Foreign Banks Entry and Domestic Banks Performance in Malaysia

Malaysia recognizes that the opening up of the domestic financial sector to foreign competition would contribute towards creating a more efficient, competitive and market driven financial sector, thus, enabling the sector to play a more efficient and effective role in the economy. The objective of this study is to evaluate the capabilities of
the Malaysian local banks in meeting up with its new challenges. This paper will examines the effects that the foreign banks have on performance of local banks in term of
profitability. The study used multiple regressions to analyze the data from year 2000 to 2009 for local and foreign banks. The result shows that there are positive relationship between profitability and internal indicators that derived from financial ratios for local and foreign banks. Other than that, the analysis illustrate that there are linear relationship between profitability performance of local banks and foreign banks. It sustain that foreign
banks have a relationship with the profitability changes by local banks.