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A STUDY OF BANK PROFITABILITY
BETWEEN COMMERCIAL AND ISLAMIC BANK
BETWEEN 1997 TO 2011 : MAYBANK BERHAD
AND BANK ISLAM MALAYSIA BERHAD
SITI FAIRUS BT IBRAHIM
2011213874
BM222
JUNE 2013
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MALAYSIAN FINANCIAL
INSTITUTIONS Commercial Bank
Islamic Bank
Investment Bank
Other Financial Institution
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COMMERCIAL BANK VSISLAMIC BANK
Conventional Banks Islamic BanksOperates based on fully manmade
principles.
Operates based on the principles of Islamic
Shariah.
The investor is assured of a predetermined
rate of interest.
Promotes risk sharing between provider of
capital (investor) and the user of funds
(entrepreneur).
Aims at maximizing profit without any
restriction.
Aims at maximizing profit but subject to
Shariah restrictions.
Does not deal with Zakat. Be the ZakatCollection Centre and they
also pay out theirZakat.
Lending money and getting it back with
compounding interest without know too
much with the interest fluctuation.
Participation in partnership business is the
fundamental function of the Islamic banks.
The customers business has to be
understood.
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Can charge additional money (penalty and
compounded interest) in case of defaulters.
Not charge any extra money from the
defaulters. Only small amount of
compensation and these proceeds is given
to charity. Rebates are given for early
settlement at the Bank's discretion.
Very often it results in the bank's own
interest becoming well-known. It makes no
effort to ensure growth with equity.
Gives importance to the public interest. Its
ultimate aim is to ensure growth with equity.
The status of a conventional bank, in
relation to its clients, is that of creditor and
debtors.
The status of Islamic bank in relation to its
clients is that of partners, investors and
trader, buyer and seller.
A conventional bank has to guarantee all
its deposits.
Islamic bank can only guarantee deposits
for deposit account, which is based on the
principle of al-wadiah, thus the depositors
are guaranteed repayment of their funds,
however, if the account is based on the
mudarabah concept, clients have to share
the loss if it occurs.
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BACKGROUND OF
MAYBANK BERHADMaybank is a trade name of Malayan Banking Berhad isthe largest bank and financial institution in Malaysia
founded by Khoo Teck Puat on 31st May 1960.
Maybank have 401 branches in Malaysia with 40 000 ofemployees. They also operate in Singapore, Indonesia,
Philippines, China, Papua New Guinea, Vietnam,
Cambodia, Brunei, Pakistan, United States, United
Kingdom, Bahrain and Thailand
Vission of Maybank is To Be A Regional Financial
Services Leader, while its mission is Humanising
Financial Services Across Asia.
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BANK ISLAM MALAYSIA
BERHADBank Islam Malaysia Berhad is a first Islamic bank in Malaysia which
founded on 1st July 1983.
Bank Islam currently has 127 branches and more than 1000 self-service
terminals throughout the country.
Vision of Bank Islam is To be a Global Leader in Islamic Banking
While its missions are include:To continually develop and innovate universally accepted financial
solutions in line with Syariah Principles;To provide a reasonable and sustainable return to shareholders;To provide for a conducive working environment and to become an
Employer of Choice for top talents in the market;To deliver comprehensive financial solutions of global standards
using state-of-the-art technology;To be a responsible and prudent corporate citizen
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STATEMENT
The problem in this study is what is the factors
affect the profitability of Islamic and commercial
bank in Malaysia which are Maybank Berhad
and Bank Islam Malaysia Berhad in term ofReturn on Asset (ROA)?
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RESEARCH OBJECTIVESi. To identify trend analysis of profitability performances
(ROA) of CIMB Berhad, and Bank Islam Malaysia
Berhad.
ii. To investigate whether there is a positive or negativerelationship between return on asset (ROA) and the
independent variable which are capital adequacy,
financial risk, deposits, inflation rate and gross domestic
product (GDP).
iii. To compare the differences of profitability performance
of conventional bank and Islamic bank in Malaysia which
is CIMB Bank and Bank Islam Malaysia Berhad from
1997 until 2011 by using return on asset (ROA).
