FACTORS CAUSING THE CREDIT RISK OF ISLAMIC BANKING IN MALAYSIA

NOR ELIANI, ABDUL KADI (2023) FACTORS CAUSING THE CREDIT RISK OF ISLAMIC BANKING IN MALAYSIA. [Final Year Project Report] (Unpublished)

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Abstract

The purpose of this study is to investigate the factors that cause the credit risk faced by Islamic banks in Malaysia. The sample collected for this empirical study covered five years of data started year 2017 until year 2021. The sample for this study is made up of 16 Malaysian Islamic banks, with the total observation of 80. Non-performing loan (NPL) act as dependent variables which are used as the proxies for credit risk. While the independent variables which are capital adequacy (CAR), bank size (SIZE), return on asset (ROA) and loan to deposit ratio (LDR). In addition, secondary data was gathered for this study on an annual basis from the financial reports of each Islamic bank and Orbis database. Panel data analysis is employed for the research presented. Moreover, Multicollinearity Test, Heteroskedasticity Test, and Autocorrelation Test is applied for further analysis. The results claim that there is a significant positive relationship found between capital adequacy (CAR) and credit risk (NPL). The results also indicate that there is a significant negative impact for bank size (SIZE) and return on asset (ROA) on credit risk (NPL). In contrast, an insignificant negative relationship is found between loan-to-deposit ratio (LDR) with credit risk (NPL)

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