banks’ performances in the long run.

Comparing the Cash Flows’ Influence on Capital Adequacy Ratio of Indonesian and Malaysian Commercial Banks

This study examines the difference in the simultaneous impact of Cash Flow from Operating Activities (CFO), Cash Flow from Investing Activities (CFI), and Cash Flow from Financing Activities (CFF) on Capital Adequacy Ratio (CAR) between Indonesian and Malaysian commercial banks. By considering the comparability of capital performance post-financial crisis of 2007 to 2008, this study adopted the purposive secondary data published by the big five banks from 2009 to 2013. An E-view statistical software was applied to the panel data to provide coefficients of discrete multivariate regressions between countries and a hypothesis test. The results showed that all Indonesian banks’ CF items negatively correlated with the CAR. Similar correlations also occur for both CFO and CFF on CAR of Malaysian commercial banks, but on the other hand, a positive correlation occurs in the CFI and CAR relationship for Malaysian Commercial banks. Based on a Chow test on the regression outputs, this study concludes that the CFI is the distinguishing factor in the CF’s impact on CAR in the comparison scenario. The finding confirms that Malaysian commercial banks enjoy the Cash Flow stemming from the gains of past investing activities to increase the CAR under study. On the Indonesian side, the negative correlations of CFI, along with CFO and CFF against the CAR alert that refers to the basic CAR formula, the increases in CAR occur concurrently with the annual CFI decreases to spend on investing activities by long term financing. Even though the newest investment contributes to low gains that are inadequate to raise the banks’ equity capital over the increase of risk-weighted assets sooner in the short run.

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

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.

The Influence of Liquidity Management on Banks’ Profitability

The main objective for this study is to examine the relationship between liquidity management and profitability of commercial banks in Malaysia. A sample of top 5 commercial banks listed in Bursa Malaysia has been used to examine the relationship between the liquidity and profitability for the period of 10 years from 2011-2020. The data has been taken from the annual financial statements of the banks. In order to analyze data, the current ratio (CR), cash deposit ratio (CDR), loan to total deposit (LTD), capital to asset ratio (CAR) and non-performing loan (NPL) were used as a proxy for liquidity as an independent variable while the return on assets (ROA) was used as proxies for banks' profitability as dependent variables. The study concluded that current ratio (CR) is positively related to return on asset (ROA). This indicates that higher the current ratio (CR), higher would be the return on assets (ROA). However, the study reveals that non-performing loan (NPL) is negatively related to return on assets (ROA). This indicates that higher the non-performing loan (NPL), lower would be the return on assets (ROA). The study therefore recommended that banks keep liquidity as needed to meet up defined liabilities and not needlessly keeping too much liquidity as it erodes banks’ profits.

Nonperforming loans in Malaysia’s commercial banks: Does economic growth matters?

A loan is one of the primary sources of income earned by the banks and either directly or indirectly contributes to the country’s economic growth. Previous studies have shown that economic growth can affect the number of loans given and the changes in nonperforming loans in the banking sector. During the economic downturn, the amount of nonperforming loans tends to increase. Most borrowers were unable to settle down their loans because some businesses went insolvent and left the loans unpaid. Therefore, this paper investigates the impact of economic growth on non-performing loans in Malaysia. Seven commercial banks are selected to be used in the panel data regression, with the data spanning from 1995 to 2020. The result from the fixed-effect model indicates that the changes in economic growth are positively related to nonperforming loans. However, the impact of economic growth does not significantly influence the changes in nonperforming loans in Malaysian commercial banks. While findings also reveal that return on asset, financial crisis and unemployment rate has a significant relationship with the nonperforming loans, with the magnitude of variables being as expected.

