Factors Affecting Net Interest Margin of Commercial Banks in Malaysia

The purpose of this study is to analyze and compare the performance determinants of one commercial bank with other commercial banks operating in Malaysia for the period of 5 years from 2006 to 2010. There are 6 commercial banks selected in this study namely Maybank, CIMB Bank, Public Bank, RHB Bank, Hong Leong Bank and Affin Bank. All of these banks are local commercial banks. We found that all selected banks have their own strengths and capability in fixed asset,strong capital,large deposit size and also high profitability. However, existing foreign banks give a healthy competitions to local banks in terms of quality service with low cost banking services for customers.The competition makes it more relevant for domestic banks to focus on their performance predictors in this case net interest margin.In this study,there are 10 financial ratios selected namely,profitability ratio, Asset Quality Ratio, Size, Net Interest Margin,Leverage,Liquidity Ratio,Loan Growth Ratio,Market ratio in industry,Inflation rate and also bank interest rate.To identify the determinants influencing net interest margin of commercial bank,this study has chosen multiple regression analysis.Secondly, this study also the effects of credit risk on net interset margin. The results of the study reveal the following findings.Firstly,in addition to the degree of market competition that narrows the interest margin,the study shows other factors which significantly affect the interest margin of commercial banks in Malaysia namely capital intensity investment and inflation rate whereby both factors are significant and positively influenced net interest margin