Impact of Internet banking and social media adoption on profitability of local commercial banks in Malaysia

This study investigated the impact of Internet Banking and social media adoption on the
profitability of local commercial banks in Malaysia. A sample of eight local commercial
banks in Malaysia for the period ranging from 1998-2016 was chosen for this study. Multiple regression analysis was used to identify the relationship between the dependent variable namely Net Interest Margin and independent variables including Internet Banking and social media which were in the form of dummy variables. Two control variables namely Loan Deposit Ratio and Loan Loss Provisions over Total Loans ratio
were included to assure robustness and comparability in findings. Findings show that
there was negative significant relationship between Internet Banking and social media
on the profitability of local commercial banks in Malaysia at 0.01 significance levels.
Thus, increasing usage of Internet Banking and social media by Malaysia’s local commercial banks caused margin compression in banks. Despite the reduction in term of bank profitability associated with Internet Banking and social media adoption, margin compression actually promote market efficiency in the long-term.