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E-PROCEEDING OF THE 6TH INTERNATIONAL CONFERENCE ON SOCIAL SCIENCES RESEARCH 2017

A STUDY ON PERFORMANCE EVALUATION OF ISLAMIC BANKS IN MALAYSIA: IN THE PERCEPTION OF RESOURCE

MOBILIZATION (DEPOSITS)

Dr. Dhanuskodi Rengasamy Faculty of Business

Curtin University, Malaysia [email protected]

ABSTRACT

The objective of the study is to examine the performance of Islamic banks in Malaysia through deposit mobilization for the period of 2011 to 2016. The study included all 16 Islamic banks functioning in Malaysia. Further the study period is classifying in to two separate segments are 2011 to 2013 and 2014 to 2016 and to find out any difference between the period of operation and performance. The deposit mobilization performance is measured through Financial Ratio Analysis (FRA) are Loan deposit ratio (LDR), Investment deposit ratio (IDR) and Cash deposit ratio (CDR). To test the hypothesis, the study applied Student t-test.

Field of Research: Islamic banks, performance, deposit mobilization, financial ratio analysis.

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1. Introduction

Islamic banking is a financial institution that complies with Islamic law (Sharia). There are different modes of Islamic banking operations around the world. The modes of operations are based on profit and loss sharing (Mudarabah), safe keeping of resources (Wadiah), joint venture (Musharaka), cost plus action (Murabahah) and leasing operation (Ljar). According to Naveed. M (2014) the existing size of Islamic finance industry is range from $1.88 Trillion to $2.1 Trillion. Further his expectancy of market size to be $3.4 Trillion by end of 2018. The World Islamic Banking competitiveness report (2016) mentioned that Malaysia’s Islamic banks occupies 15.5 per cent share in global market and 21.3 per cent in national market in the point of banking assets. Globally Malaysia occupies second place in international participation of banking assets next to Saudi Arabia.

Islamic banks occupy a predominant role in the growth of gross domestic product in developing countries (Daly and Frikha, 2016). According to Fasih (2012) and Huda (2012), Islamic banking is contributing a remarkable support to farmers and SMEs and also encourage economic growth as a whole country. Many studies have been conducted and analysed the relationship between Islamic finance system and economic growth, all these studies provided evidences and supportive to the study information (Johnson, 2013; Warde, 2000; Yazdan & Hossein, 2012).

1.1 Islamic Banking in Malaysia – An Overview

The origin of Islamic finance in Malaysia, as in most other countries of the world, was non-institutional. The growth of Islamic banking in Malaysia is not a new, traces its origin back to 1963. The concept of Islamic finance had been generated while the Pilgrims Fund board or Lembaga Tabung Haji (LTH) was established in the year 1963 in Malaysia. It was an institution established to

E-PROCEEDING OF THE 6TH INTERNATIONAL CONFERENCE ON SOCIAL SCIENCES RESEARCH 2017 (ICSSR 2017).(E-ISBN: 978-967-0792-23-1). 4th December 2017, Melia, Kuala Lumpur, Malaysia.

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invest the savings of the local Muslims in productive sectors of economy as interest free (uncontaminated by riba) who intend to perform pilgrim (Haji).

The Pilgrims’ Management and Fund Board (PMBF) was set by legal in August 1969 by through the merger of two important institutions are the Malaysian Muslim Pilgrims Savings Corporation and Pilgrims Affairs Department of the Government. Following the successful operation of the Board, it put forth continual request on the government to establish an Islamic Bank. In 1980 Bumiputra Economic Congress passed the resolution and requested the government to countenance the PMBF to establish Islamic banks in Malaysia. The seminar was held in one of the National Universities of Malaysia (Universiti Kebangsaan Malaysia) on March 1981, the participants were requested the government to issue a law to allow Islamic banks.

