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Economic determinants of islamic deposits: evidence from Malaysia

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  • Othman, Azura
  • Masih, Mansur

Abstract

Customer deposits is one of a bank’s source of funds used to finance its banking and financing activities. This paper seeks to study the determinants that affect the level of deposits in Malaysia in particular saving deposits of Islamic banks. Bank deposits are a major form of savings. Whilst there have been many studies done on the various theories related to savings in Malaysia and worldwide, this study is going to investigate a simplistic model of the factors that influence savings in the form of a bank savings account. The standard time series techniques are used to discern the determinants of Islamic deposits. The variables identified for the investigation of this study are the Islamic Deposits, Gross Domestic Product (GDP), money supply, the Kuala Lumpur composite index (KLCI), rate of return of Islamic deposits, base lending rate and the inflation rate. The results of this study not only identify the theoretical cointegrating relationship between the economic variables and Islamic bank deposits but also evidence the possible relationship bank deposits has with some of the determinants in this study. The results indicate that the direction of causation between Islamic savings and GDP, money supply as well as the rate of return on Islamic deposit tends to be positive, whereas the effect of money supply is insignificant. It has been found that Islamic saving deposits is inversely related to a change in KLCI, base lending rate and the inflation rate. The findings of this study provide a useful insight into the effects of the identified economic variables on the level of Islamic deposits which may enable Islamic banks in Malaysia to take proactive measures in its asset liability management.

Suggested Citation

  • Othman, Azura & Masih, Mansur, 2016. "Economic determinants of islamic deposits: evidence from Malaysia," MPRA Paper 100238, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100238
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    References listed on IDEAS

    as
    1. Kokila Doshi, 1994. "Determinants Of The Saving Rate: An International Comparison," Contemporary Economic Policy, Western Economic Association International, vol. 12(1), pages 37-45, January.
    2. Tullio Jappelli & Marco Pagano, 1997. "The Determinants of Savings: Lessons from Italy," Research Department Publications 3012, Inter-American Development Bank, Research Department.
    3. Masson, Paul R & Bayoumi, Tamim & Samiei, Hossein, 1998. "International Evidence on the Determinants of Private Saving," The World Bank Economic Review, World Bank, vol. 12(3), pages 483-501, September.
    4. Mansur Masih & Ali Al-Elg & Haider Madani, 2009. "Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1691-1699.
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    More about this item

    Keywords

    Islamic deposits; VECM; VDCs; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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