Effect Of Liquidity Risk To Financial Performance In Malaysia Banking Industry

1667 words - 7 pages

1.0 Overview of Study

This study is examines the empirical relationship and effect between liquidity risk and profitability performance in Malaysia banking industry. Liquidity risk is an important aspect of the banking risks. This riskiness of its portfolio and operations usually will straightforwardly vary a bank’s profitability. According to Matthews and Thompson (2008), liquidity risk refers to the likelihood inability of a bank to convene its liquid liabilities due to unpredicted extraction of deposits. The bank is incapable to meet its liability requirements but also unable financed its illiquid assets is the example of an unexpected liquidity shortage.

Koch and Macdonald (2003) further explain that liquidity risk can be categorized into two types. The first type is funding liquidity risk which refers to incapability of discharge the assets or attains sufficient funding from borrowing whereas the second type is market liquidity risk where a bank faced difficulty of unwind or offset explicit disclosures without substantial losses from insufficient market depth or market disturbances. Once a bank is unable to expect new loan demand or deposit withdraws, and cannot access to new sources of cash at that time, a bank may has the greatest liquidity risk.

In Malaysia, liquidity risk is highly concentrated in the banking sectors as it measures show both the bank’s capacity to reasonably and easily borrow funds and the quantity of liquid assets near maturity or available-for-sale at rational prices. Besides that, the bank’s equity base and borrowing capacity in the money markets is illustrated by its equity-to-asset ratio and volatile (net non-core) liability-to-asset ratio.

According to the licensed banking institution listed by Bank Negara, there are 27 commercial banks, 16 islamic banks and 15 investment banks in Malaysia. The top largest banks in Malaysia are Maybank, followed by CIMB bank, and Public bank. Most of the banks in Malaysia are concern about their bank liquidity risk. Hence, most of bank use liquidity risk management to control their bank liquidity at minimum level.

1.1 Background of Study

Malaysia

In 1913, Malaysia incorporated the first local bank but a wide-ranging financial sector appeared only after the formation of the Central Bank of Malaysia in 1959. There are major modifications take place in the Malaysia banking system over the thirty years. The Malaysia financial system can generally distributed into the banking system and the non-bank financial intermediaries. For the banking system, there has commercial bank, Islamic bank, international Islamic bank, and investment bank. All of them carry out different functions and activities due to their own bank’s role.

Liquidity problem is a popular issue that exists commonly in a bank as liquidity risk is varies with overall economic environment. If there is an economic crisis, bank will also face the liquidity crisis. A bank normally has high liquidity risk...

Find Another Essay On EFFECT OF LIQUIDITY RISK TO FINANCIAL PERFORMANCE IN MALAYSIA BANKING INDUSTRY

The marketing implication of the online banking in Malaysia

3386 words - 14 pages as compared to other nations across the globe, banks in Malaysia should not lag behind the changes of technology especially since the Malaysian financial industry is poised to open its doors to foreign banks by 2005. To face the competition from globalization, local domestic banks must fully utilize the internet to improve their efficiency and profitability.Online Banking in MalaysiaOnline banking was introduced as a new alternative delivery

Automobile Industry of Malaysia Essay

1021 words - 4 pages range from 45 to 60 percent for vehicles and motorcycles, and incorporates a "deletion list" of parts which must be sourced in Malaysia. Most import duties are based on engine size and capacity. This "national car policy" prevents American cars from competing on a price basis, particularly for larger sized, American cars and motorcycles.Domestic Industry Thrives Under ProtectionMalaysia argues that the national car industry needs more preparation

Banking Industry In Bangladesh

5291 words - 21 pages /it-emergence-recent-trends-in-banking-industry)There is competition not only from other banks but also from non-bank financial institutions (NBFI) and micro finance institutions (MFI). Not only are the institutions competing, the regulators and customers are also pitting one against the other, making the situation extremely difficult giving the feeling of being stuck between a rock and a hard wall.A customer will often try to make the best out of

Spillover of the US Subprime Loan Crisis to Australia in Relation to the Banking Industry

4012 words - 16 pages and the foreign exchange. The effect on other industries and countries will be explored further in this essay yet the true effects will not be accurately evident for many months and maybe even years to come as they gradual reveal themselves.How has this crisis affected the U.S. banking industry?The United States banking industry has suffered significant losses as a result of the sub prime crisis and mortgage bonds falling in value, which led to

Stress in banking industry

1699 words - 7 pages Money is the lifeblood of the world and therefore, the employees of financial institutions must face an unmeasurable level of stress from time to time. In this essay, I’ll discuss the main reasons that contribute the stress in the banking industry (particularly in the UK), the effects of stress on different parties and how the financial institutions and individuals somehow manage to reduce the stress resulted from their workload. In commercial

