Impact Of Basel III Standards Compliance on Financial Performance - Comparative Analysis of Islamic & Conventional Banks in Malaysia .

Abstract

This study aims to empirically evaluate the financial performance of Islamic and conventional banks and the effects of Basel-III capital standards
and regulations upon the banking environment of Malaysia on a sample of 16 Islamic Banks and 16 Conventional Banks in Malaysia. We deployed banklevel data of top Banks operating in Malaysia for the post-financial-crisis period, i.e., from 2008 to 2017. The assessment of financial performance was made by deploying internal factors based on Banks earning ROA, i.e. (Return on Assets) and indicators that are based on Market measures, i.e., Tobin's Q ratio (Price/Book Ratio). Regression analysis is employed to measure the effect of Bank specific variables like credit risk, bank size, operational effectiveness, Capital adequacy ratio, and management of assets on the two performance indicators. Further, the model is run by using a dummy' control' variable to take control over the Basel III standards implications. The results envisage that compared to the external-based performance model, the explanatory power of the performance indicators
based on the internal model is significantly higher. Moreover, and to no surprise, results further showed the sensitivity of the Islamic banking environment's performance to Basel-III regulations. It is recommended that these studies prove highly beneficial to participants of capital-market who seek interest in the Islamic financial industry, particularly in the Asian region. Additionally, it also provided valuable feedback for the Management of Banks, and on the academic front, it opened doors for further research on the Islamic banking Industry.