The government appointed Steering Committee of Islamic Bank to study the operations of Faisal Islamic Bank of Sudan and Faisal Islamic Bank of Egypt on 30 July 1981. The national steering committee comprises three technical committees were religious committee, legal committee and banking operation committee. The steering committee submitted its report on 5 July 1982 to the government and it was accepted. After all the Malaysian Islamic system started with Islamic Banking Act (IBA) that came in to effect on April 1983. The first Islamic Bank in Malaysia was incorporated as a limited company under the Companies Act 1965, the Bank Islam Malaysia Berhad (BIMB) began its operation on 1 March 1983. In the year 1989 the Banking and Financial Institutions Act of 1989 (BAFIA) was established and it provides tools for liquidity requirements and channels for investment. Another remarkable instant in Malaysian Islamic Banking system denotes BIMB was listed on the main board of the Kuala Lumpur stock exchange on 17 January 1992.

In the year 1993 the commercial banks and merchant banks in Malaysia were allowed to offer Islamic products and services to the people through Islamic Banking system (IBS). In 1996 Amendments were incorporated in BAFIA to allow all conventional banks to offer sharia compliance products to their customers through Islamic window. Followed with conventional bank operations the Central Bank of Malaysia set up National Sharia Advisory Council (NSAC) on 1 May 1997 to dealt Islamic banking and Takaful issues. In the year 1999 Bank Negara Malaysia (BNM) introduced the new concept which the banks had Islamic Banking subsidiary and it operated under Islamic window could convert and set up as full-fledged Islamic banks. The second Islamic Bank in Malaysia was established on 1 October 1999 in the name of Bank Muamalad Malaysia Berhad.

On 2004 the Central bank of Malaysia brought forward liberalization policy on Islamic banking to allow three full-fledged foreign Islamic banks to set up in Malaysia (AFB, Al-Rajhi, and KFH). Islamic Financial Policy 2004 contributed continuously further strengthening the fundamental essential for progressive Islamic banking industry. BNM understand the importance of Islamic banking in Malaysia to set up International Centre for Education in Islamic Finance (INCEIF), it is a dedicated University was established in 2006, it provides trained, skilled and certified personnel to Malaysian Islamic Finance industry.

The Malaysia International Islamic Financial Centre (MIFC) was launched in 2006 based on Kuala Lumpur, Malaysia.it is an initiative of financial market regulators and relevant government agencies to developing Malaysia’s Islamic finance market. In 2013 Islamic Financial Services Act 2013 (IFSA) passed by Parliament, enacted to safeguard financial stability as well as to statutorily monitor and enforce Shariah compliance. According to BNM website, there are 16 Islamic banks functioning in Malaysia. The name and year of establishment is provided in table 1. The serial number against each bank is used for analysis purposes instead of using individual bank name.





Table 1: List of Islamic Banks in Malaysia

SN Name of the Bank Ownershipyear of

Establishment1 Affin Islamic Bank Berhad L 2006

2Al Rajhi Banking & Investment Corporation (Malaysia) Berhad F 2006

3 Alliance Islamic Bank Berhad L 20074 AmBank Islamic Berhad L 20065 Asian Finance Bank Berhad F 20056 Bank Islam Malaysia Berhad L 19837 Bank Muamalat Malaysia Berhad L 19998 CIMB Islamic Bank Berhad L 20059 HSBC Amanah Malaysia Berhad F 2007

10 Hong Leong Islamic Bank Berhad L 200511 Kuwait Finance House (Malaysia) Berhad F 200512 Maybank Islamic Berhad L 200813 OCBC Al-Amin Bank Berhad F 200814 Public Islamic Bank Berhad L 199315 RHB Islamic Bank Berhad L 200516 Standard Chartered Saadiq Berhad F 2008

Source: Bank Negara Malaysiahttp://www.bnm.gov.my/?ch=li&cat=islamic&type=IB&lang=en

1.2 Objectives of study

The main objective of the study is to examine the performance of Islamic Banks in Malaysia through its deposits related ratios. The specific objectives of the study are as follows.

1. To examine the performance of Islamic banks in Malaysia through its resource mobilization (Deposits).

2. To identify whether any difference exists between banks years of operation and its resource mobilization performance

1.3 Chapter Arrangements

Present research is organized in to five sections, section one comprises introduction of the study, Islamic banks in Malaysia – an overview and objectives of the study. Section two contains various literatures related to variables of the study, section three includes information about research methodology, section four and five focuses result and analysis and summary & conclusions of study respectively.

