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DETERMINANTS OF ISLAMIC BANKS PROFITABILITY IN MALAYSIA

MARINA BINTI MAYUDDIN

MASTER IN ISLAMIC FINANCE AND BANKING UNIVERSITI UTARA MALAYSIA

MAY 2018

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DETERMINANTS OF ISLAMIC BANKS PROFITABILITY IN MALAYSIA

By

MARINA BINTI MAYUDDIN

Research Paper Submitted to

Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia,

in Partial Fulfillment of the Requirement for the Master in Islamic Finance and Banking

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iii

PERMISSION TO USE

In presenting this dissertation/ project paper in partial fulfillment of the requirements for a Post Graduate degree from the Universiti Utara Malaysia (UUM), I agree that the Sultanah Bahiyah Library, UUM may make it freely available for inspection. I further agree that permission for copying this dissertation/ project paper in any manner, in whole or in part, for scholarly purposes may be granted by my supervisors or in their absence, by the Dean of the Othman Yeop Abdullah Graduate School of Business where I did my dissertation/ project paper. It is understood that any copying or publication or use of this dissertation/ project paper or parts of it for financial gain shall not be allowed without my written permission. It is also understood that due recognition shall be given to me and to Universiti Utara Malaysia in any scholarly use which may be made of any material from my thesis.

Requests for permission to copy or to make other use of materials in this thesis, in whole or in part should be addressed to:

Dean of Othman Yeop Abdullah Graduate School of Business College of Business

Universiti Utara Malaysia 06010 UUM Sintok Kedah Darul Aman

Malaysia

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iv ABSTRACT

Islamic banking has tremendous growth in the last two decades particularly in Malaysia. However, Islamic banks are also experiencing a diminishing in profitability due to the effects of changes in external and internal factors. The main purpose of this study is to inspect the relationship between the internal and external factor of Islamic bank’s profitability in Malaysia during 2008 until 2016. This study also enables researcher to identify the performance of Islamic bank from the year of 2008 until 2016 on the Islamic banks profitability in Malaysia. This study used nine (9) years of panel data which comprises ten (10) samples of local Islamic banks in Malaysia. The methodology used in this study are descriptive statistic, correlation analysis and multiple regression analysis. This study seeks to examine how capital ratio (CAP), bank size (SIZE), liquidity ratio (LQ), Murabahah financing (MRBHAH), gross domestic product (GDP) and inflation (INF) affect the profitability of Islamic banks in Malaysia. The findings show the profitability of Islamic banks from 2008 until 2016 is not too high. The empirical findings indicate that liquidity ratio (LQ), Murabahah financing (MRBHAH) and gross domestic product (GDP) have a positive and significant relationship to the profitability of Islamic banks in Malaysia. Meanwhile, bank size (SIZE) and inflation (INF) have a negative and significant relationship towards the profitability of Islamic banks in Malaysia. From the results, it is suggested that Islamic banks should create right strategies and plan to enhance their profitability to achieve sustainability in the financial banking system. A future research should conduct the same field by examining the comparative analysis of performance between Islamic banks in Malaysia and a foreign country.