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SELECTED VARIABLESVariable Measure Notation
Profitability
Return on Assets
(ROA)
ROA
Capital Adequacy EQTA
Financial Risk LOTA
Deposits DETA
Inflation Rate Annual inflation rate INF
Gross Domestic
Product
Annual Real Growth
Rate
GDP
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SIGNIFICANCE OFSTUDY
To the researcher
To the banks and financial
institutions
To the public
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While the independent variables in this study was divided
into two types that are internal and external variables.
Internal variables include capital ratio (EQTA), financial risk
(LOTA), and deposits (DETA) , while external variables are
data of inflation and gross domestic product (GDP).
All data are taken from 1997 to 2011 for 15 years annual
basis which derived from income statements and balance
sheets of Maybank Berhad and Bank Islam Malaysia Berhad
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LIMITATION OF STUDY
Lack of experience
Time Constraint
Limitation of data
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Fadzlan Sufian andRoyfaizal Razali Chong
(2008)
Examine the determinants of Philippinesbanks profitability by using return on asset
(ROA). All the bank-specific determinantvariables that are size, credit risk, noninterest income, expenses and capitaladequacy have a statistically significantlyimpact on bank profitability.
Khizer Ali, MuhammadFarhan Akhtar, and Prof.Hafiz Zafar Ahmed(2011)
Study the bank profitability in Pakistan byusing return on assets (ROA). The bank-specific variables capital adequacy (CAP),credit risk (CR) and asset management (AM)are found to be significantly at 1% level of
significance, whereas the relation ofmacroeconomic variables gross domestic(GDP) and consumer price index (CPI) issignificant at 5% level of significance.
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HYPOTHESISThere is a significant relationship between capital adequacy
(EQTA) with banks profitability (ROA) in Malaysia.
There is a significant relationship between financial risk
(LOTA) and banks profitability (ROA) in Malaysia.
There is a significant relationship between deposits (DETA)
and banks profitability (ROA) in Malaysia.
There is a significant relationship between inflation rate (INF)and banks profitability (ROA) in Malaysia.
There is a significant relationship between gross domestic
product (GDP) and banks profitability (ROA) in Malaysia.
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METHODOLOGYIn details, it include research design, data
collection method, data entry and data
processing, and data analysis and interpretation
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RESEARCH DESIGNVariables:
Dependent variables return on asset (ROA)
Independent variables :i. Capital adequacy to total asset
(EQTA)
ii. Deposits to total asset (DETA)
iii. Loan to total asset (LOTA)
iv. Infaltion
v. Gross domestic product (GDP)
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DATA COLLECTION METHOD
In this study, secondary data is used. This type of
data is the data collected from financial statement of
Maybank Berhad and Bank Islam Malaysia Berhad,
data stream in the library, from the internet like
Osiris and World Bank website.
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DATA ANALYSISRatio Analysis
Trend analysis
Pearson Correlation Analysis
Multiple Regression Analysis
Coefficients of Determination (R)
T-statistic
F-statistic
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RATIO ANALYSIS