2. Literature Review





The most important aspect of the research is review of literature. The research has to begin where others have left and as such, survey of related literature is an essential of stage in the planning of the study. In this section an attempt is made to review the literature in connection with bank performance through deposits and related ratios. The purpose of measuring bank performance is to understand how well the bank is performing. Banks performance is measured through various methods. One of the techniques of measuring is FRA. Bank deposits constitutes the main source of funds for bank and it contributes important role in the bank performance. Therefore many studies applied deposit related ratios as performance measures.

2.1 Literature review – Outside Malaysia research

Many studies conducted the performance of banks through ratio analysis, a study conducted by Muthumeena, M and Jeyakumaran, M (2017) applied ratio analysis for assessing profitability, liquidity and non-performing assets of urban co-operative banks in India. The study applied one of the deposit ratio (C/D ratio (credit- deposit ratio) for measure the performance. Another study by Daly, S and Frikha, M (2017) confirmed that increase size of Islamic banks and customers’ deposits are the important determinants of bank performance. Sahota, S. and Dhiman, B (2017), analyses performance of scheduled commercial banks in India by Camel model approach, which applied one of the ratios liquid assets to total deposits.

Ferrouhi, E.M (2017) study identifies the determinants of bank performances in a developing country as an evidence Morocco, it identifies deposits and deposit interest rates are one of the measures of long term performance of Moroccan commercial banks. Sukmana, R and Febriyati, N.A (2016), conducted a financial performance of Islamic banks and conventional banks in Indonesia and applied few deposit related ratios are loan deposit ratio and financing deposit ratio. Bank deposit and deposit ratios are important tools for bank performance specifically Islamic banks. Rashid, A and Jabeen, S, 2016 analyzing determinants of performance for conventional bank versus Islamic banks in Pakistan, specifically the study analyse the operating efficiency of Islamic banks through deposits.

Agustin, H (2016), prepared a research study on the financial performance of Islamic banking unit in Indonesia through panel data analysis, it also shows deposits play a significant role in explaining the performance. Bilal, Z.O and Durrah, O, M (2016) steered a comparative study on performance of Islamic banks and conventional banks evidence from Oman employed financial ratio analysis including credit to deposit ratio. The present study includes various literature related to performance of banks with deposit related ratios in different countries, the following section focuses few literatures associated to Malaysia based research.

2.2 Literature Review – Malaysia research

Foong, W. M (2016) study analyses the efficiency of full-fledged Islamic banks and Islamic subsidiaries of conventional banks in Malaysia using stochastic production Frontier (SFA) model, it revealed that the Malaysian banking industry has grown very fast in terms of assets, deposits and financing base. Another study conducted by Rozzani, N and Rashidah A.R (2013) identifies the determinants of bank performance in the case of conventional and Islamic banks in Malaysia applied CAMELS rating measures, it includes two financial measures are related to deposits of the banks are net loans/deposits and short term funding and liquid assets/deposits and short term funding. Rossazana, Norlina and Farhana (2013) study analyses efficiency performance of Malaysian Islamic banks, data envelopment analysis is employed, the study focused on cost efficiency and technical efficiency.


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Abdul Hamid, M and Marina Azm (2011) research paper examined the performance of Bank Islam and conventional banking in Malaysia. The study applied financial ratio as measure for performance, for measuring the performance under commitment to economy and Muslim community, it applied a ratio i.e. Government bond investment ratio, over the total deposit has been considered for calculations. Mokhtar, H. S., et.al. (2006) study applied SFA technique to identify the efficiency of Malaysian Islamic banks. This study used various ratios related to deposit of banks.

After studying various literatures from different sources, it is understand that there are studies related to Islamic bank performance and efficiency, most of the studies adopted FRA and T-test for measuring the performance. In particular many studies implemented deposit related ratios for measuring the performance. But there is no much studies to apply only deposits as a performance measures. Further no many studies considers all Islamic banks for the analysis. The present research concentrates only deposit related ratios for all Islamic banks in Malaysia.