Keywords: profitability, determinants factor, Islamic banks, Malaysia

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v ABSTRAK

Perbankan Islam telah berkembang pesat dalam dua dekad yang lalu terutama di Malaysia. Walau bagaimanapun, bank-bank Islam juga mengalami penurunan dalam keuntungan berikutan kesan perubahan faktor luaran dan dalaman. Tujuan utama kajian ini adalah untuk memeriksa hubungan antara faktor dalaman dan luaran keuntungan bank Islam di Malaysia sepanjang tahun 2008 hingga 2016. Kajian ini juga membolehkan penyelidik untuk mengenal pasti prestasi bank Islam dari tahun 2008 hingga 2016 mengenai keuntungan bank-bank Islam di Malaysia. Kajian ini menggunakan sembilan (9) tahun data panel yang terdiri daripada sepuluh (10) sampel bank-bank Islam tempatan di Malaysia. Metodologi yang digunakan dalam kajian ini adalah statistik deskriptif, analisis korelasi dan analisis regresi berganda. Kajian ini bertujuan untuk mengkaji bagaimana nisbah modal (CAP), saiz bank (SIZE), nisbah kecairan (LQ), pembiayaan Murabahah (MRBHAH), Keluaran Dalam Negara Kasar (GDP) dan inflasi (INF) mempengaruhi keuntungan bank Islam di Malaysia. Hasil kajian menunjukkan keuntungan bank-bank Islam dari tahun 2008 hingga 2016 tidak terlalu tinggi. Penemuan empirikal menunjukkan bahawa nisbah kecairan (LQ), pembiayaan Murabahah (MRBHAH) dan keluaran dalam negara kasar (GDP) mempunyai hubungan positif dan signifikan dengan keuntungan bank-bank Islam di Malaysia. Sementara itu, saiz bank (SIZE) dan inflasi (INF) mempunyai hubungan yang negatif dan signifikan terhadap keuntungan bank Islam di Malaysia. Daripada hasil kajian ini, adalah dicadangkan bahawa bank-bank Islam perlu mewujudkan strategi dan pelan yang tepat untuk meningkatkan keuntungan mereka untuk mencapai sistem perbankan kewangan yang mampan. Bakal penyelidik masa hadapan juga dicadangkan untuk menjalankan kajian dalam bidang yang sama dengan mengkaji analisis perbandingan prestasi antara bank –bank Islam di Malaysia dengan negara asing.

Kata kunci: keuntungan ,faktor penentu, bank Islam, Malaysia

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vi

ACKNOWLEDGEMENTS

First and foremost, I would like to express my gratitude to Allah (SWT) for giving me His blessings in terms of health, strength, knowledge, patience and perseverance to complete this dissertation/ research paper.

Heartfelt appreciation is extended to my supervisors, Dr. Nashirah Binti Abu Bakar for her professional and relentless guidance, coaches, valuable suggestions and positive comments which were very helpful for the research progression and consequently led to the completion of this research paper. My deepest appreciation also goes to my program coordinator, Dr. Hydzulkifli Bin Haji Hashim and Dr. Mohd Murshidi Mohd Noor for their guidance throughout in completing this research paper.

My deepest gratitude and highest appreciation go to my father, Mr. Mayuddin Bin Linge and my siblings for their care, love and persuasion for me to complete this Master journey and my life. In these sweet moments, my highest appreciation also goes to my friends, academic staff of IBS, and administrative staff of IBS who directly or indirectly assisting me in completed my research paper by sharing their thoughts and opinion as well as their supportive ideas and advices. On top of that, I hope that all of you gain success in life and hereafter.

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vii

TABLE OF CONTENTS

Title Page

TITLE PAGE i

CERTIFICATION OF RESEARCH PAPER ii

PERMISSION TO USE iii ABSTRACT iv

ABSTRAK v

ACKNOWLEDGEMENTS vi

TABLE OF CONTENTS vii LIST OF APPENDICES x LIST OF TABLES xi

LIST OF FIGURES xii

LIST OF ABBREVIATIONS xiii

CHAPTER ONE: INTRODUCTION 1.0 Introduction ... 1

1.1 Background of the Study ... 1

1.2 Problem Statement ... 5

1.3 Research Question ... 8

1.4 Research Objective... 9

1.5 Significance of the Study ... 9

1.6 Scope and Limitation of the Study ... 10

1.7 Organization of the Research ... 10

1.8 Summary of the Chapter ... 11

CHAPTER TWO: LITERATURE REVIEW 2.0 Introduction ... 12

2.1 Measure of Bank Profitability ... 12

2.2 Previous Study on Determinants of Islamic Banks Profitability in Malaysia . 15 2.3 The Determinants factor of Banking Profitability ... 17

