What factors affect islamic bank deposits ? Malaysian case based on ARDL

Conventional theories have identified several factors which motivated the savers to save in conventional banks, but conceptually Islamic banks are different from its conventional counterpart. This study makes an attempt to empirically investigate whether the determinants of deposit in Islamic banks are significantly different from its conventional counterpart or otherwise. Hence, the ARDL approach is applied to address this issue, time series data from Malaysian banking system is used for analysis. According to our knowledge, this is the initial attempt to address this issue by testing both macro-economic and bank-specific factors in this particular time period. The results indicated that among the macro-economic variables; GDP has strong impact on Islamic banking deposits, while inflation rate (CPI) does not have a significant impact on Islamic deposits. Furthermore, among the bank-specific variables both interest rate and profit rate have strong impact on Islamic deposits. However, the most relevant finding from policy perspective is that depositors of Islamic banks in Malaysia are profit oriented, thus an increase or decrease in profit given to deposits will change their intention towards depositing in Islamic banks. Furthermore, since the customers of Islamic banks in Malaysia are divided into the categories of Muslim and non-Muslim, hence, any changes in conventional interest rate will affect the level of deposits in Islamic banks. Thus, the implications of this study suggest that Islamic banks must invest in profitable projects and provide high profit rates to their depositors, which would help them keep their depositors for long time.