Research important role in facilitating economic growth.

Research background: The banking system plays an important role in a country’s financial system.

A bank is a financial institution licensed to receive deposits and make loans. Commercial banks are typically concerned with managing withdrawals and receiving deposits as well as supplying short-term loans to individuals and small businesses. The health of the nation’s economy is closely related to the soundness of its banking system. There are large amount of academic research which are done by other scholar shown that a highly developed banking sector plays important role in facilitating economic growth. For example, financial and monetary markets play a vital role in directing existing funds in economy toward producing and industrial sectors to improve economic growth. In this regard, some economists believe that expanded financial markets are driving force of economic growth is countries. As a developing country, there are 8 local licensed financial institutions in Malaysia, which are included Maybank, CIMB Bank, Public Bank, Hong Leong Bank, RHB Bank, AM Bank, Affin Bank and Alliance Bank.

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Malaysia’s banking industry is considered effective and efficiency due to the dual banking system where its engage in Islamic banking system and conventional banking system at the same time. As mentioned above, banks receiving deposits from customer and it has to know about the risk that they are facing and try to minimize the uncertainty. Knowledge on risk is important as it enable the bank officers to decide whether it is worth to loan out the funds. Inappropriate level of risk taking by the banks will lead to bankruptcy. A weak banking system could lead to major disaster for any financial system.

This has became much more apparent during the financial crisis. During the 2008 subprime crisis, there are many example of the banking failure in the worldwide. Most of the common reason are that banks taken too much risk in order to get a higher return.

Therefore, a proper evaluation on the risks which faced by the banks is needed. This chapter introduces the risk, types of risk faced by the banks and other factor that will have impact on the bank’s profitability. Problem statement, objectives, research questions, significance of the study and chapter layout will be included in this chapter as well.Introduction of banking industry in Malaysia: Company profile: In this research, its highlight eight Malaysia’s domestic bank which are included Maybank, CIMB Bank, Public Bank, Hong Leong Bank, RHB Bank, AM Bank, Affin Bank and Alliance Bank to analyse the main determinants to make a comparative analysis for determine banks performance.

1. Malayan banking BhdIn 1960, Maybank was incorporated and began operations in Kuala Lumpur on September 12. Maybank provides a comprehensive range of financial services such as fundamental services and products of commercial banking, investment banking, assets management etc. Moreover, it also provides insurance products along with the Shariah principle and conventional system under the sector of Etiqa Insurance ; Takaful. The businesses has been growth rapidly until today and Maybank become the largest bank in Malaysia based on the market capitalisation and total assets and it is also one of the largest bank in Southeast Asia, with total assets exceeding US$165 billion and having a net profit of US$1.75 billion for 2015.

2. Public Bank BhdIn 1966, Public bank was established and began operations in Kuala Lumpur. Public bank is the second largest by market capitalization just behind the Maybank and also the largest in shareholder’s fund. Public bank pursues organic growth strategy which its more emphasizes on commercial banking, retail lending to SMEs and private unit trust business.

Moreover, Public Bank is famous for its strong financial performance and prudent management style. Due to the strong and effective management, Public Bank is constantly accorded with strong credit and ranking which rated by local and foreign rating agencies such as Standard & Poor’s and Moody’s. 3. CIMB Group Holdings BerhadCIMB bank was formed by merging of various bank and which had been existed throughout few decades. CIMB bank is one of the leading ASEAN universal bank and also one of the largest Islamic bank in the world. As a universal bank, CIMB’s business separated into several area which comprising Commercial Banking, Investment Banking, Group Strategy and investment, Wholesale Banking, with its different core market in Malaysia, Singapore, Thailand, Indonesia, and Vietnam etc. Moreover, CIMB Islamic operates in parallel with the businesses stated above, in live with the dual banking model.

4. Hong Leong Bank Berhad Hong Leong Bank Berhad (HLBB) is a regional financial service company in Malaysia with subsidiaries across Singapore, China, Hong Kong, Cambodia and Vietnam. HLBB is focusing on the finance technology and emphasises the development of financial capabilities in order to serve its clients across the five country which stated above. Hong Leong Bank was originally incorporated under the name of Kwong Lee Mortgage ; Remittance Company in the early 1905.

After few decades of series of acquisitions and expansion, Hong Leong Bank was listed on the Kuala Lumpur Stock Exchange and being the one of the 30 component stock in KLCI index. HLBB provides a comprehensive range of financial service included personal financial services, corporate banking, investment banking, Islamic banking etc. 5.

RHB Bank Berhad In 1994, RHB Bank Berhad was incorporated as a public limited company in Malaysia and became public listed company in the same year. After few decades of growing, RHB Bank became the fourth largest integrated bank in Malaysia. RHB Bank Berhad also one of the leading multinational financial services provider, RHB bank devote to deliver advance customer experience with its innovative and various type of financial products and services. Moreover, RHB Bank provides its customer a strong support in financial services and investment across 9 ASEAN countries including Hong Kong/China.

6. AmBank Group Berhad In 1976, AmBank Group Berhad started their business and located in Kuala Lumpur and now AmBank is one of the largest banking group in Malaysia. AmBank is one of the leading banking group in Malaysia with rich expertise in consumer and wholesale banking, investment banking, Islamic banking, Real estate investment trust and insurance services.

The group was listed in Bursa Malaysia since 1988 and become sixth largest banking group by total assets in Malaysia. After few decades of growing, AmBank have 175 branches and 884 ATMs nationwide.Problem statement:As we know, the major business of the banks are lending and investment and this kinds of business involve risk. This means banks are exposed to uncertainties and risk. Sydney and Ng (2007) revealed that there is a positive tradeoff between risk and return, meaning that high risk, high return. Such a higher return is quite attractive for the bans and its managers who will willing to take high risk in order to get a higher profit and incentive (ludvigson ; Ng, January 2007).

Therefore, analyzing the determinants of bank profitability becomes a vital issue for a bank. In order to manage those determinants of bank profitability effectively, banks should know and understand well the impact of the determinants on bank profitability. In addition, banks with strong and sound banking system will be able to improve the financial stability and capture the negative economic shocks (Fauziah, Zarinah, Ahamed and Mohd, 2009).

This topic poses the challenges and be able to attract the interest of researchers and bank management for further exploration. (Fauziah , et al., 2009)This paper seeks to examine the potential determinants of bank profitability and explain the relations between the determinants and bank profit. All the analysis are based on the eight local licensed local commercial bank in Malaysia during the period of 2007-2017. Research objectives: The objectives of this research is focus on the Malaysia local commercial banks rpofitability toward the five determinants. The following research question are derived from the research objectives. The research question is important for the reader because it gives a guide to the content of research.

• To investigate the relationship between interest rate risk with the profitability of the banks.• To investigate the relationship between liquidity risk with the profitability of the banks.• To investigate the relationship between inflation risk with the profitability of the banks.• To investigate the relationship between bank’s capital adequacy with the profitability of the banks.Research methodology: The research methodology is the process of collect data to pursuit of truth with help of study, observation, comparison and experiment. In this report, the research methodology is designed to find out the determinants of the commercial bank’s profitability in Malaysia. In this study, the methodology includes the justification for the choice of method, sampling design, the limitations of the chosen method and the means of data collection.

Organization of research paper: Beside the chapter 1, the remaining sections of this research are organized by the followed; Chapter 2 will discuss about the literature review of the independent variables. In section Chapter 3, we will discuss about the methodology used in this research. Chapter 4 will presents the analysis and discuss and make interpretation for the finding.

Chapter 5 will conclude all the content in this research.