2.3.1 Internal Factor ... 17

2.3.1.1 Capital ratio ... 18

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viii

2.3.1.2 Bank Size ... 19

2.3.1.3 Liquidity Ratio ... 21

2.3.1.4 Murabahah Financing ... 22

2.3.2 External Factors ... 23

2.3.2.1 Gross Domestic Product (GDP) ... 23

2.3.2.2 Inflation ... 25

2.4 Related Theories... 26

2.4.1 Market Power Theories ... 26

2.4.2 Agency Theory in Islamic Financial Contract ... 26

2.5 Summary of the chapter ... 28

CHAPTER THREE: RESEARCH METHODOLOGY 3.0 Introduction ... 29

3.1 Research Design ... 29

3.2 Theoretical Framework ... 31

3.3 Operational Definition and Measurements of Variables ... 32

3.3.1 Dependent Variable ... 32

3.3.2 Independent Variables ... 32

3.3.2.1 Capital ratio (CAP). ... 33

3.3.2.2 Bank Size (SIZE) ... 33

3.3.2.3 Liquidity Ratio (LQ) ... 33

3.3.2.4 Murabahah Financing (MRBHAH) ... 33

3.3.2.5 Annual Growth Gross Domestic Product (GDP) ... 34

3.3.2.6 Inflation (INF) ... 34

3.4 Hypotheses Development ... 35

3.4.1 Capital ratio ... 35

3.4.2 Bank Size ... 35

3.4.3 Liquidity Ratio ... 36

3.4.4 Murabahah Financing ... 36

3.4.5 Gross Domestic Product (GDP). ... 36

3.4.6 Inflation ... 37

3.5 Data Collection Procedure ... 37

3.5.1 Data Sources ... 37

3.5.2 Population and Data Collection ... 38

3.5.3 Data Analysis ... 39

3.5.3.1 Descriptive Statistic ... 39

3.5.3.2 Correlation Analysis ... 39

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ix

3.5.3.3 Multiple Regression Analysis ... 39

3.5.3.4 Fixed Effect Model (FEM) ... 40

3.6 Model Specification of Multiple Regression Analysis ... 41

3.7 Summary of Chapter ... 41

CHAPTER FOUR: RESULTS AND DISCUSSIONS 4.0 Introduction ... 43

4.1 Descriptive Statistic ... 43

4.1.1 Trend Analysis of Profitability Islamic Banks in Malaysia ... 46

4.2 Correlation Analysis... 47

4.3 Multiple Regression Analysis ... 48

4.3.1 Internal Factor ... 50

4.3.2 External Factor ... 51

4.4 Discussion on findings on the determinants of Islamic Banks profitability in Malaysia. ... 52

4.4.1 Capital ratio (CAP) ... 52

4.4.2 Bank Size (SIZE) ... 53

4.4.3 Liquidity Ratio (LQ) ... 53

4.4.4 Murabahah Financing (MRBHAH) ... 53

4.4.5 Gross Domestic Product (GDP) ... 54

4.4.6 Inflation (INF) ... 55

4.5 The Summary of the Result of the Relationship between Independent Variables and Profitability of Islamic Banks in Malaysia ... 55

4.6 Summary of the Chapter ... 57

CHAPTER FIVE: CONCLUSION AND RECCOMENDATIONS 5.0 Introduction ... 58

5.1 Recapitulation of the Findings ... 58

5.1.1 Objective 1 ... 58

5.1.2 Objective 2 ... 59

5.1.3 Objective 3 ... 59

5.2 Contribution and Implication of the study ... 60

5.3 Limitation of the Study ... 61

5.4 Recommendations for Further Study ... 62

5.5 Conclusion ... 63

REFERENCES ... 64

APPENDICES ... 76

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x LIST OF APPENDICES

Page

Appendix A List of Islamic Banks in Malaysia 76

Appendix B Data for Local Islamic Banks in Malaysia 77

(2008-2016)

