Factors influencing impaired financing rate of Malaysian Islamic banks

Impaired financing rate is one of the important factors in determining the performance of an Islamic bank. Islamic banks are at risk if they experience high rate of impaired financing. Referring to the impaired financing rate recorded by 16 Islamic banks in Malaysia from 2009 to 2018, it shows a fluctuation within the years. Impaired financing could affect the overall financial performance of Islamic banks in Malaysia and Malaysia’s economic growth. This paper studies factors which could influence the impaired financing rate of Malaysian Islamic banks by using Financial Intermediation theory. This research intends to investigate the relationship between Impaired Financing (IF) with the factors of financing growth (FGROWTH), unemployment rate (UR), growth of Gross Domestic Product (GDP) and Inflation Rate (INF). This paper focused on the secondary data of 16 Islamic banks in Malaysia which period from 2009 to 2018 (total of 160 observations). The financial report of individual Islamic banks’ report, Fitch Connect and Global Economy Database was used and analysed using several analysis: Descriptive Statistic, Correlation Analysis, Diagnostic Test, Panel Data and Multiple Regression Analysis. The result shows FGROWTH and GDP influenced the impaired financing rate of Malaysian Islamic banks. Meanwhile, UR and INF show insignificant relationship towards the impaired financing rate in Malaysian Islamic banks.