Net Profit Margin Determinants of Islamic Subsidiaries of Conventional Banks in Malaysia

Maisyarah Salleh (), Bayu Taufiq Possumah () and Nizam Ahmat ()
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Maisyarah Salleh: Pusat Pengajian Pembangunan Sosial dan Ekonomi Universiti Malaysia Terengganu 21030 Kuala Nerus Terengganu MALAYSIA
Bayu Taufiq Possumah: Pusat Pengajian Pembangunan Sosial dan Ekonomi Universiti Malaysia Terengganu 21030 Kuala Nerus Terengganu MALAYSIA
Nizam Ahmat: Pusat Pengajian Pembangunan Sosial dan Ekonomi Universiti Malaysia Terengganu 21030 Kuala Nerus Terengganu MALAYSIA

Jurnal Ekonomi Malaysia, 2018, vol. 52, issue 2, 163-173

Abstract: This study investigates the determinants of Net Profit Margin (NPM) in Malaysia’s Islamic banking system for the period of 2011-2015 by using static panel data analysis. In Malaysia, conventional banks through its Islamic subsidiary banks are dominating the Islamic banking system in terms of total assets, total loans and total deposits. Therefore this paper attempts to investigate the impact of these Islamic subsidiaries of conventional banks towards the NPM. In relation to that, the impact of the conventional parent banks’ Net Interest Margin (NIM) towards its Islamic subsidiary banks’ NPM is also investigated. For the first objective, the displayed results shows positive relationship indicating that the Islamic subsidiaries of conventional banks’ NPM is higher than the full-fledge Islamic banks’ NPM. While the empirical results on the banks’ specific variables suggest that size, risk aversion and operating cost are positively related to NPM. However, credit risk tends to reduce NPM. Besides that, this study also finds that market concentrations and GDP growth will influence NPM in negative ways whilst inflation and Islamic stock market developments will increase NPM. Liquidity however is found insignificant to NPM. As for the second objective, the Islamic subsidiaries of conventional banks’ NPM is observed as being independent from its conventional parent banks’ NIM.

Keywords: Islamic bank; Net profit margin; parent bank; subsidiary bank (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ukm:jlekon:v:52:y:2018:i:2:p:163-173

DOI: 10.17576/JEM-2018-5202-13

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