Housing loan default in Malaysia: an analytical insight and policy implications

PurposeThe purpose of this paper is to examine the drivers of default in the Malaysian housing market in the light of various policy interventions by the country’s central bank, and the government’s expressed concern to ensure balanced growth in the market. This paper assesses the importance of considering the endogeneity of loan-to-value (LTV) in predicting housing loan default and its implications.Design/methodology/approachIn this paper, the author addresses the endogeneity problem in the LTV variable using two instrumental variables (IV) in this probit regression: national residential property gains tax and the statutory reserve ratio of Bank Negara Malaysia. This study uses the instrumental variable probit model to consider endogeneity bias. This study assumes a latent (unobservable) variable (Y*), representing a borrower’s tendency to default, which is associated linearly with the borrower’s and loan characteristics and other variables (Xi). This study uses individual borrower-level information of 43,156 housing loan borrowers from the files of a well-established housing bank in Malaysia.FindingsThis study’s results confirm that endogeneity causes a substantial difference in the magnitude of the estimated effects of LTV on the default tendency. At the lower values of LTV, the probability of default is over-estimated, and at the higher values, the default probability is substantially underestimated. Endogeneity bias also affects the estimated coefficients of loan and borrower characteristics. The authors find that the interest rate is less relevant in predicting loan default. Other loan characteristics, such as loan age, tenure, payment amount and the built-up area, are relevant. This study’s result confirms that the borrower’s location matters, and an increase in state gross domestic product per capita and an increase in the supply of residential units reduce default probability.Research limitations/implicationsThe present study did not explore the applicability of the “equity theory of default” in the Malaysian housing market. This study did not assess “strategic default” issues and the effect of borrowers’ characteristics, personality traits and self-control of Malaysian housing loan borrowers in the mortgage decision-making process. The evolving dynamics of the Malaysian housing market microstructure in property valuation remained unexplored in the present study.Practical implicationsThe findings have crucial relevance in the decision-making process of commercial banks, the central bank and the government to frame policies to foster balanced growth and development in the housing market. The authors argue that striking a subtle balance between the concerns of financial stability and productive risk-taking by commercial banks in Malaysia remains a continuing challenge for the country’s central bank. The authors also argue that designing suitable taxation policies by the government can deliver its cherished goal of balanced development in the housing market.Originality/valueEmpirical research on the Malaysian housing market based on micro-level data is scarce due to a paucity of relevant data. This study is based on the individual borrower-level information of 43,156 housing loan borrowers from the files of a well-established housing bank in Malaysia. In this analysis, the authors find clear evidence of endogeneity in LTV and argue that any attempts to decipher the default drivers of housing loans without addressing the issue of endogeneity may lead to faulty interpretation. Therefore, this study is unique in recognizing endogeneity and has gone deeper in identifying the default drivers in the Malaysian housing market not addressed by earlier papers.

Exploring the nexus between Credit risk and Off-balance sheet activities of commercial banks: A case of an emerging Asian economy

This study's primary purpose is to examine the relationship between credit risk and off-balance-sheet activities at conventional and Islamic commercial banks in Malaysia. In order to investigate and achieve the research's objectives between 2010 and 2017, a diverse group of 25 banks was chosen. The category of commercial banks includes both conventional and Islamic banking systems. Fixed effect and GMM panel estimates, followed by a series of diagnostic tests, seemed to be the most appropriate methodologies for this inquiry. According to the findings of the Husman test, endogeneity was shown to exist. In this instance, Arellano-Bond tests for zero autocorrelation may be obtained from the work's GMM analysis. In addition to establishing that the concept of market portfolio theory is accurate, the study demonstrated that off-balance-sheet performance may be improved by increasing fee-based income and, ultimately, performance, which would reduce credit risk. In addition, the results reveal a positive association between credit risk and credit risk, lending validity to the claim that financial intermediaries are required. The results of the study add credibility to market portfolio theory and financial intermediation theory. This is one of the first studies to examine credit risk and off-balance-sheet issues in Malaysia; it is also one of the earliest studies of its type. The research will aid legislators, bankers, and academics by enhancing their knowledge of these issues. The study evaluated the issue in three separate countries, taking bank-specific characteristics into consideration. Nevertheless, further study is necessary, especially with a larger sample size and under closer supervision
 

The Impact of Liberalization on Determinants of Bank Efficiency: Evidence from Malaysian Commercial Banks

