Factors affecting profitability of Islamic and conventional banking in Malaysia before and during Covid-19 pandemic: a comparative study

Cheong, Kar Ley and Natashajit Kaur, Parmjit Singh and Priscilla, Patrick Anthoney and Wong, Chi Kee (2022) Factors affecting profitability of Islamic and conventional banking in Malaysia before and during Covid-19 pandemic: a comparative study. Final Year Project, UTAR.

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Abstract

The purpose of this study is to analyze the factors that are affecting the profitability of both Islamic and conventional banking systems in Malaysia before and during the COVID-19 pandemic. As we know, Malaysia is a country that is known for its dual banking system implementation. The development of the Islamic banking system has somehow made Malaysia a very important central point in the world. This study examines the causal relationship between the dependent variable which are return on assets (ROA) as well as the return on equity (ROE) and the independent variables which are loan to deposit ratio (LDR), bank size (lnTA), non-interest income (NII), gross domestic product growth (GDPGR) and consumer price index (CPI). This study employs secondary data, which are collected from the annual financial reports, World Bank and Bloomberg terminal. The data collection is for 16 banks for both Islamic and conventional banks that are local and foreign-owned in Malaysia from the year 2010 up until the year 2020 and is conducted using quantitative data. In addition, for the methodology review of the framework, was investigated using panel data regression analysis, descriptive analysis, normality test, and multicollinearity. The result showed that LDR has a mixed impact on a bank’s profitability. On the other hand, the bank size is only positive towards ROE while, NII and CPI only showed a positive significance towards ROA and lastly, GDPGR is positively significant for both ROA and ROE.

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