A Study of Islamic and Conventional Banks in Malaysia

Fah, Cheng Fan; Hassani, Abbas

doi:10.4197/islec.27-1.3

Cited by 6 publications

(5 citation statements)

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“…In such a situation, the bank’s profitability may decline. A positive and significant impact of the net loan to assets ratio was found in the studies by Trujillo-Ponce [ 2 ] as well as the studies by Fah and Hassani [ 69 ], which included not only conventional but also Islamic banks. This result was also confirmed by Wasiuzzaman and Tarmizi [ 58 ] and Zarrouk et al [ 25 ], who concentrated solely on the study of Islamic banks.…”

Section: Empirical Literature Review and Hypotheses Developmentmentioning

confidence: 93%

Is the profitability of Islamic and conventional banks driven by the same factors?—A study of banking in the Middle East

Sobol,

Dopierała,

Wysiński

2023

PLoS ONE

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The purpose of this paper is to contribute to the existing literature by investigating the determinants of the profitability of Islamic and conventional banks in the Middle East region and revealing the most important factors for these two types of banks. Few papers have studied the performance of Islamic banks and compared their performance with conventional banks. The results from these limited research papers are also various, mainly because the sample sizes are small, or they have analysed data only from one country. Our research used a fixed effect panel data analysis on a sample of 270 banks (111 Islamic and 159 conventional banks) from 12 Middle East countries. We used an unbalanced annual panel of data covering the period 2012–2020. The results show that bank size, equity to assets, annual GDP growth, and annual average oil price have a significant positive effect on Islamic banks’ profitability, while non-performing loans to total gross loans and cost of running operations to operating income have a significant negative effect on both bank types. The results also show that non-performing loans to total gross loans and annual GDP growth contribute more to conventional banks profitability, while oil price contributes only to Islamic banks performance. Inflation and net loans to total assets have no effect on bank profitability for either Islamic or conventional banks. Furthermore, we also found that the Islamic banking industry had a more competitive structure. Our findings have important implications for managers, policy makers, investors and other stakeholders. They can help them to make decisions regarding investments, plans, budgeting, evaluation and the management of business operations.

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Section: Empirical Literature Review and Hypotheses Developmentmentioning

confidence: 93%

Is the profitability of Islamic and conventional banks driven by the same factors?—A study of banking in the Middle East

Sobol,

Dopierała,

Wysiński

2023

PLoS ONE

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“…Banks act as intermediaries between savings and investors (Unvan & Yakubu, 2020). The conventional definition of a bank is a financial intermediary that receives deposits from savers and redistributes loans to individuals, businesses, and other organizations (Fah & Hassani, 2014). Previous studies have shown the importance of bank deposits, especially in developing nations, for boosting economic development (Boadi et al, 2015;Ali et al, 2019;Ferrouhi, 2017;Solarin et al, 2018).…”

Section: Literature Reviewmentioning

confidence: 99%

Macroeconomic and Firm-Specific Effects on Islamic Deposits Sustainability

Ab Rahman,

Ahmad,

Che Arshad

2024

PaperASIA

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Integrating ESG (Environmental, Social, and Governance) principles into Islamic finance presents opportunities for aligning financial activities with sustainable and ethical considerations. While there are challenges and areas for improvement, the potential synergies and shared principles between ESG and Islamic finance provide a promising avenue for sustainable and socially responsible investment within Islamic finance. However, past studies have not thoroughly researched key aspects of Islamic finance, such as the sustainability concerns of Islamic deposits, their interaction with macroeconomic variables, and their particular impacts on firms. Therefore, this study aims to examine the macroeconomic and firm-specific effects on the sustainability of Islamic deposits. The sample in this study consists of 13 Islamic banks in Malaysia. The data period covers from 2018 until Quarter 3 of 2022. The data type is cross-sectional from secondary sources: Islamic banks' financial reports, Bank Negara Malaysia, Department of Statistics of Malaysia, and the World Bank. This study adopts a quantitative analysis approach using one dependent variable (Islamic deposits), three independent variables (gross domestic product, inflation, overnight policy rate), and one control variable (firm-specific). An estimated model using the panel data correlation and regression with the fixed effects model was conducted to test the developed hypotheses. Then, the panel data regression analysis continues with the Least Square Dummy Variable (LSDV), which includes the control variable to test the presence of the firm-specific effects. The findings show that only one macroeconomic factor, inflation, affects how well Islamic deposits are sustained. It is also evidenced by the findings that firm-specific effects impact the sustainability of Islamic deposits.

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“…As a source of funds, banks rely on depositors' money (Unvan & Yakubu, 2020; Asutay & Othman, 2020), and a significant portion of bank assets are usually supported by customer' deposits (Asutay & Othman, 2020). Fah and Hassani, (2014) study affirmed that loans, and deposits are positive and significantly related to banks' profitability. The researchers found that the fluctuations of loans and deposits has no substantial impact on profitability of banks in Malaysia.…”

Section: Literature Reviewmentioning

confidence: 99%

Bank Specific and Macroeconomic Factors Influencing Islamic Banks Deposits

Rahman

Ahmad

Arshad

2021

International Journal of Islamic Business

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Deposits are like the bloodline for banks as they determine banks' lending capacity and a country's economic savings. However, the existence of a dual banking system poses a challenge to Malaysian Islamic banks competing for deposits. Despite this problem, few investigations were done to comprehensively identify the factors that could help banks attract deposits, particularly for Islamic banks. The purpose of this paper is to fill this gap on deposits of 16 Islamic banks in Malaysia. Secondary data from the bank's annual reports and the Department of Statistics of Malaysia from 2015 to 2019 were analyzed, comprising Islamic Bank Deposits and seven predictors in an empirical model using STATA. The result shows a strong model fit with 92% R squared value that Return on Assets, bank concentration, and Business Enterprise Depositor affect Islamic Bank Deposits positively and significantly while Capital Adequacy Ratio showed negative and significant influence on the deposits. These factors are strongly effective to deposits, significant at 1% level. In contrast, Financing Deposit Ratio and Gross Domestic Product do not significantly influence Islamic deposits. Contrary to economic theory, this study found that an increase in inflation encourages customers to increase their saving deposits in Malaysian Islamic banks. The findings from this study are unique to Malaysian Islamic banks. They indicate important policy implications for Islamic banks practitioners, namely, to increase their focus on business enterprise customers, improve bank's market share and profitability in order to increase deposits while taking advantage of high inflationary period to attract more depositors.

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A Study of Islamic and Conventional Banks in Malaysia

Cited by 6 publications

References 0 publications

Is the profitability of Islamic and conventional banks driven by the same factors?—A study of banking in the Middle East

Is the profitability of Islamic and conventional banks driven by the same factors?—A study of banking in the Middle East

Macroeconomic and Firm-Specific Effects on Islamic Deposits Sustainability

Bank Specific and Macroeconomic Factors Influencing Islamic Banks Deposits

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