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Determinants of Credit Risk: Comparative Analysis of Islamic Banks and Conventional Banks in Malaysia

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  • Mohamad Nizam Jaafar

    (Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Shah Alam, Selangor, MALAYSIA)

  • Nursuraya Izwanieza Saidudi

    (Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Shah Alam, Selangor, MALAYSIA)

  • Amirul Afif Muhamat

    (Faculty of Business Management, Universiti Teknologi MARA, Puncak Alam, Selangor, MALAYSIA)

  • Norzita Abdul Karim

    (Faculty of Business Management, Universiti Teknologi MARA, Puncak Alam, Selangor, MALAYSIA)

Abstract

This study presents a comparative analysis of the key determinants of credit risk in Islamic and conventional banks in Malaysia, a country with a dual banking system. Using panel data from 16 Islamic and 25 conventional banks between 2013 and 2022, the study applies the Random Effects Model to assess the impact of bank-specific variables: size, capitalization, financing growth, liquidity, and profitability. Results indicate significant variations in how these factors influence credit risk across the two banking systems. Notably, profitability is the most influential determinant for Islamic banks, while capitalization dominates in conventional banks. These findings underscore the importance of tailored credit risk strategies and offer policy insights for improving banking stability in dual-system economies.

Suggested Citation

  • Mohamad Nizam Jaafar & Nursuraya Izwanieza Saidudi & Amirul Afif Muhamat & Norzita Abdul Karim, 2025. "Determinants of Credit Risk: Comparative Analysis of Islamic Banks and Conventional Banks in Malaysia," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(14), pages 1022-1032, April.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-14:p:1022-1032
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