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THE RELATIONSHIP OF RISK MANAGEMENT AND BANK PROFITABILITY PERFORMANCE BETWEEN DOMESTIC AND FOREIGN ISLAMIC BANKS IN MALAYSIA
Corresponding Author(s) : Venny S. W. Chong
Humanities & Social Sciences Reviews,
Vol. 7 No. 6 (2019): November
Abstract
Purpose: This study is to determine the effects of risk management towards the domestic and foreign Islamic bank’s financial performance in Malaysia. The ten Islamic banks in Malaysia have been chosen as the sample bank in which domestic and foreign banks were equally divided. The credit risk, liquidity risk as well as solvency risk acted as the independent variables to determine the effects towards the bank’s profitability as measured by return on equity.
Methodology: The panel data analysis has employed fixed effect and random effect regression models and the Hausman test in this study. Furthermore, the independent sample T-test was conducted to examine the significant difference between domestic and foreign Islamic banks.
Result: The finding of this study showed that liquidity risk and insolvency risk would have a greater impact towards the Islamic bank’s profitability while the credit risk has no significant influence on Islamic bank’s financial performance in Malaysia. The study concludes that domestic Islamic banks had better financial performance as compared to foreign Islamic banks in Malaysia.
Applications: This research can be used for universities, teachers, and students.
Novelty/Originality: In this research, the model of The Relationship of Risk Management and Bank Profitability Performance between Domestic and Foreign Islamic Banks in Malaysia is presented in a comprehensive and complete manner.
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- Boumediene, A. (2011). Is credit risk really higher in Islamic banks? The Journal of Credit Risk, 7(3), 97-129. https://doi.org/10.21314/JCR.2011.128 DOI: https://doi.org/10.21314/JCR.2011.128
- Cuong, Ly. K. (2015). Liquidity risk, regulation and bank performance: Evidence from European banks. Global economy and finance, 8(1), 11-33. https://doi.org/10.21102/gefj.2015.03.81.02 DOI: https://doi.org/10.21102/gefj.2015.03.81.02
- Elbadry, A. (2018). Bank’s financial stability and risk management. Journal of Islamic Accounting and Business Research, 9(2), 119-137. https://doi.org/10.1108/JIABR-03-2016-0038 DOI: https://doi.org/10.1108/JIABR-03-2016-0038
- Gamarra, M., Zurek, E., & San-Juan, H. (2018). Addendum for: A Study of Image Analysis Algorithms for Segmentation, Feature Extraction and Classification of Cells. Journal of Information Systems Engineering & Management, 3(1), 05. https://doi.org/10.20897/jisem.201805 DOI: https://doi.org/10.20897/jisem.201805
- Hakimi,A. and Zaghdoudi, K. (2017). Liquidity risk and bank performance: An empirical for Tunisian banks. Business and Economic Research, 7, 1. https://doi.org/10.5296/ber.v7i1.10524 DOI: https://doi.org/10.5296/ber.v7i1.10524
- Jahwari, N. A., & Khan, M. F. (2016). ORGANIZATIONAL LEARNING MECHANISMS IN SOHAR UNIVERSITY. Humanities & Social Sciences Reviews, 4(2), 76-87. https://doi.org/10.18510/hssr.2016.423 DOI: https://doi.org/10.18510/hssr.2016.423
- Lobão, J., & Pereira, C. (2016). Looking for Psychological Barriers in nine European Stock Market Indices. Dutch Journal of Finance and Management, 1(1), 39. https://doi.org/10.20897/lectito.201639 DOI: https://doi.org/10.20897/lectito.201639
- Misman, F.N., Bhatti, I., Lou, W.F., Samsudin, S., and Abd Rahman, H. (2015). Islamic Banks Credit Risk: A Panel Study. Procedia Economics and Finance, 31, 75-82. https://doi.org/10.1016/S2212-5671(15)01133-8 DOI: https://doi.org/10.1016/S2212-5671(15)01133-8
- Muda, M., Shaharuddin, A., and Embaya, A. (2013).Comparative Analysis of Profitability Determinants of Domestic and Foreign Islamic Banks in Malaysia. International Journal of Economics and Financial Issues, 3 (3), 559-569.
- Salman, S.A. (2013). State of liquidity management in Islamic financial institutions. Islamic Econ. Stud., 21 (1), 63-98. https://doi.org/10.12816/0000240 DOI: https://doi.org/10.12816/0000240
- Samad, A. (2004). Performance of Interest-free Islamic Banks vis-Ã -vis Interest-Based Conventional Banks of Bahrain. IIUM Journal of Economics and Management 12(2), 1-15.
- Sufian, F. and Kamarudin, F. (2015). Determinants of Revenue Efficiency Of Islamic Banks: Empirical Evidence From The Southeast Asian Countries. International Journal of Islamic and Middle Eastern Finance and Management, 8 (1), 36-63. https://doi.org/10.1108/IMEFM-12-2012-0114 DOI: https://doi.org/10.1108/IMEFM-12-2012-0114
- Swartz, N.P. (2013). Risk management in Islamic banking. African Journal of Business Management.7 (37), 3799-3809.
