THE DETERMINANTS OF ISLAMIC BANK NET PROFIT MARGIN: EVIDENCE FROM MALAYSIA
As a higher net profit margin (NPM) is typically connected to higher financing and lower deposit rates, the NPM level established by Islamic banks [following the maslahah (benefit) element] should protect the benefits of banks, borrowers, and depositors. As such, this research investigated the NP...
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| Format: | Thesis |
| Language: | English |
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| Online Access: | http://umt-ir.umt.edu.my:8080/jspui/bitstream/123456789/17428/1/HG%203368%20.A6%20M32%202021-%20Extract.pdf http://umt-ir.umt.edu.my:8080/jspui/bitstream/123456789/17428/2/HG%203368%20.A6%20M32%202021-%20Full%20Text.pdf |
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| Summary: | As a higher net profit margin (NPM) is typically connected to higher financing and
lower deposit rates, the NPM level established by Islamic banks [following the
maslahah (benefit) element] should protect the benefits of banks, borrowers, and
depositors. As such, this research investigated the NPM determinants in Malaysian
Islamic banking between 2008 and 2017. Resultantly, the Malaysian Islamic bank
NPM was positively associated with bank-specific variables (risk aversion or RA,
operating cost or OC, and liquidity or LQ). On another note, saving deposit or SAV,
fixed deposit or FD, gross domestic product growth or GDP Growth, and inflation or
INF adversely influenced NPM. Additionally, the effect of several financing contracts
on NPM revealed that only the bai bithaman ajil (BBA) financing contract was
substantially connected to NPM. The second research objective implied that the net
interest margin (NIM) of conventional parent banks proved insignificant to the Islamic
bank NPM. Objectives 1 and 2 were assessed with static panel data, while the
remaining objectives were evaluated using either an independent t-test or the Mann
Whitney test. As for objective 3, a difference was identified in the NPM charged by
Islamic subsidiary and full-fledged Islamic banks where Islamic subsidiary banks
imposed lower NPM (on average) than the full-fledged counterparts. Regarding
objective 4, a difference was identified in the NPM charged by foreign Islamic and
domestic Islamic banks where foreign Islamic banks imposed a higher (on average)
NPM than domestic Islamic counterparts. Summarily, the variables affecting NPM
need to be controlled by the Islamic banks in order to attain the maslahah (benefit) of all parties. Bank-specific variables also contributed to the NPM differences offered by
the subsidiary, full-fledged, domestic, and foreign Islamic banks. In this vein, Islamic
banks needed to develop NPM from an Islamic viewpoint based on the fundamental
theory (Contract Theory or CT). This research also outlined how the variables
originated from a combination of several theories facilitating the current NPM theory. |
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