2.3 Variables of the Study – Islamic Bank Deposits

The annual reports of Islamic banks in Malaysia shows deposits in the liability side of the balance sheet. The Islamic bank deposits are mainly classified in to two sections are deposits from customers and deposits and placements of banks and other financial institutions. Before discussing the financial statement information, it is necessary to understand meaning of the term Mudharaba, it is an investment or entrepreneurial contract. In worldwide, the concept Mudharaba means accept customers funds and enter in to investment and share profits (if any), on the same time if any loss, the customer will borne that capital losses.

Before Islamic Financial Services Act 2013 (IFSA) the financial statements of Islamic Banks in Malaysia shows the deposits from customers are classified in to Non-Mudharabah funds and Mudharabah funds. Non-Mudharabah funds includes demand deposits, savings deposits, negotiable Islamic debt certificates and commodity Murabahah. The Mudharabah funds includes demand deposits, savings deposits, general investment deposits and special investment deposits. According to Islamic Bankers Resource Centre’s article posted on January 2, 2015 stated that after IFSA 2013 the Mudharaba is classified as investments, instead of investments that behaves like a deposit. Further it stated that there is no difference between before and after IFSA 2013, the clause where the capital investment of the Mudharaba is open to potential losses has always been applicable. Only for the classification of Mudharaba as investment post June 2015, the treatment on how a Mudharaba investment is processes, managed and executed now changes.

After Islamic Financial Services Act 2013 (IFSA) the financial statements of Islamic Banks in Malaysia shows the deposits from customers are classified in to savings deposits – Wadiah, Demand deposits – Wadiah and Commodity Murabahah, Term deposits – commodity Murabahah and Wadiah Corporate deposits, Specific investment account – Murabahah and General investment account – Mudharabah.





The details of deposits information presented in financial statement of Islamic Banks in Malaysia is summarized in figure 1





Figure 1 Islamic Bank Deposits in Malaysia – Classifications before and after IFSA 2013

Deposits

Deposits from Customers

Deposits and Placements of Banks and Other Financial

Institutions

NON –MUDHARABAH

FUNDS

a. Demand Depositsb. Savings Depositsc. Negotiable Islamic

Debt Certificate d .Commodity

Murabahah

MUDHARABAH FUNDS

a. Demand Depositsb. Savings Depositsc. General Investment

Depositsd. Special investment

Deposits

NON –MUDHARABAH

FUNDS

a. Licensed Islamic Banks

b. Licensed Banksc. Licensed Investment

Banksd. Bank Negara

Malaysia

MUDHARABAH FUNDS

a.Licensed Islamic Banks

b. Licensed Banksc. Other Financial

Institutions

Deposits

Deposits from Customers

Deposits and Placements of Banks and Other Financial

Institutions

SAVINGS DEPOSITS Wadiah

DEMAND DEPOSITS Wadiah Commodity

Murabahah

TERM DEPOSITS Commodity

Murabahah Wadiah

Corporate Deposits

SPECIFIC INVESTMENT

ACCOUNT Murabahah

GENERAL INVESTMENT

ACCOUNT Mudharabah

NON –MUDHARABAH

FUNDS

a. Licensed Islamic Banks

b. Licensed Banksc. Licensed Investment

Banksd. Bank Negara

Malaysia

MUDHARABAH FUNDS

a.Licensed Islamic Banks

b. Licensed Banksc. Other Financial

Institutions

Before 30 June 2015 After 30 June 2015





The present research applies various ratios related to Islamic bank deposits, for the calculation of ratios, the study considered deposits means deposits from customer, banks and other financial institutions. The deposit related ratios are as follows.

2.3.1 Credit Deposit Ratio (CDR)

This is commonly used to assess the bank’s liquidity performance by dividing the banks financing and advances divided by total deposits. The ratio has been expressed in percentage. If the ratio is too high means the banks not have enough liquidity funds to meet unforeseen requirements, conversely the ratio is too low means the banks may not be earning as much it could be. As per prudence and tradition the ideal percentage of this ratio is between 80% and 90%. For the calculation purpose credit includes financing, advances and other loans in the balance sheet.

2.3.2 Investment Deposit Ratio (IDR)

This ratio is applicable to assess the bank performance specifically liquidity performance. In point of view Islamic banks the term investment includes securities purchased under resale agreement, deposits and placement with other financial institutions, financial assets held-for-trading, derivative financial assets, financial assets available-for-sale and financial assets held-to-maturity. The ratio indicates absolute investment in relation to absolute growth in deposits.

