EFFICIENCY OF ISLAMIC BANKING IN MALAYSIA

Abstract

Bank efficiency is important for the bank to face the financial crisis that may affect the banking. Financial crisis in the late 2007 witness the importance of efficiency especially in banking industry. Furthermore, efficiency in banking plays a crucial role in economic development in order to improve the sustainability of the banks. The efficiency level has been studied throughout many types of characteristics of banks such as risks, bank size, profitability, non-performing loans/financings, bank capitalization, and market power. Based on past research, efficiency in Islamic banks has been measure through different methods. The question that sparks researcher interest to conduct this study, do Islamic banks in Malaysia are efficient? Can ARDL method measure the efficiency and its influences in Islamic banking? Therefore, this study would like to delve more into Islamic bank efficiency in Malaysia. Objective of this study is to determine the factors of bank efficiency in Malaysia. Second, to analyse the factors of bank efficiency in Islamic banks in Malaysia. Methodology that has been used in this study includes quantitative method comprising of econometric approach which is ARDL cointegration test. The data sources involved statistical data obtained through Bank Negara Malaysia. There are four variables tested in this study consist of Islamic banks’ total assets (dependant variable), total deposits, total financing and equities. For the findings, factors comprising of total deposit, total financing and equities shows positive relationship towards total assets (dependant variable). In addition, there are long run relationship between the variables in this model. Increasing in total deposit, total financing and equities in Islamic banking may lead to the increases of total assets. Islamic banks operation encouraged to focus on total deposit, total financings and equities as these variables may lead to efficiency of the banks.