- Tan, Y.; Floros, C.; and Anchor. J. (2017).The profitability of Chinese banks: impacts of risk, competition and efficiency. Review of Accounting and Finance, 16(1), 86-105. https://doi.org/10.1108/RAF-05-2015-0072 DOI: https://doi.org/10.1108/RAF-05-2015-0072
- Taubaye, Z., Rivers, W., Mussabekova, U., & Alimbayeva, A. (2018). Peculiarities and problems of eponyms (on the material of Kazakhstani periodicals). Opción, 34(85-2), 221-236.
- Waemustafa, W. and Sukri, S. (2015).Bank Specific and Macroeconomics Dynamic Determinants of Credit Risk in Islamic Banks and Conventional Banks. International Journal of Economics and Financial Issues, 5(2), 476-481.
- Zare, Z. (2015). The benefits of e-business adoption: an empirical study of Iranian SMEs. UCT Journal of Management and Accounting Studies, 3(1), 6-11.
References
Boumediene, A. (2011). Is credit risk really higher in Islamic banks? The Journal of Credit Risk, 7(3), 97-129. https://doi.org/10.21314/JCR.2011.128 DOI: https://doi.org/10.21314/JCR.2011.128
Cuong, Ly. K. (2015). Liquidity risk, regulation and bank performance: Evidence from European banks. Global economy and finance, 8(1), 11-33. https://doi.org/10.21102/gefj.2015.03.81.02 DOI: https://doi.org/10.21102/gefj.2015.03.81.02
Elbadry, A. (2018). Bank’s financial stability and risk management. Journal of Islamic Accounting and Business Research, 9(2), 119-137. https://doi.org/10.1108/JIABR-03-2016-0038 DOI: https://doi.org/10.1108/JIABR-03-2016-0038
Gamarra, M., Zurek, E., & San-Juan, H. (2018). Addendum for: A Study of Image Analysis Algorithms for Segmentation, Feature Extraction and Classification of Cells. Journal of Information Systems Engineering & Management, 3(1), 05. https://doi.org/10.20897/jisem.201805 DOI: https://doi.org/10.20897/jisem.201805
Hakimi,A. and Zaghdoudi, K. (2017). Liquidity risk and bank performance: An empirical for Tunisian banks. Business and Economic Research, 7, 1. https://doi.org/10.5296/ber.v7i1.10524 DOI: https://doi.org/10.5296/ber.v7i1.10524
Jahwari, N. A., & Khan, M. F. (2016). ORGANIZATIONAL LEARNING MECHANISMS IN SOHAR UNIVERSITY. Humanities & Social Sciences Reviews, 4(2), 76-87. https://doi.org/10.18510/hssr.2016.423 DOI: https://doi.org/10.18510/hssr.2016.423
Lobão, J., & Pereira, C. (2016). Looking for Psychological Barriers in nine European Stock Market Indices. Dutch Journal of Finance and Management, 1(1), 39. https://doi.org/10.20897/lectito.201639 DOI: https://doi.org/10.20897/lectito.201639
Misman, F.N., Bhatti, I., Lou, W.F., Samsudin, S., and Abd Rahman, H. (2015). Islamic Banks Credit Risk: A Panel Study. Procedia Economics and Finance, 31, 75-82. https://doi.org/10.1016/S2212-5671(15)01133-8 DOI: https://doi.org/10.1016/S2212-5671(15)01133-8
Muda, M., Shaharuddin, A., and Embaya, A. (2013).Comparative Analysis of Profitability Determinants of Domestic and Foreign Islamic Banks in Malaysia. International Journal of Economics and Financial Issues, 3 (3), 559-569.
Salman, S.A. (2013). State of liquidity management in Islamic financial institutions. Islamic Econ. Stud., 21 (1), 63-98. https://doi.org/10.12816/0000240 DOI: https://doi.org/10.12816/0000240
Samad, A. (2004). Performance of Interest-free Islamic Banks vis-Ã -vis Interest-Based Conventional Banks of Bahrain. IIUM Journal of Economics and Management 12(2), 1-15.
Sufian, F. and Kamarudin, F. (2015). Determinants of Revenue Efficiency Of Islamic Banks: Empirical Evidence From The Southeast Asian Countries. International Journal of Islamic and Middle Eastern Finance and Management, 8 (1), 36-63. https://doi.org/10.1108/IMEFM-12-2012-0114 DOI: https://doi.org/10.1108/IMEFM-12-2012-0114
Swartz, N.P. (2013). Risk management in Islamic banking. African Journal of Business Management.7 (37), 3799-3809.
Tan, Y.; Floros, C.; and Anchor. J. (2017).The profitability of Chinese banks: impacts of risk, competition and efficiency. Review of Accounting and Finance, 16(1), 86-105. https://doi.org/10.1108/RAF-05-2015-0072 DOI: https://doi.org/10.1108/RAF-05-2015-0072
Taubaye, Z., Rivers, W., Mussabekova, U., & Alimbayeva, A. (2018). Peculiarities and problems of eponyms (on the material of Kazakhstani periodicals). Opción, 34(85-2), 221-236.
Waemustafa, W. and Sukri, S. (2015).Bank Specific and Macroeconomics Dynamic Determinants of Credit Risk in Islamic Banks and Conventional Banks. International Journal of Economics and Financial Issues, 5(2), 476-481.
Zare, Z. (2015). The benefits of e-business adoption: an empirical study of Iranian SMEs. UCT Journal of Management and Accounting Studies, 3(1), 6-11.