2.3.3 Cash-to- Deposit Ratio (CTDR)

The ratio indicates how much bank lends money to the customers out of the deposits it has mobilized. It identifies how much of bank core funds are being used for lending. For computation of ratio cash includes cash and short term funds and statutory deposits with BNM.





2.4 Conceptual Framework Model

Figure 2 Conceptual framework

Credit Deposit Ratio (CDR)

Investment Deposit Ratio (IDR)

Cash-to-Deposit Ratio (CTDR)

Performance of Banks

Deposit Ratios

2.5 Research Hypothesis

Based on literature and research objectives the following null hypothesis has been generated.

HO1. There is no significant difference between 2011- 2013 and 2014 - 2016 credit deposit ratio and financial performance for Islamic banks in Malaysia.

HO2. There is no significant difference between 2011- 2013 and 2014 - 2016 investment deposit ratio and financial performance for Islamic banks in Malaysia.

HO3. There is no significant difference between 2011- 2013 and 2014 - 2016 cash-to- deposit ratio and financial performance for Islamic banks in Malaysia.

3. Research Methodology

The present study examines the performance of Islamic banks in Malaysia through its deposit mobilization for the period of 2011 to 2016. The study applied financial ratio analysis (FRA), the ratios are associated with deposit mobilization of banks. FRA is a useful management tool to measure the performance and help to compare past year performance. Previously a study conducted by Islam M.A (2014) applied FRA for measuring the performance of National Bank limited in Bangladesh for





the period of 2018 to 2013. For analysis purpose, various financial ratios related to deposits of the banks are taken. There are 16 Islamic banks functioning in Malaysia, the study considered all banks for analysis. The data has been collected from annual reports of all 16 banks, the study collected six years annual reports for each bank, therefore it comes around 96 (16 banks and 6 years) annual reports for the study. The tool for the analysis is FRA method and for the hypothesis test the study applied student’s T- test. The purpose of applying this technique is to determine if two sets of data are significantly different from each other. The T-test was introduced by William Sealy Gosset in 1908, he was working in Guinness brewery in Dublin Ireland, he denoted this test as student’s T-test.

The study is based on secondary data, the data was collected from annual reports of all banks. The data analysis includes descriptive statistics (Mean, minimum, maximum, and standard deviations) and student’s T-test to calculate data and find difference between two periods of 2011 to 2013 and 2014 to 2016.

To examine the performance of all Islamic banks in Malaysia through deposits related ratios is the main objective of the study. The indicators are selected to study are Credit Deposit ratio (CDR), Investment Deposit ratio (IDR), and Cash-to- Deposit ratio (CTDR). Most of the previous studies analyses performance of selected Islamic banks through all ratios but the present research mainly focuses deposit related ratios for all Islamic banks functioning in Malaysia for the period of six years from 2011 to 2016.

This study mainly based on secondary quantitative data, method of collecting secondary data is from the annual reports of all Islamic banks in Malaysia. According to BNM website there are sixteen Islamic banks functioning in Malaysia, from this 6 of them are foreign ownership and the remaining 10 are locally owned Islamic banks. Those Islamic banks annual report for the period of six years are chosen for analysis.

The data analysis was made by deposit ratios and also study period is classified in to two divisions are 2011 to 2013 and 2014 to 2016, with the help of two divisions to find out any differences between the period of operation and performance. Further the study applied student’s t-test for testing hypotheses and to determine the ratio effective difference in two periods. For calculation of differences denote as μd for 2011-2013 ratio minus 2014-2016 ratio ((μ1 – μ2). (μ1 – μ2). On the basis of data the following hypothesis has been tested.

Here, μ1and μ2 denotes mean value of ratios for 2011-2013 and 2014-2016 respectively and μd is the difference between two period values. The decision rule for hypothesis testing is based on the P value. If P-value ≤ α (α = 0.05), reject the null hypothesis. If P-value > α (α = 0.05), do not reject the null hypothesis.

4. Results And Analysis

In this section an attempt is made to evaluate the performance of Islamic banks in Malaysia during the study period. The performance is analysed through various deposit related ratios of the bank. The activities are tested with tools like mean, SD, and student’s t-test.