This paper aims to examine the impact of liberalization in 2009 on the determinants of bank efficiency in Malaysia by employing a two-stage approach within the context of the growing number of foreign commercial banks. Commercial banks can play a vital role in the internationalization and diversification of Malaysia's financial sector. In the initial stage, measuring the efficiency score of 19 commercial banks throughout 2008 to 2019 by using the Data Envelopment Analysis (DEA). Multivariate panel regressions were then used to determine the impact of liberalization on the determinants of bank efficiency in 2009. As a result, domestic commercial banks seem to be more competitive than their foreign counterparts. The findings signify that bank size, market power, capitalization, and liquidity all have a positive impact on technical efficiency. However, credit risk, bank diversification, and inflation all have a negative impact. The control of the effects of liberalization, bank size, capitalization, bank’s market power, and liquidity remain positive. However, bank diversification and inflation flip negative to positive, whereas credit risk becomes less explanatory. The findings will provide bank stakeholders, regulators, investors, and regulators with important insights into the impact of liberalization measures on bank efficiency and its determinants.

The Profitability of Commercial Banks in Malaysia

This study investigate son the factors affecting the profitability of commercial banks in Malaysia during the period of 2011-2017. The samples were taken based on the historical accounting data from annual reports of the banks. It is used to measure the internal determinants whether had direct impact toward the bank profitability measured by Return on Asset (ROA). This paper utilized quantitative methodology in ascertaining the relationship between the factors and profitability of the commercial bank. The results stated that bank size, liquidity and deposit ratio had a significant and positive relation with return on asset (ROA) except for GDP is significant but negative relationship. Although there were relationships among bank size, liquidity and deposit ratio but inflation rate did not have a significant influence on the profitability of the banks. The importance of the study is to improve the financial performance of Malaysian banking for investment and finance and to improve the Malaysia banks' operations.

Does Board Monitoring Affect Integrated Reporting Disclosure for Better Transparency and Sustainability?

The growing of stakeholders' demand for better corporate transparency has derived firms to adopt integrated reporting. Thus, this study aims to examine the impact of firm's board of directors on integrated reporting practice. In particular, this study investigates how board characteristics; board size, board independence, board activity and board gender diversity influence the degree of integrated reporting disclosure of Malaysian commercial banks. Consistent with prior research, this study uses a disclosure index based on International Integrated Reporting Council Framework to measure integrated reporting disclosure. Using a sample of Malaysian commercial banks from 2013 to 2017, the results show that board size is significantly negative associated with integrated reporting disclosure. Other board characteristics, however, are not associated with integrated reporting disclosure. Our findings provide insights for regulators in designing more effective corporate governance mechanisms that promote better integrated reporting practice.

Factors influencing non-performing loans: empirical evidence from commercial banks in Malaysia

Factors influencing non-performing loans: empirical evidence from commercial banks in Malaysia

A Study to Determinants of Risk Management and Prevention in Credit Card Business in Commercial Banks

The purpose of this study is to explore and determinants the risk management and prevention in credit card business of Malaysian commercial banks. There were five factors derived through the literature and experimental investigation that are affecting the banks due to credit card which are External Fraud Risk, Internal Operational Risk, Credit Risk of Cardholders, Science and Technology and Intermediary Agency Trades Risk. Hence, 250 respondents participated in this study from state of Selangor and Federal Capital Kuala Lumpur. The data was collected and analyzed by SPPS software and it was concluded that that External fraud risk, Internal operational risk, Credit risk of Cardholder, Science and technology are positively correlated with the Credit card business risks of commercial Banks in Malaysia. These papers have highlighted suggestion for future research to develop this study further by considering the data derived from this study by using Delphi Technique