Appendix C Descriptive Statistic 79

Appendix D Profitability of Local Islamic Banks in Malaysia 80

Appendix E Correlation Analysis 80

Appendix F Multiple Regression Analysis, FEM 81

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xi LIST OF TABLES

Page

Table 1.1 List of Islamic Banks in Malaysia 4

Table 3.1 Summary of Operational Definition and Measurement 34 Table 3.2 The Sources of Data Collection for Each Variable 38

Table 3.3 List of Local Islamic Banks in Malaysia 38

Table 4.1 Descriptive Statistic of Variables 43

Table 4.2 Profitability Experienced by Islamic Banks 45

Table 4.3 Correlation matrix between DVs and IVs 47

Table 4.4 Regression Analysis on Profitability of Islamic 49 Banks in Malaysia, FEM

Table 4.5 Summary of Regression Result of Internal and 56 External Factor on Return on Asset for Islamic

Banks in Malaysia.

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xii

LIST OF FIGURES

Page Figure 1.1 Profitability of Islamic Banks in Malaysia 6

Figure 3.1 Theoretical Framework 31

Figure 4.1 Profitability Experienced by Local Islamic Banks 46 for period of 2008 -2016

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xiii

LIST OF ABBREVIATIONS BIMB Bank Islam Malaysia Berhad

BMMB Bank Muamalat Malaysia Berhad BNM Bank Negara Malaysia

CAP Capital ratio

FEM Fixed Effect Model GDP Gross Domestic Product INF Inflation

KFH Kuwait Finance House

LQ Liquidity Ratio

MRBHAH Murabahah Financing NIM Net Interest Margin PER Profit Expense Ratio ROA Return on Asset ROE Return on Equity ROD Return on Deposit SIZE Bank Size

SCP Structure Conduct Performance

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1 CHAPTER 1 INTRODUCTION

1.0 Introduction

This research was conducted to study the determinants of Islamic bank’s profitability in Malaysia. Based on Tulsian (2014), profitability is the term of profit that imply the business entity have ability to gain a return from the given investment. Banking sector is one of the contributors to the economic growth of the country. If the bank has weak performance level, hence it will affect the economic adversely and vice versa.

Profitability is one of the crucial keys for measure or analyze the performance of the banking industry (Aziz, 2017). The former governor of Bank Negara Malaysia, Tan Sri Dr Zeti Akhtar Aziz also has recommended that Islamic banking industry need to put an effort in order to improve their level of performance which is it can directly improve their profitability (BIS Review, 2006). This chapter consist of background of study where, it addressed the problem statement, research question and objective.

Scope and limitation of the study and organization of the research paper also discussed in this study.

1.1 Background of the Study

Islamic banking is one of the most progressive sectors and widely accepted in the universal financial landscape. For the past four decades, Islamic bank has acquainted them as the alternative to conventional which interest-free bank and accepted by both Muslim and non- Muslim (Duran and Lopez, 2012). The objective of Islamic banking is to promote and develop the application of Islamic law and principles to the financial transaction, banking and related business (Ilieva et al., 2017).

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76 APPENDICES

Appendix A

List of Islamic Banks in Malaysia by Bank Negara Malaysia (BNM) Islamic Banks in Malaysia

No. Name Ownership

1 Affin Islamic Bank Berhad Local

2 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad

Foreign

3 Alliance Islamic Bank Berhad Local

4 AmBank Islamic Berhad Local

5 Asian Finance Bank Berhad Foreign

6 Bank Islam Malaysia Berhad Local

7 Bank Muamalat Malaysia Berhad Local

8 CIMB Islamic Bank Berhad Local

9 HSBC Amanah Malaysia Berhad Foreign

10 Hong Leong Islamic Bank Berhad Local

11 Kuwait Finance House (Malaysia) Berhad Foreign

12 Maybank Islamic Berhad Local

13 OCBC Al-Amin Bank Berhad Foreign

14 Public Islamic Bank Berhad Local

15 RHB Islamic Bank Berhad Local

16 Standard Chartered Saadiq Berhad Foreign

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Appendix B (Data for Local Islamic Banks in Malaysia, 2008-2016)