4.1 Credit Deposit ratio (CDR)





Credit deposit ratio, is the ratio of how much a bank lends out of the deposits it has mobilized from the public. The descriptive information of CDR for all Islamic banks in Malaysia is presented in table 2.

2011 - 2013 2014 - 2016 Overall Mean SD Mean SD Max Min Bank 1 50.07 10.21 71.89 17.7 92.3 38.46 Bank 2 73.44 5.696 79.64 3.09 82.5 69.54 Bank 3 73.54 2.537 77.57 1.76 79 70.65 Bank 4 83.34 3.548 87.21 4.01 91.8 79.24 Bank 5 60.25 10.95 72.07 1.99 74.1 48.02 Bank 6 57.12 4.78 75.87 3.88 78.7 51.86 Bank 7 50.35 6.39 68.87 2.93 44.3 72.25 Bank 8 73.15 4.104 83.66 3.07 86.8 70.48 Bank 9 78.73 5.175 92.1 16.3 110 72.76 Bank 10 59.98 9.842 78.68 2.44 81.4 49.32 Bank 11 76.6 9.317 79.76 3.71 84.5 66.31 Bank 12 74.14 1.329 85.71 5.81 89.9 72.88 Bank 13 68.54 5.321 72.67 2.3 74.7 62.78 Bank 14 73.54 2.947 77.93 4.68 83.1 70.65 Bank 15 68.84 6.69 84.05 7.7 92.9 61.12 Bank 16 62.46 7.127 89.66 24.5 117 55.21

Table 2: Credit Deposit Ratio

The table 2 reveals that the mean value of the first period to next period has been increased for all banks, for example Bank 1 mean value was 50.07 in 2011-2013 and 2014-2016 was 71.89 which shows quit well perform, it has been interpret as Malaysian Islamic banks have more reliance on lending resources through their deposits. During the study periods all banks mean value has been increased from one period of study to another period of study. Specifically Bank 9 mean value increased from 78.73 to 92.1. Therefore Malaysian Islamic banks should maintain the same progress of CDR for the future period also.

4.2 Investment Deposit ratio (IDR)

This ratio explains the absolute growth in investment relation to absolute growth in deposits of the bank. If this ratio is high it indicates the banks are high level of liquidity, if it is high liquid the customers are happy to invest in the form of deposits to the bank. A detailed mean value and SD for two periods of this ratio is presented in table 3.





2011 − 2013 2014 − 2016 𝑂𝑣𝑒𝑟𝑎𝑙𝑙 𝑀𝑒𝑎𝑛 𝑆𝐷 𝑀𝑒𝑎𝑛 𝑆𝐷 𝑀𝑎𝑥 𝑀𝑖𝑛 𝐵𝑎𝑛𝑘 1 23.57 2.39 13.46 0.12 25.75 13.39 𝐵𝑎𝑛𝑘 2 16.62 3.57 28.07 2.1 30.04 12.54 𝐵𝑎𝑛𝑘 3 31.45 3.99 21.6 4.69 35.97 17.06 𝐵𝑎𝑛𝑘 4 17.95 5.7 19.64 2.45 22.91 11.73 𝐵𝑎𝑛𝑘 5 24.67 4.01 37.31 2.29 39.44 22.13 𝐵𝑎𝑛𝑘 6 43.13 6.9 24.46 2.94 49.48 21.74 𝐵𝑎𝑛𝑘 7 32.68 5.12 33.53 2.55 36.68 26.91 𝐵𝑎𝑛𝑘 8 16.39 5.09 15 0.84 22.03 12.14 𝐵𝑎𝑛𝑘 9 11.39 3.87 21.51 10.06 33.1 6.93 𝐵𝑎𝑛𝑘 10 33.14 3.22 24.81 5.76 35.78 19.15 𝐵𝑎𝑛𝑘 11 21.47 2.68 16.33 2.40 24.44 14.35 𝐵𝑎𝑛𝑘 12 10.76 2.59 6.572 0.48 12.77 6.02 𝐵𝑎𝑛𝑘 13 32.55 8.84 23.33 0.53 37.72 22.34 𝐵𝑎𝑛𝑘 14 12.51 1.3 23.55 1.94 25.77 11.41 𝐵𝑎𝑛𝑘 15 23.29 5.36 19.17 2.95 27.2 17.18 𝐵𝑎𝑛𝑘 16 7.871 9.14 6.334 3.73 18.34 1.537 Table 3: Investment Deposit Ratio If the mean value for two periods increased which indicates bank is more liquid as well as bank use their deposits in investment. It is observed that all Malaysian Islamic banks IDR (except Bank 2, 4, 5, 7 and 14) has been decreased from the first period to next period. Therefore the identified banks should focus on improve the investment deposit ratio.

