2007-2009 Global Financial Crisis and Malaysian Banks Profitability: An Empirical Analysis

Abstract

This study explores the impact of 2007-2009 global financial crisis on Malaysian bank
profitability and examines bank-specific and macroeconomic determinants of bank
profitability for the period 2006 to 2012. The results reveal that the 2007-2009 global
financial crisis does not give an impact on Malaysian bank profitability, suggesting that
Malaysia has a sound banking system that insulated them from the crisis. The findings
also show that bank capital, credit risk and bank size determine bank profitability in
Malaysia. For macroeconomic variable, inflation exhibits a positive and significant
relationship with the return on asset (ROAA), indicating that economic condition play
a role in influencing bank profitability in Malaysia. The results offer important policy
implication; it is evident that bank capital plays important role in banking sector not
only to increase profitability, but also acts as a line of defence against risks of failure
particularly during the crisis period. Malaysian banks should adhere to international
standards (Basel III) in order to remain strong in facing the challenging economic
environment nowadays.