Bank Code Year ROA CAP SIZE LQ MRBHAH GDP INF Affin 1 2008 0.0178 0.0433 6.7832 0.4036 0.0239 0.5211 0.7357 Affin 1 2009 0.0189 0.0610 6.8146 0.4414 0.0251 0.4024 -0.2341 Affin 1 2010 0.0182 0.0574 6.8784 0.4705 0.0130 0.8439 0.2330 Affin 1 2011 0.0158 0.0457 7.0225 0.4154 0.0164 0.7238 0.5051 Affin 1 2012 0.0174 0.0559 7.0691 0.4387 0.0212 0.7383 0.2168 Affin 1 2013 0.0155 0.0572 7.0910 0.4905 0.0623 0.6715 0.3216 Affin 1 2014 0.0166 0.0607 7.1046 0.5630 0.1067 0.7786 0.5017 Affin 1 2015 0.0173 0.0714 7.1266 0.6875 0.1570 0.7014 0.3184 Affin 1 2016 0.0183 0.0757 7.1843 0.7795 0.1375 0.6253 0.3279 Alliance 2 2008 0.0225 0.3515 6.4719 0.6792 0.1245 0.5211 0.7357 Alliance 2 2009 0.0310 0.1052 6.5013 0.7290 0.1397 0.4024 -0.2341 Alliance 2 2010 0.0383 0.0853 6.6886 0.6953 0.0907 0.8439 0.2330 Alliance 2 2011 0.0277 0.0752 6.7940 0.6393 0.6605 0.7238 0.5051 Alliance 2 2012 0.0309 0.0841 6.8135 0.6825 0.0737 0.7383 0.2168 Alliance 2 2013 0.0268 0.0868 6.8341 0.6761 0.0789 0.6715 0.3216 Alliance 2 2014 0.0226 0.0847 6.8687 0.6767 0.0552 0.7786 0.5017 Alliance 2 2015 0.0191 0.0715 6.9637 0.7115 0.0500 0.7014 0.3184 Alliance 2 2016 0.0174 0.0830 6.9912 0.7140 0.0469 0.6253 0.3279 AmBank 3 2008 0.0374 0.1304 7.0417 0.7317 0.3930 0.5211 0.7357 AmBank 3 2009 0.0320 0.0911 7.1491 0.6960 0.3853 0.4024 -0.2341 AmBank 3 2010 0.0369 0.0777 7.2359 0.6831 0.0600 0.8439 0.2330 AmBank 3 2011 0.0259 0.0692 7.3051 0.6561 0.0630 0.7238 0.5051 AmBank 3 2012 0.0275 0.0719 7.3780 0.7743 0.0505 0.7383 0.2168 AmBank 3 2013 0.0230 0.0654 7.5120 0.6764 0.0386 0.6715 0.3216 AmBank 3 2014 0.0207 0.0668 7.5467 0.6943 0.0404 0.7786 0.5017 AmBank 3 2015 0.0190 0.0608 7.5989 0.6924 0.1013 0.7014 0.3184 AmBank 3 2016 0.0224 0.0692 7.5832 0.7151 0.1332 0.6253 0.3279 BIMB 4 2008 0.0317 0.0556 7.3722 0.3846 0.0784 0.5211 0.7357 BIMB 4 2009 0.0252 0.0553 7.4391 0.3515 0.0611 0.4024 -0.2341 BIMB 4 2010 0.0442 0.0832 7.4824 0.3906 0.0369 0.8439 0.2330 BIMB 4 2011 0.0334 0.0865 7.5079 0.4390 0.0409 0.7238 0.5051 BIMB 4 2012 0.0343 0.0828 7.5735 0.5209 0.0375 0.7383 0.2168 BIMB 4 2013 0.0338 0.0777 7.6318 0.5542 0.0196 0.6715 0.3216 BIMB 4 2014 0.0328 0.0814 7.6611 0.6442 0.0317 0.7786 0.5017 BIMB 4 2015 0.0304 0.0810 7.6969 0.6891 0.0371 0.7014 0.3184 BIMB 4 2016 0.0294 0.0788 7.7457 0.7038 0.0303 0.6253 0.3279 BMMB 5 2008 0.0183 0.0487 7.1588 0.4192 0.0416 0.5211 0.7357 BMMB 5 2009 0.0212 0.0825 7.2018 0.4133 0.0343 0.4024 -0.2341 BMMB 5 2010 0.0262 0.0789 7.2232 0.3965 0.0392 0.8439 0.2330