Overview of Telecommunication industry in Malaysia: Industry Analysis with Michael Porter's 5 Forces

894 words - 4 pages Overview of Telecommunication IndustryThe market for mobile services in Malaysia is highly competitive. Prior to the liberalisation of the telecommunications industry in Malaysia, Telekom Malaysia had a virtual monopoly on telecommunications services in Malaysia. In recent years, the Government has taken steps to introduce managed competition in the industry by awarding various telecommunications licences. To date, the Government has awarded

Risk and types of Financial Risk

1611 words - 6 pages Value at Risk -Introduction As Walter Wriston, former chairman of Citigroup, said “All of life is the management of risk, not its elimination” and nowadays modern banking is about controlling risk and returns. The ability of a financial institution to control risk is a key factor that determines its success or its failure in markets. As the late financial crisis has demonstrated institutions that were not properly prepared to face the crisis

Financial Risk in Sukuk structures

2616 words - 10 pages derivative mechanisms are employed in order to supervise the risk of the customary predetermined revenue mechanisms. These mechanisms are not accessible to Islamic asset executives. The Islamic Bond, or Sukuk, defaults of Kuwait's Investment Dar and Saudi Arabia's Saad Group this year rose uncertainty on the Financial Risks inherent in Sukuk structures. Interest rate swaps and other derivative instruments are utilized to manage the risk of the

Regulation of Banking and Financial Services

1525 words - 6 pages Regulation of Banking and Financial Services The Failure Process Imposed Upon Financial Institutions The concept of systemic risk sprung to the foreground of the public’s consciousness during the financial crisis of 2007-8 as the Too Big To Fail (TBTF) banks were bailed out by the various US Federal Government agencies e.g., US Treasury via the Troubled Asset Relief Program (TARP) and the US Federal Reserve via Quantitative Easing (QE). However

The Cause of Financial Distress in Airlines Industry

1496 words - 6 pages dramatic was the industry’s plunge into record operating losses and a financial crisis between 2000 and 2005, with cumulative net losses of $40 billion. There are various factors that influence the airline performance such as efficacy of capacity, structural changes, increase in competition, economy slowdown, high labor, as well as, high fuel prices which jeopardize the aviation industry. Most of the aviation companies are struggling to manage

Corporate governance and firm performance in Pharmaceutical industry of Pakistan

3362 words - 13 pages might result in positive performance if such duality exists as a reward, but if the reason was to increase the CEO's power than it might have a negative effect on the performance of the firm.(Krivogorsky, 2006): It has been argued that the "empirical and theoretical literature in corporate governance considers the relationship between corporate performance and ownership or structure of boards of directors mostly using only two of these variables at a

Similar Essays

Effect Of Liquidity On The Financial Performance Of Deposit Taking Microfinance Institutions In Kenya

1365 words - 6 pages period (16.4 billion). This means that DTMs had to partially depend on more expensive sources of finance like commercial bank loans to grow their portfolios. This dependence on commercial bank loans is what leads to liquidity challenges which consequently affect the performance of DTMs. PURPOSE OF THE STUDY Research on liquidity and its effect on profitability have mostly concentrated on the banking sector. Banks being financial intermediaries

Financial Performance Of Islamic Banking And Conventional Banking In United Kingdom A Comparative Study

1423 words - 6 pages the financial performance of European Islamic Investment Bank (UK) with Allied Irish bank (UK) and Northern Bank (UK), In Terms of their Profitability, Liquidity, Risk & solvency & Efficiency Ratios which will give an insight comparison of overall financial performances of European Islamic Investment Bank with Allied Irish bank And Northern Bank. 1.4- Research Objective Research Objectives are set of goals which researchers intends to make

Financial Performance Benchmarking In The Electricity Distribution Industry

2680 words - 11 pages A Review of Research Literature Results on Financial Performance Benchmarking in the Electricity Distribution Industry Introduction Since the late 1980s, there has been significant regulatory reform in the electricity transmission and distribution industries in many countries. Under traditional cost-of-service rate regulation, companies recover their costs under a regulated rate of return, which may provide little incentive to minimize costs

Ways To Minimize The Risk Of Child Kidnapping In Malaysia

1903 words - 8 pages According to statistic provided with Council for Anti-Trafficking Persons and Anti-Smuggling of Migrants (MAPO), 118 cases of child kidnapping were reported on February 2008 and 0ctober 2010 in Malaysia. This report shown that child kidnapping had widespread. Parents should always play their role and implement some ways to keep the children’s safety. There is three ways to minimize the risk of child kidnapping, which is educate their children