Specialization and other determinants of non‐commercial bank financial institutions' profitability

Purpose - The purpose of the present study is to provide empirical evidence on the factors that influence non‐commercial bank financial institutions (NCBFIs) profitability in a developing economy. Design/methodology/approach - The least squares methods of random effects, fixed effects, and ordinary least square models are employed to examine the NCBFIs specific and macroeconomic determinants of NCBFI profitability. Findings - The findings indicate that NCBFI with a high loans intensity and credit risk tend to exhibit lower profitability level. On the other hand, large and more diversified NCBFI with high operational expenses and level of capitalization tend to exhibit higher profitability level. Research limitations/implications - Further analysis into the investigation of Malaysian NCBFIs performance is to examine the efficiency changes over time by employing the non‐parametric data envelopment analysis and/or the parametric Stochastic Frontier Analysis methods. Investigations into productivity changes over time, as a result of a technical change or technological progress or regress by employing the Malmquist productivity index could yet be another extension to the paper. Originality/value - The paper aims to fill a demanding gap in the literature by providing empirical evidence on the determinants of the profitability of non‐commercial banks financial institutions.