4.3 Cash-to- Deposit ratio (CTDR)

The ratio indicates how much of a bank’s core funds are used for the purpose of lending, this is main and core activity of the bank. Further this ratio helps customers can be sure the withdrawal of the money from their deposits. Mean value, standard deviation for two different periods are presented in table 4.





2011 - 2013 2014 - 2016 Overall Mean SD Mean SD Max Min

Bank 1 34.81 5.83 26.76 4.64 41.22 21.76 Bank 2 16.62 3.57 28.07 2.1 30.04 12.54 Bank 3 31.45 3.99 21.6 4.69 35.97 17.06 Bank 4 19.91 7.38 15.2 1.68 28.35 13.32 Bank 5 36.93 15.9 14.17 1.38 54.17 12.6 Bank 6 12.14 3.8 10.57 0.42 15.68 8.125 Bank 7 29.55 9.84 9.01 0.44 40.4 8.52 Bank 8 18.79 3.07 15.48 2.06 21.91 14.28 Bank 9 21.98 4.89 23.73 14.5 37.5 8.53

Bank 10 18.15 12.6 9.72 1.12 32.31 8.35 Bank 11 24.93 3.32 23.99 4.83 29.57 21.18 Bank 12 17.56 0.93 11.89 3.65 18.33 8.74 Bank 13 9.516 5.01 13.58 2.72 16.69 3.86 Bank 14 16.77 10.2 9.04 3.63 24.64 4.84 Bank 15 20.76 7.91 16.2 5.73 29.89 10.57 Bank 16 37.34 15.3 20.11 6.15 55.01 16

Table 4: Cash-to- Deposit Ratio (CTDR)

Table 4 shows that the cash deposit ratio for two different period is fluctuate. The main reason for the fluctuation of the ratio is based on the statutory deposits with BNM is volatile. Bank 2, 9, 13 have more cash assets from its deposits as compared to all other Islamic Banks for the period 2011-2013 to 2014 – 2016.

4.5 Hypothesis Testing

The performance of Malaysian Islamic banks on the basis of deposit mobilization for the period 2011 – 2013 is statistically differ from that of 2014 – 2016. Student’s t-test is employed for all 16 Islamic banks in Malaysia and applied three ratios. An attempt is made to find out the student’s t-test result of all Islamic banks in Malaysia are presented in table 5.





BANK 1

Student's T-test Score

P - Value

Decision

BANK 2


P - Value

Decision

BANK 3


P - Value

Decision

CDR -2.809 0.053 Accept CDR -3.104 0.045 Reject CDR -5.760 0.014 RejectIDR 7.366 0.018 Reject IDR 10.369 0.005 Reject IDR 5.831 0.014 RejectCTDR 2.483 0.066 Accept CTDR 3.089 0.045 Accept CTDR -2.641 0.059 Accept

BANK 4


P - Value

Decision

BANK 5


P - Value

Decision

BANK 6


P - Value

Decision

CDR -1.737 0.112 Accept CDR -1.589 0.126 Accept CDR -29.854 0.001 RejectIDR -0.361 0.376 Accept IDR -9.012 0.006 Reject IDR 7.874 0.008 RejectCTDR 0.910 0.229 Accept CTDR 2.286 0.075 Accept CTDR 0.803 0.253 Accept