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BMMB 5 2011 0.0268 0.0743 7.2627 0.3913 0.0356 0.7238 0.5051 BMMB 5 2012 0.0233 0.0698 7.3112 0.4420 0.0349 0.7383 0.2168 BMMB 5 2013 0.0281 0.0757 7.3238 0.4918 0.0438 0.6715 0.3216 BMMB 5 2014 0.0302 0.0868 7.3025 0.5930 0.0586 0.7786 0.5017 BMMB 5 2015 0.0227 0.0822 7.3512 0.5980 0.0067 0.7014 0.3184 BMMB 5 2016 0.0235 0.0878 7.3551 0.6412 0.0228 0.6253 0.3279 CIMB 6 2008 0.0118 0.0400 7.2708 0.3201 0.0104 0.5211 0.7357 CIMB 6 2009 0.0141 0.0319 7.4366 0.5889 0.2188 0.4024 -0.2341 CIMB 6 2010 0.0176 0.0371 7.5568 0.6222 0.1617 0.8439 0.2330 CIMB 6 2011 0.0179 0.0447 7.6345 0.6514 0.1701 0.7238 0.5051 CIMB 6 2012 0.0197 0.0457 7.7095 0.6456 0.0064 0.7383 0.2168 CIMB 6 2013 0.0202 0.0540 7.6939 0.7096 0.1179 0.6715 0.3216 CIMB 6 2014 0.0203 0.0644 7.6978 0.7280 0.0039 0.7786 0.5017 CIMB 6 2015 0.0193 0.0661 7.7369 0.7391 0.1068 0.7014 0.3184 CIMB 6 2016 0.0181 0.0623 7.8238 0.7078 0.1100 0.6253 0.3279 Hong

