Determinants Of Commercial Banks’ Profitability In Malaysia

Abstract

This study investigated the determinants of commercial banks’ profitability by selecting capital adequacy, credit risk, management efficiency and liquidity risk as the main drivers toward profitability of ROA and ROE. The main motive behind this study is to acknowledge the reasons of Malaysian banking in having different rates of profitability despite sharing similar loan growth in the country. A regression analysis was performed using the panel dataset comprising eight commercial banks from 2011 to 2017. To this end, the empirical data were collected from DataStream and Annual Report. Among all the determinant variables, capital adequacy did not show statistically significant impact on profitability. The regression findings revealed that credit risk, management efficiency and liquidity risk were among the most significant determinants that dictated banks’ profitability. The variables exerted stronger influence on the profitability of ROE, when compared on ROA. In view of these findings, some suggestions may be functional for bank regulatory authorities to intensify and to sustain both robustness and stability of the banking sector in the country. This study had bridged an important gap in the existing literature by enhancing understanding of bank profitability in Malaysia