BANK 7


P - Value

Decision

BANK 8


P - Value

Decision

BANK 9


P - Value

Decision

CDR -8.182 0.007 Reject CDR -8.543 0.007 Reject CDR -1.085 0.196 Accept

IDR -0.200 0.430 Accept IDR 0.408 0.361 Accept IDR -0.3420.38

2 AcceptCTDR 3.694 0.033 Reject CTDR 1.537 0.132 Accept CTDR -0.202 0.429 Accept

BANK 10


P - Value

Decision

BANK 11


P - Value

Decision

BANK 12


P - Value

Decision

CDR -4.194 0.026 Reject CDR -0.457 0.346 Accept CDR -2.823 0.053 AcceptIDR 1.720 0.114 Accept IDR 6.221 0.012 Reject IDR 3.437 0.038 RejectCTDR 1.087 0.195 Accept CTDR 0.216 0.425 Accept CTDR 2.147 0.082 Accept

BANK 13


P - Value

Decision

BANK 14


P - Value

Decision

BANK 15


P - Value

Decision

CDR -1.055 0.201 Accept CDR -1.558 0.130 Accept CDR -3.808 0.031 RejectIDR 1.745 0.112 Accept IDR -6.180 0.013 Reject IDR 1.317 0.159 AcceptCTDR -2.082 0.086 Accept CTDR 1.043 0.203 Accept CTDR 0.800 0.254 Accept

BANK 16


P - Value

Decision

Table 5 Student’s t-test result of all Islamic banks in Malaysia





CDR -2.311 0.074 AcceptIDR 0.378 0.371 AcceptCTDR 1.551 0.131 Accept

The result of this analysis shows that student’s t-test score, p value and hypothesis decisions for each bank with all three ratios are provided. According to student’s t- test if p value ≤ α (α = 0.05), in this case reject the constructed null hypothesis. In vice versa If p-value > α (α = 0.05), do not reject the constructed null hypothesis.

Credit deposit ratio is calculated for all 16 Islamic banks in Malaysia, banks 1, 4, 5, 9, 11, 12, 13, 14 and 16 p value is 0.053, 0.126, 0.196, 0.346, 0.053, 0.201, 0.130 and 0.074 are greater than one tailed at α = 0.05, so do not reject null hypothesis. Therefore there is no significance difference between two periods CDR and performance for specific Islamic banks in Malaysia. The other Islamic banks 2, 3, 6, 7, 8, 10 and 15 P value is 0.045, 0.014, 0.001, 0.007, 0.007, 0.026 and 0.031 are less than one tailed at α = 0.05, so the null hypothesis is rejected.

In the case of IDR eight Malaysian Islamic banks have P value is more than α value are Bank 4, 7, 8, 9, 10, 13, 15 and 16 and the null hypothesis is not rejected. The remaining other Islamic banks P value less than α value therefore the hypothesis is rejected. The analysis reveals that there is significance difference between two study periods on IDR of Malaysian Islamic banks.

CTDR of Malaysian Islamic banks for two periods, all banks (except Bank 7) have P value is more than one tailed at α = 0.05, so the null hypothesis is not rejected. This ratio indicates that there is no significant difference between two classes of study period.

5. Summary and Conclusions of the Study

The study mainly focus on to examine the performance of Islamic banks in Malaysia through its resource mobilization viz. Deposit ratios and to identify any difference exists between two periods of bank operation and its performance. The study reveals that in overall the cash deposit ratios mean value has been increased for the two study periods for all the Islamic Banks, therefore it is concluded that Malaysian Islamic banks performance in the view of CDR is good and progressive.

As per the result of IDR for Malaysian Islamic banks during the study period has been increased except few banks, even though those banks mean value for two different period is not have much difference, in this view of analysis it is concluded that the Malaysian Islamic banks performance in the view of IDR is progressive. Cash deposit ratio for the study period is volatile for the reason it is based on cash deposit with BNM, during the study period CTDR is fluctuated and there is no much difference between two periods, therefore it is concluded that the CTDR is also appropriate. In overall all Islamic banks in Malaysia performance in the perception of Deposits is progress during the study period 2011 to 2016.

In view of hypothesis testing, among 16 banks 9 of them accepted null hypothesis regarding CDR and 8 and 15 banks have accepted null hypothesis in the point of view of IDR and CTDR respectively. Therefore in overall there is no significant difference between 2011-2013 and 2014-2016 CDR, IDR and CTDR and performance for Islamic banks in Malaysia.





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