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RETURN ON ASSET (ROA)Maybank (%) Bank Islam (%)
1997 2 1.397
1998 0.48 0.23
1999 0.86 0.71
2000 1.68 0.5
2001 1.07 0.552002 1.56 0.55
2003 1.63 0.95
2004 1.87 0.75
2005 1.82 -3
2006 1.78 -9
2007 1.7 1.186
2008 1.52 1.653
2009 0.54 0.058
2010 1.6 1.346
2011 1.52 1.113
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Maybank (%) Bank Islam (%)
1997 7.7 6.254
1998 7.6 18.49
1999 8 14.24
2000 8.4 11.52
20017.3 9.649
2002 8.6 8.468
2003 8.6 8.389
2004 8.4 8.115
2005 8.8 4.607
2006 7.8 -1.9022007 7.7 5.347
2008 7.5 5.6
2009 8.3 5.528
2010 8.5 8.345
2011 7.9 8.675
EQUITY TO TOTAL ASSET RATIO
(EQTA)
LOAN TO TOTAL ASSET
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LOAN TO TOTAL ASSETRATIO (LOTA)
Maybank (%) Bank Islam (%)
1997 5.86 55.846
1998 6.8 58.711
1999 6.49 50.345
2000 6.23 45.77
2001 6.58 48.6972002 6.34 46.897
2003 6.37 48.161
2004 6.08 50.234
2005 6.23 58.583
2006 5.86 58.207
2007 5.49 44.191
2008 6.12 38.466
2009 5.98 35.149
2010 6.1 39.033
2011 6.17 43.935
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DEPOSITS TO TOTAL ASSETRATIO (DETA)
Maybank (%) Bank Islam (%)1997 8.26 82.347
1998 8.24 74.101
1999 8.34 83.093
2000 8.33 85.91
2001 8.46 84.9992002 8.03 88.704
2003 7.99 90.143
2004 8.07 89.762
2005 8.18 85.073
2006 8.12 98.5022007 8.03 92.231
2008 8.01 88.105
2009 7.82 91.718
2010 7.83 88.417
2011 7.87 87.862
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TREND ANALYSIS
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RETURN ON ASSET
(ROA)
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EQUITY TO TOTAL ASSET(EQTA)
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LOAN TO TOTAL ASSET
DEPOSITS TO TOTAL
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DEPOSITS TO TOTALASSET (DETA)
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INFLATION RATE
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GROSS DOMESTICPRODUCT (GDP)
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Pearson Correlation AnalysisPearson correlation coefficient shows the
relationship between two variables.The table below shows the range of strengtness of
the relationshipRANGE STRENGTH
( - ) Negative Relationship
0 No Relationship
Less than 0.30 Weak Relationship
0.30 to 0.49 Moderate
Relationship
0.50 to 0.69 Strong Relationship
0.70 to 0.99 Very StrongRelationship
1 Perfect Relationship
CORRELATION ANALYSIS (MAYBANK)
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ROA1 EQTA1 LOTA1 DETA1 INF1 GDP1
ROA1
PearsonCorrelation 1 0.25 -0.499 -0.059 -0.076 0.211
Sig. (2-tailed) 0.369 0.058 0.835 0.787 0.449
N 15 15 15 15 15 15
EQTA1
PearsonCorrelation 0.25 1 0.011 -0.367 -0.024 0.11
Sig. (2-tailed) 0.369 0.97 0.178 0.933 0.695
N 15 15 15 15 15 15
LOTA1
PearsonCorrelation -0.499 0.011 1 0.407 -0.36 -0.507
Sig. (2-tailed) 0.058 0.97 0.132 0.188 0.054
N 15 15 15 15 15 15
DETA1
PearsonCorrelation -0.059 -0.367 0.407 1 -.785** -.800**
Sig. (2-tailed) 0.835 0.178 0.132 0.001 0
N 15 15 15 15 15 15
INF1
PearsonCorrelation -0.076 -0.024 -0.36 -.785** 1 .916**
Sig. (2-tailed) 0.787 0.933 0.188 0.001 0
N 15 15 15 15 15 15
GDP1
PearsonCorrelation 0.211 0.11 -0.507 -.800** .916** 1
Sig. (2-tailed) 0.449 0.695 0.054 0 0
N 15 15 15 15 15 15
CORRELATION ANALYSIS (MAYBANK)
CORRELATION ANALYSIS (BANK ISLAM)
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CORRELATION ANALYSIS (BANK ISLAM) ROA1 EQTA1 LOTA1 DETA1 INF1 GDP1
ROA1Pearson Correlation 1 -0.186 0.504 0.047 0.279 0.398
Sig. (2-tailed)
0.507 0.055 0.867 0.313 0.141
N 15 15 15 15 15 15
EQTA1
Pearson Correlation -0.186 1 -0.346 -0.393 -.555* -.605*