Leong 7 2008 0.0173 0.0819 6.9096 0.5224 0.0244 0.5211 0.7357 Hong

Leong 7 2009 0.0176 0.0809 6.9610 0.4184 0.0051 0.4024 -0.2341 Hong

Leong 7 2010 0.0185 0.0822 6.9984 0.4155 0.0104 0.8439 0.2330 Hong

Leong 7 2011 0.0137 0.0711 7.0856 0.4415 0.0149 0.7238 0.5051 Hong

Leong 7 2012 0.0155 0.0541 7.3405 0.5484 0.0295 0.7383 0.2168 Hong

Leong 7 2013 0.0225 0.0623 7.3370 0.6144 0.0459 0.6715 0.3216 Hong

Leong 7 2014 0.0221 0.0707 7.3384 0.6566 0.0913 0.7786 0.5017 Hong

Leong 7 2015 0.0186 0.0708 7.3670 0.6865 0.0855 0.7014 0.3184 Hong

Leong 7 2016 0.0178 0.0708 7.4086 0.7218 0.2956 0.6253 0.3279 Maybank 8 2008 0.0129 0.0626 7.4302 0.7762 0.2371 0.5211 0.7357 Maybank 8 2009 0.0243 0.0752 7.5318 0.7436 0.1738 0.4024 -0.2341 Maybank 8 2010 0.0218 0.0747 7.6450 0.7566 0.1571 0.8439 0.2330 Maybank 8 2011 0.0185 0.0544 7.8780 0.6071 0.2009 0.7238 0.5051 Maybank 8 2012 0.0206 0.0497 7.9611 0.6705 0.2837 0.7383 0.2168 Maybank 8 2013 0.0185 0.0515 8.0971 0.6888 0.4517 0.6715 0.3216 Maybank 8 2014 0.0178 0.0494 8.1655 0.7359 0.0685 0.7786 0.5017 Maybank 8 2015 0.0185 0.0529 8.1941 0.8325 0.8604 0.7014 0.3184 Maybank 8 2016 0.0173 0.0500 8.2596 0.8170 0.8688 0.6253 0.3279 Public 9 2008 0.0055 0.0598 7.2162 0.7220 0.0000 0.5211 0.7357 Public 9 2009 0.0270 0.0662 7.3566 0.6312 0.0000 0.4024 -0.2341 Public 9 2010 0.0299 0.0767 7.3740 0.6906 0.0000 0.8439 0.2330

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Public 9 2011 0.0268 0.0719 7.4690 0.6529 0.0000 0.7238 0.5051 Public 9 2012 0.0271 0.0781 7.4669 0.6884 0.0943 0.7383 0.2168 Public 9 2013 0.0214 0.0752 7.5375 0.6644 0.0606 0.6715 0.3216 Public 9 2014 0.0194 0.0695 7.5815 0.6667 0.1122 0.7786 0.5017 Public 9 2015 0.0166 0.0649 7.6595 0.6951 0.1694 0.7014 0.3184 Public 9 2016 0.0180 0.0722 7.6960 0.7498 0.0221 0.6253 0.3279 RHB 10 2008 0.0255 0.0900 6.9717 0.5712 0.1337 0.5211 0.7357 RHB 10 2009 0.0212 0.0799 7.0494 0.5214 0.1004 0.4024 -0.2341 RHB 10 2010 0.0180 0.0751 7.1177 0.6646 0.1171 0.8439 0.2330 RHB 10 2011 0.0130 0.0588 7.3549 0.5618 0.0731 0.7238 0.5051 RHB 10 2012 0.0156 0.0661 7.4084 0.6249 0.1531 0.7383 0.2168 RHB 10 2013 0.0153 0.0696 7.4644 0.6329 0.1598 0.6715 0.3216 RHB 10 2014 0.0147 0.0624 7.5577 0.6996 0.2506 0.7786 0.5017 RHB 10 2015 0.0131 0.0566 7.6442 0.7008 0.3025 0.7014 0.3184 RHB 10 2016 0.0142 0.0609 7.6823 0.7033 0.3456 0.6253 0.3279

Appendix C (Descriptive Statistic)

Date: 04/25/18 Time: 01:38 Sample: 2008 2016

ROA CAP SIZE LQ MRBHAH GDP INF

Mean 0.022085 0.072139 7.355886 0.616506 0.119381 0.667366 0.325121 Median 0.020255 0.070732 7.361802 0.660515 0.062644 0.701396 0.321647 Maximum 0.044249 0.351509 8.259581 0.832519 0.868803 0.843915 0.735661 Minimum 0.005463 0.031872 6.471852 0.320065 0.000000 0.402404 -0.234102 Std. Dev. 0.006883 0.033463 0.357150 0.122990 0.159334 0.128215 0.251992 Skewness 0.738278 6.555251 0.017291 -0.709361 2.957757 -0.769265 -0.680738 Kurtosis 3.445919 55.40619 3.105876 2.393088 12.96097 2.754460 3.619186

Jarque-Bera 8.921489 10943.60 0.046521 8.929168 503.3033 9.102614 8.388775 Probability 0.011554 0.000000 0.977008 0.011509 0.000000 0.010553 0.015080

