Performance Comparison of Islamic and Commercial Banks in Malaysia

The steady growth in the size and increase in the number of Islamic banks show that the Islamic banking system is considered as an alternative to the conventional banking system. Due to this, comparisons in term of performance measurements and evaluation of the financial health for both type of banks are essential. The main purpose of this study is to analyse the differences between Islamic and commercial banks performance. Five years secondary data were collected from the annual report for each bank. Return on Asset ratio is chosen as the dependent variable, while capital adequacy, asset quality, management quality, earning, liquidity and sensitivity to market risk (CAMELS) are the independent variables. Descriptive analyses were done to understand the data. The independent t-test and Mann Whitney test show the differences of Islamic and commercial banks based on the financial variables. The stepwise and hierarchical multiple regressions were used to determine the factor that affects profitability performance of banks. Results show that Islamic banks are better in term of profitability performance, earning power performance, liquidity performance and sensitive to market risk. The factors that affect profitability performance are capital adequacy, earning power and liquidity variable.