The Impact of Globalisation Towards Bank Performance in Malaysia

The purpose of this study is to shed some crucial light on the relationship between globalisation and performance of the banking system in Malaysia. This study uses a range of bank-characteristic determinants (internal factors), macroeconomic determinants (external factors) and three different dimensions of globalisation including economic globalisation, social globalisation and political globalisation to explain local commercial bank performance in Malaysia. This study uses regression analysis based on the secondary data for local commercial banks in Malaysia. The period for this secondary data is 10 years which is from the year 2008 till 2017. This study indicates that there is strong evidence stating both economic and politic globalisation have negatively significant effects on the bank performance in Malaysia. Meanwhile, social globalisation shows an insignificant result on this. As for bank characteristics variables, credit risk shows a negatively significant result towards bank performance in Malaysia while bank size shows a positive and significant result towards bank performance in Malaysia. Sole macroeconomic variable which is GDP does not show any significant result towards the bank performance in Malaysia. Therefore, central bank of Malaysia should give some incentive training for local bankers on how to adopt new supervision and risk management. This will give the local bankers some new knowledge to handle better risk management and directly boost the bank performance. Besides that, banks should develop their credit risk management to overcome any default loans and for better financial performances. Banks in Malaysia also need to expand their businesses as larger banks give a larger facility which directly boots the bank performance. It is also recommended for Malaysian banks to improve their forecasting of macroeconomic fluctuations in future to achieve greater efficiency levels.

Determinants of Credit Risk: Evidence From Commercial Banks in Malaysia

The purpose of this study is to determine the relationship between microeconomic factors with credit risk among selected commercial banks in Malaysia. For this purpose, a sample of seven out of 27 commercial banks in Malaysia was selected and the microeconomic factors affecting credit risk with six measurements of return on asset (ROA), bank size, leverage, the ratio of capital, interest income and return on equity (ROE) were examined by applying Panel Regression Fixed Effect (FE) Model for a period 20 years from 1998 to 2017. The scope of the study covers seven selected commercial banks in Malaysia namely: Affin Bank Berhad, Alliance Bank Malaysia Berhad, CIMB Bank Berhad, Hong Leong Bank Berhad, Malayan Banking Berhad, Public Bank Berhad and RHB Bank Berhad. This study is using credit risk proxy by non-performing loan for dependent variable while independent variables that have been selected were returned on asset (ROA), bank size, leverage, the ratio of capital, interest income and return on equity (ROE). The findings of the study managed to reject the null hypothesis for return on asset, bank size, leverage, interest income and return on equity which indicates the five microeconomic variables give a significant relationship with credit risk. There are positive relationships between leverage, interest income and return on equity with credit risk while return on asset, bank size and ratio of capital are negatively related to credit risk. However, the study fails to find any significant relationship between the ratio of capital and credit risk for commercial banks in Malaysia.

Service Quality and Customer Retention in Malaysian Commercial Banks

This conceptual paper explores the contribution of service quality on banks’ customer retention. Customer is the core factors to any business industry and there is no exception for the banking industry. Customers will only retain with the same bank provided there is a quality service. Service comes in the form of how the bank’s employee treats the customers and from physical facilities and other tangibles used in banking transactions. Contribution of service quality is indefinite and without it, firm’s business will lose out to other banks. Banks not only compete with other banks but banks’ branches as well. The importance of the banking business cannot be neglected as it has contributed to Malaysia Gross Domestic Products in term of service industry. Service is not similar with goods or physical products as it is intangible and only can be experienced during the process of selling or buying. Good quality service must be prioritized in helping retaining customers even with the Industrial Revolution 4.0 where it is “a mechanism that is controlled or monitored by computer-based”. Contribution of human capital which is cannot be separated in term of knowledge, friendly approach and ethical help in delivering quality service. One of the methods can be applied by the bank is the commitment of monitoring and servicing customer requirements to deliver high levels of service quality for total customer satisfaction.