Sig. (2-tailed) 0.507
0.207 0.147 0.032 0.017
N 15 15 15 15 15 15
LOTA1
Pearson Correlation 0.504 -0.346 1 0.339 .585* .765**
Sig. (2-tailed) 0.055 0.207 0.216 0.022 0.001
N 15 15 15 15 15 15
DETA1
Pearson Correlation 0.047 -0.393 0.339 1 -0.087 0.15
Sig. (2-tailed) 0.867 0.147 0.216
0.759 0.594
N 15 15 15 15 15 15
INF1Pearson Correlation 0.279 -.555* .585* -0.087 1 .916**
Sig. (2-tailed) 0.313 0.032 0.022 0.759
0
N 15 15 15 15 15 15
GDP1
Pearson Correlation 0.398 -.605* .765** 0.15 .916** 1
Sig. (2-tailed) 0.141 0.017 0.001 0.594 0
N 15 15 15 15 15 15
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MAYBANK
VARIABLES BANK PROFITABILITY
EQTA Weak Positive RelationshipInsignificant
DETA Moderate Negative RelationshipInsignificant
LOTA Weak Negative RelationshipInsignificant
INF Weak Negative RelationshipInsignificant
GDP Weak Positive RelationshipInsignificant
*. Correlation is significant at the 0.05 level (2-tailed)
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BANK ISLAM
VARIABLES STOCK PRICE
EQTA Weak Negative RelationshipInsignificant
DETA Strong Positive Relationship
Insignificant
LOTA Weak Positive RelationshipInsignificant
INF Weak Positive Relationship
Insignificant
GDP Moderate Positive RelationshipInsignificant
*. Correlation is significant at the 0.05 level (2-tailed)
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ANALYSIS
(MAYBANK)Variables Coefficient Standard Error T-statistic
(Constant) 0.697 12.816 .054
Equity to Total
Asset (EQTA) 0.140 .055 2.545
Loan to Total
Asset (LOTA)0.156 .064 2.434
Deposits to Total
Asset (DETA) 0.138 .055 2.506
Inflation 0.063 .025 2.502
Gross Domestic
Product (GDP)0.022 .009 2.541
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Regression Equation
Y = f (IPC, CPI, LR, GDP, T)
Mathematically equation
Y = + 1X1 + 2X2 + 3X3 + 4X4 + 5X5 +
Y = 0.697 + 0.140 EQTA + 0.156 LOTA + 0.138 DETA + 0.063 INF + 0.022
GDP
(0.054) (2.545) (2.434) (2.506) (2.502) (2.541)
n = 15
R = 0.586
F-statistic = 2.551
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BANK ISLAMVariables Coefficient Standard Error T-statistic
(Constant) -27.708 15.643 -1.771
Equity to Total
Asset (EQTA)
-.891 .892 -.999
Loan to TotalAsset (LOTA)
3.853 1.961 1.965
Deposits to Total
Asset (DETA)
6.028 5.292 1.139
Inflation .688 4.176 .165
Gross Domestic
Product (GDP)
.671 .908 .739
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Regression Equation
Y = f (IPC, CPI, LR, GDP, T)
Mathematically equation
Y = + 1X1 + 2X2 + 3X3 + 4X4 + 5X5 +
Y = -27.708 + -0.891 EQTA + 3.853 LOTA + 6.028 DETA + 0.688 INF + 0.671
GDP(-1.771) (-0.999) (1.965) (1.139) (0.165) (0.739)
n = 15
R = 0.696
F-statistic = 4.129
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BETA COEFFICIENT
(MAYBANK)VARIABLE COEFFICIENT
EQTA 0.140
DETA 0.156
LOTA 0.138
INF 0.063
GDP 0.022
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VARIABLE COEFFICIENT
EQTA -.891
DETA 3.853
LOTA 6.028
INF .688
GDP .671
BANK ISLAM
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T-STATISTIC
(MAYBANK)Variable T-Statistics T-Value Result
(Constant)-1.771 .110
EQTA2.545 .023
Significant
LOTA2.434 .029
Significant
DETA 2.506 .025Significant
INFLATION2.502 .025
Significant
GDP2.541 .024
Significant
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BANK ISLAMVariable T-Statistics T-Value Result
(Constant)-1.771 .110
EQTA-.713 .494
Insignificant
LOTA3.980 .003
Significant
DETA.527 .611
Insignificant
INFLATION-.264 .798
Insignificant
GDP1.020 .334
Insignificant
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F-STATISTICMaybank
= 2.551
Bank Islam
= 4.129