Sum 1.987653 6.492491 662.0297 55.48553 10.74431 60.06290 29.26089 Sum Sq. Dev. 0.004217 0.099660 11.35247 1.346262 2.259461 1.463072 5.651511

Observations 90 90 90 90 90 90 90

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Appendix D (Profitability of Local Islamic Banks in Malaysia ) Year Affin Alliance Ambank BIMB BMMB CIMB Hong

Leong Maybank Public RHB Average

2008 1.78 2.25 3.74 3.17 1.83 1.18 1.73 1.29 0.55 2.55 2.23

2009 1.89 3.10 3.20 2.52 2.12 1.41 1.76 2.43 2.70 2.12 2.58

2010 1.82 3.83 3.69 4.42 2.62 1.76 1.85 2.18 2.99 1.80 2.99

2011 1.58 2.77 2.59 3.34 2.68 1.79 1.37 1.85 2.68 1.30 2.44

2012 1.74 3.09 2.75 3.43 2.33 1.97 1.55 2.06 2.71 1.56 2.58

2013 1.55 2.68 2.30 3.38 2.81 2.02 2.25 1.85 2.14 1.53 2.50

2014 1.66 2.26 2.07 3.28 3.02 2.03 2.21 1.78 1.94 1.47 2.41

2015 1.73 1.91 1.90 3.04 2.27 1.93 1.86 1.85 1.66 1.31 2.16

2016 1.83 1.74 2.24 2.94 2.35 1.81 1.78 1.73 1.80 1.42 2.18

Average 1.73 2.63 2.72 3.28 2.45 1.77 1.82 1.89 2.13 1.67 2.45

Appendix E (Correlation Analysis)

ROA CAP LQ SIZE MRBHAH GDP INF

ROA 1.000000 0.287999 -0.049153 -0.123439 -0.096150 0.113038 -0.137874

CAP 0.287999 1.000000 0.105820 -0.410614 -0.046006 -0.127431 0.113128

LQ -0.049153 0.105820 1.000000 0.349747 0.430309 0.130023 0.035234

SIZE -0.123439 -0.410614 0.349747 1.000000 0.336264 0.216893 0.027977

MRBHAH -0.096150 -0.046006 0.430309 0.336264 1.000000 -0.074573 0.003829

GDP 0.113038 -0.127431 0.130023 0.216893 -0.074573 1.000000 0.325560

INF -0.137874 0.113128 0.035234 0.027977 0.003829 0.325560 1.000000

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Appendix F (Multiple Regression Analysis, FEM).

Dependent Variable: ROA

Method: Panel EGLS (Cross-section weights) Date: 04/25/18 Time: 01:52

Sample: 2008 2016 Periods included: 9

Cross-sections included: 10

Total panel (balanced) observations: 90

Linear estimation after one-step weighting matrix

White cross-section standard errors & covariance (d.f. corrected)

Variable Coefficient Std. Error t-Statistic Prob.

C 0.096216 0.014769 6.514539 0.0000

CAP 0.011044 0.010052 1.098767 0.2754

SIZE -0.012226 0.002284 -5.353199 0.0000

LQ 0.009641 0.003487 2.764748 0.0072

MRBHAH 0.005874 0.002948 1.992740 0.0500

GDP 0.014725 0.001760 8.366946 0.0000

INF -0.004504 0.000414 -10.86702 0.0000

Effects Specification Cross-section fixed (dummy variables)

Weighted Statistics

R-squared 0.732189 Mean dependent var 0.023936

Adjusted R-squared 0.677903 S.D. dependent var 0.007926 S.E. of regression 0.004040 Sum squared resid 0.001208

F-statistic 13.48761 Durbin-Watson stat 1.573132

Prob(F-statistic) 0.000000

Unweighted Statistics

R-squared 0.695102 Mean dependent var 0.022085

Sum squared resid 0.001286 Durbin-Watson stat 1.540480

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