Evaluation of financial performances of domestic commercial banks: An empirical study in Kuala Lumpur

The aim of this study is to evaluate the financial performances of domestic commercial banks in Malaysia over the period from 2001 to 2011. The sample consist of eight domestic
commercial banks; CIMB, Public Bank, Maybank, Affin Bank, AmBank, RHB Bank, Hong Leong Bank and Alliance Bank all listed in the Malaysian Stock Market (Bursa Malaysia). The study uses secondary data, which were mainly taken from the annual reports of the banks extracted from the DataStream of Thomson Reuters. Financial ratios, descriptive statistics, correlation and multiple regression as well as DEA efficiency scores were used in the bank performance analysis. Bank size, asset management and operational efficiency served as the independent variables while financial performance measured by return on asset and interest income as dependent variables. The data envelopment analysis (DEA) through its
intermediation approach used interest expense and non-interest expense as the input variables
and advances, loans and investments as the output variables in the efficiency score analysis. The descriptive statistics shows an increase in the financial ratios of the domestic banks with the mean value of ROA moving from 0.31% in 2001 to 1.12% in 2011, there was also an increase in the mean value of the interest income moving from RM3215287.13 to
RM6567244.25 in the same period. Multiple Regressions was used to test the predictor
variables on ROA and interest income, it was found out that the predictor variables affect both ROA and interest income. DEA results shows that the overall mean scale efficiency score
(92.98%) is found to be higher than that of technical efficiency score (71.33%) implying that during the period of study, domestic banks have been inefficient in controlling their costs
rather than efficiently operating by optimizing the economies of scale due to their size