The technical efficiency of malaysian banking industry foreign vs domestic banks / Mohamad Adli Amir

Over the past few decades, Malaysian banking section has seen its fair share of financial liberalization. Bank Negara Malaysia issued to Australia and New Zealand Banking Group L imited (ANZ) the very first foreign bank representative status license in 1971. Though not permitted
to undertake any commercial banking activity or sell any financial product, this mark the revolutionary effort of the Malaysian government in opening local market in accordance with the globalization trend in global finance. This globalization phenomenon brings a liberal for any venture to board upon our shores, attracting competition from the adventurous and aggressive expansion of developed nations‟ large corporate sections. Since then, local banks have been challenged hard by foreign banks
presence; presenting a significant test in internal operations, customers dealing, and inter-institutional relationships (Balachander, Staunton and Shanmugam, 1999). Perhaps the government seen such challenges are
the necessary push that as essential to adopt a positive competition between foreign and local banks with an aim of improving local banks efficiency and competency. Foreign banks, to their defense, are altering local economic landscape for good by refining efficiency of resource
allocation and risk management, among other things (Mallikamas, 2012).
Factors determining the efficiency of banks in the nation are an area that has received relatively little attention to date. In recent years, the world financial structure has changed rapidly making the banking industry has faced competitive pressure worldwide. In such a market, how
efficiently banks transform their expensive inputs into various financial products and services are concerned by the banks‟ regulator, managers, and investors. Berger and Humphrey (1997) explain that information obtained from efficiency studies can be used for a variety of purposes.
They can inform government policy by assessing the effects o f various regulatory changes on efficiency. Managerial performance can be improved by identifying "best practice" and "worst practice" associated with high and low efficiency firms, respectively.