Determinants of domestic conventional banks profitability in Malaysia / Noor Syamimi Nadzirah Arzmi

Well known that commercial banks play an intermediary role to aid flow of funds between surplus funds unit and deficit funds unit in an economy besides maintaining the stability of economy in a country. Thus, banks had been widely recognized as the most critical institutions in a financial system. Presently, the banking sector has experienced global major transformation in its operating context. Recent trend in financial technological and financial innovation and globalization are definitely posing new challenges to the market participants in financial sector. Therefore, understanding of determinants captures the interest from government and other parties such as bankers, shareholders and investors to have clearer picture of past and current circumstances of banking industry. Hence, the aim of this study is to investigate the bank specific (internal) and macroeconomic (external) determinants of banks profitability. The proxy of bank's profitability is return on assets (ROA). The specifics determinants for bank profitability used in this study are size, capital adequacy, and liquidity, while the macroeconomics determinant is gross domestic product (GDP). This study uses samples of domestic conventional banks in Malaysia namely, Affin Holdings Berhad, Ammb Holdings Berhad, Cimb Group Holdings Berhad, Malayan Banking Berhad, Public Bank Berhad, RHB Bank Berhad and Hong Leong Bank Berhad for the period of 2002 to 2015. The data are analysed using pooled ordinary least square (Pooled OLS) regression. The findings are expected to show that bank size, capital adequacy, liquidity and GDP have positive impacts on bank's profitability. It indicates that the larger bank can maximizes banks profitability and good capital adequacy is preserve higher capital strength to bear losses and dismiss the risk of insolvency.