MAJCAFE

Wahida Ahmad
Arshad Ayub Graduate Business School, Universiti Teknologi MARA

Nur Hazimah Amran
Faculty of Business and Management, Department of Postgraduate
and Professional Studies, Universiti Teknologi MARA

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Abstract

Financing activity is one of the vital parts of banking activities. Prudent lending provides a positive effect to the banks and the large extent portrays the prosperous economic condition of a country. On the contrary, imprudent financing supply exposes banks to multiple risks and causes deterioration to the economy. The study aims to examine financing activities conducted by Islamic banks in Malaysia by investigating the possible factors that influence their financing growth. Using Pooled Ordinary Least Squares (POLS) estimation, the study estimates the unbalanced panel data of 14 Islamic banks in Malaysia that covers nine (9) years data from 2007 to 2015. The findings reveal capital, asset quality, earnings, liquidity and size are the important determinants of Islamic banks financing growth in Malaysia. Empirical findings also discover financing growth of Islamic banks in the country is slower during the financial crisis period. However, the study is unable to find a significant difference in the financing growth between the crisis and non-crisis period. Interestingly, the study can provide evidence of prudent financing disbursement among Islamic banks in Malaysia. The results show Islamic banks behave following the expected manner in deciding to disburse more financing. Hence, it is possible to conclude Islamic banks in Malaysia behave prudently in financing decision and thus, higher financing growth implies a prosperous economic condition in the country.

Keywords: Asset quality, Capital, Earnings, Financial crisis, Financing, Islamic banks, Liquidity