Does capital adequacy ratio influence risk-taking behaviour of conventional and Islamic banks differently? Empirical evidence from dual banking system of Malaysia

Purpose The purpose of this study is to investigate the influence of capital adequacy ratio (CAR) prescribed in Basel III on the risk-taking behaviour of Islamic and conventional commercial banks in Malaysia. It also investigates the claim that the risk-taking behaviour of Islamic banks (IBs) and conventional banks (CBs) managers is identically influenced by CAR. Design/methodology/approach Secondary data for all CBs operating in the Malaysian banking sector are gathered from FitchConnect database for the 2011–2017 period. Both dynamic ordinary least squares and generalised method of moments techniques are used to estimate a panel data of 43 commercial banks, namely, 17 IBs and 26 CBs. Findings The findings of this study lend support to the favourable influence of CAR set in Basel III accord on risk-taking behaviour of both types of banks. CBs appeared to be remarkably better off in terms of capital buffers. Evidence is established on the identicality of the risk-taking behaviour of IBs and CBs managers under CAR influence. Practical implications Even though a high CAR is observed to hamper risk-taking of banks, the findings may serve as a signal to regulators to be mindful of the implications of holding a high CAR. Similarly, managers may capitalise on the findings in terms of strategising for efficient use of the considerable capital buffers. Shareholders are also concerned about managers’ use of the considerable capital buffers. Originality/value This study is among a few studies that endeavoured to provide empirical evidence on the claim that IBs mimic the conduct of CBs in light of the influence of CAR prescribed in Basel III on risk-taking behaviour, particularly banks operating within the same banking environment.

State Ownership and Risk-Taking Behaviour: Evidence from Malaysia’s Banking Industry

This study investigates state ownership on risk-taking behaviour in Malaysia’s banking industry. Using the panel of Malaysian commercial banks, this paper examines whether banks’ risk-taking is affected by Malaysian government ownership through the five largest investment arms of Malaysia (GLICs). The findings show that state-owned banks exhibit higher risk-taking behaviour compared to the private-owned banks in terms of loans. There is evidence that a higher degree of state ownership has a more significant impact on banks’ risk-taking behaviour. We also investigate the relationship with corporate governance mechanisms. The findings suggest that the composition of board of directors somehow plays a significant role in the governance of banks.

The Practice of Reporting Shariah Non-Compliant Income in the Annual Financial Report of Islamic Commercial Banks in Malaysia

Bank Negara Malaysia (BNM) had introduced a policy document of Financial Reporting for Islamic Banking Institutions, which came into effect on 1st January 2018. This policy aimed to facilitate the assessment of Islamic financial institutions’ financial positions, performance, and Shariah compliance. However, the disclosure of Shariah committee report of a few Islamic banks may not have fulfilled the standard specified by BNM in terms of reporting the Shariah non-compliance incomes in their annual financial reports. This study therefore aims to investigate the extent of the application of BNM policy document for Islamic banks, with special focus on the practice of Islamic commercial banks in reporting Shariah non-compliant incomes in their annual financial reports. The qualitative method is adopted as the main research methodology of this study in order to gain information from the banks’ annual financial reports, as well as related research in the field. The findings show that nine out of sixteen Islamic commercial banks in Malaysia have fulfilled the standard provided by Bank Negara in reporting Shariah non-compliant incomes with complete detail in their annual financial reports. However, the remainder of the Islamic commercial banks did not properly disclose their Shariah non-compliant incomes in their report. This research would contribute to the practitioners of Islamic Commercial Banks in terms of providing transparent information with regards to business and financial dealings.

Pengukuran Kinerja Perbankan Syariah di Indonesia dan Malaysia dengan Pendekatan Shariah Maqashid Index (SMI) Tahun Pelaporan Keuangan 2013-2017

This research was conducted using the analysis of the concept of sharia maqashid index with an empirical study approach. The object of this study is Islamic banking in the Southeast Asian region, especially Indonesia and Malaysia. The results obtained from this study are the Malaysian Islamic Commercial Banks and the Indonesian Sharia Banking System still have an average performance value above Malaysia. This was obtained from the results of the assessment with maqashid shariah index and the SAW (Simple Additive Weigting) method that the majority Islamic Commercial Banks in Indonesia had the best performance at 46.22% banks, while the majority Islamic Commercial Banks in Malaysia amounted to 43.15% banks. However, from the total assessment of all performance indicators it was found that all assessment results per year and all performance indicators obtained showed that the financial performance of the Malaysian Islamic Commercial Banks was better overall with an average total rating of 1.348354 points while the total average value of the Indonesia Islamic Commercial Banks is 0.63564 points.