Determinants Of Commercial Banks' Profitability In Malaysia

Abstract

This study attempts to investigate 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 rate of profitability although they are sharing the same loan growth in the country. A regression analysis is built on the panel data set comprising eight commercial banks from 2011 to 2017. To this end, the empirical data are collected from DataStream and Annual Report. Among all the determinant variables, capital adequacy do not show statistically significant impacts on profitability. Regression findings reveal that credit risk, management efficiency and liquidity risk were among the most significant determinants toward the bank?s profitability. Indeed, the variables more influence the profitability of ROE compared to ROA. In view of these findings, some suggestions may be functional for bank regulatory authorities to intensify and sustain robustness and stability of the banking sector in the country. Therefore, this paper tries to close an important gap in the existing literature by improving the understanding of bank profitability in Malaysia.