Examination of Operational Risk in Commercial Bank : A Case in Malaysia

This study investigates the determining factors of operational risk among commercial banks in Malaysia. Operational risks are represented by nine independent variables, namely: expenses, income, liquid asset, leverage, regulatory capital, base-lending rate, non-performing loan, gross domestic product, and size. The dependent variable is operational risk. The objectives of this study are: to provide a document about the concept of operational risk in commercial banking operations, to investigate determinants of operational risk in commercial banking in Malaysia, and to assess the impact of individual determinant on operational risk of commercial banking. A research framework and a hypothesis are developed. The hypothesis of this study is tested using linear regression analysis. This analysis is used to investigate the determinants of operational risks in commercial banks in Malaysia. From nine independent variables in this study, three independent variables are statistically significant at 0.05 level; they are size, regulatory capital, and base-lending rate. The other six independent variables are not statistically significant to the dependent variable. They are expenses, income, liquid asset, leverage, non-performing loan, and gross domestic product. In conclusion, this study offered insights to understanding the determining factors of operational risk of commercial banks for the first time in Malaysia. The main determinants of commercial banks operational risk in Malaysia have been examined empirically. Hopefully this contribution will spur interest for future in-depth study considering that operational risk is one of the most important risks in banking operation