Credit card financing and its impact on the profitability of Malaysian Banks

Most of the banks provide standard credit cards which enable customer use as a mode of payment. In addition there are also rewards programs which allow the credit cards holder to earn several incentives of making purchases with the credit cards such as cash back reward that give the customer the cash rewards. Credit card are important and being use as a part in financial and payment system. This study investigates the impact of conventional and Islamic credit cards on the bank profitability. The data consists of 12 conventional banks and 6 Islamic banks over the period from 2000 to 2016. Two
profitability measures ROA and NIM will be regressed with bank specific variables which are credit card financing, total asset, total expenses, total income for the bank specific and also macroeconomic variables; GDP and CPI. The results of random and fixed effect models show that credit card financing is significantly affect the ROA and NIM for all banks. Meanwhile, credit cards significantly affect the ROA for
conventional banks and also affect NIM for Islamic banks. The results implies that credit cards have significant contribution to the bank profitability. Credit card loan/financing is popular among the banking institutions due it nature that offer high
return compare to the other type of loans. With the higher loan/financing rate, it is expected to contribute to the better return performance of banks ROA and NIM. With the positive relationship between credit card loan/financing and bank returns, the results propose that banks can rely on credit card loan/financing to increase their returns.