This chapter examines the level of efficiency of the Islamic banks and conventional commercial banks in term of profitability, asset management, liability management and liquidity. There are several processes that need to determine in order to examine the efficiency level of the banks. For example, determine the dependent variable and independent variables that need to be include in this study and construct a regression model. Besides, the range of the period of the study has to set and identify the method that need to employ in this study. Several kind of diagnostic test also needs to apply in order to achieve the purpose of the study. This part is divided into four sections which include data description, theoretical framework and empirical model of the study and conclusion.
For section of data description, it is mainly discuss about the sources of the data and the characteristic of the data. Following by the theoretical framework, the dependent variables and independent variables is chosen to form a regression model analysis and some explanation is being elaborated in this part. For the empirical model of the study, it will include the information of method and the model that being applies in this study.
The data that will be collect in quantitative form for this study is 10 years which is in the range of 2003 until 2012. The main reason of selecting this time frame because Global Financial Crisis is happened in 2007 and the range of the period can be used to make comparison of the performance of the bank before and after the crisis.
In this study, cross sectional data will be used. The secondary data will be obtained by collecting the annual report from each of the bank through Bursa Malaysia or their bank’s website. The figure that obtains from the annual report will be used to examine the profitability, liquidity, asset quality and liability management. Profitability ratio is used to determine the profit that the bank made during a period of time and it can be used to show the ability of management of efficiency of the bank while liquidity ratio explain the ability of the bank in managing its’ outflow of money such as the deposit outflow and loan (Hamid and Azmi, 2011). On the other hand, the asset quality is important to determine the level of lending business of the banks (Australian Bankers’ Association Inc, 2011) and the liability management can be used to determine the credit risk of a bank and its’ solvency level (Masruki, Ibrahim, Osman and Wahab, 2011).
Since the objective is used to compare the efficiency level of Islamic bank and conventional bank before and after the Global Financial Crisis, all banks which located in Malaysia had been chosen. In this study, Malaysia has been chosen as the case study due to the reason of Malaysia is a dual banking system and the globalization that happened lead to the formation changes applied to the bank. According to International Monetary Fund (2007),...