Impact of Economic Conditions on Malaysian Banking Sector Research

This research report examines the impact of economic conditions on the growth of the finance and banking sector in Malaysia, focusing on Malayan Bank. The study investigates the significance of economic value in the banking sector, identifying factors affecting economic conditions and evaluating the relationship between economic conditions and the growth of Malayan Bank. The research employs various methodologies, including literature review, research framework, hypothesis formulation, and data analysis techniques. The report explores the influence of inflation and recession on the financial sector, different techniques to measure financial and economic conditions, and potential issues related to the changing economic landscape in Malaysia. The study aims to provide a comprehensive understanding of the factors affecting the banking sector and offers recommendations for enhancing financial and banking services.

RESEARCH METHODS

Table of Contents
RESEARCH TITLE.........................................................................................................................4
1) INTRODUCTION.......................................................................................................................4
(1.0) Background....................................................................................................................4
(1.1) Problem statement..........................................................................................................5
Study Gap...............................................................................................................................6
(1.2) Research objectives........................................................................................................6
(1.3) Significance of Research...............................................................................................6
Rationale of the research........................................................................................................7
TASK 2 (LITERATURE REVIEW)...............................................................................................7
To determine the significance of economic value in the banking sector..............................7
To ascertain the impact of economic condition on banking sector........................................8
To identify the factor that might affect the working of finance and banking sector..............9
To assess the factors affecting working of finance and banking sector...............................10
Ascertaining the relationship between economic condition and growth..............................11
Influence of inflation and recession on financial and banking sector of Malaysia..............12
Different techniques to measure financial and economic condition of the country.............13
To evaluate relationship between the economic condition and growth of Malayan bank.. .13
TASK 3 (RESEARCH METHODOLOGY).................................................................................14
3.1 Research framework.......................................................................................................14
3.2 Research Hypothesis......................................................................................................14
RESEARCH METHODS..............................................................................................................14
3.3 Research design..............................................................................................................14
(3.3.1) Research philosophy.................................................................................................15
(3.3.2) Research Approach...................................................................................................16
(3.3.3) Research Strategy.....................................................................................................17
(3.3.4) Research choice........................................................................................................18
3.3.5 Type of investigation...................................................................................................18
(3.3.6) Time Horizons..........................................................................................................19
(3.3.7) Data collection..........................................................................................................19
(3.3.7) Data analysis techniques...........................................................................................20

3.4 Research Ethics..............................................................................................................20
3.5 Research plan..................................................................................................................20
REFERENCE.................................................................................................................................21
APPENDIX......................................................................................................................................2
Questionnaire..........................................................................................................................2
Statistical tools......................................................................................................................11
Normality test.................................................................................................................................11

RESEARCH TITLE
“To analyse the impact of economic condition on growth of finance and banking sector of
Malaysia: A case study on Malayan Bank.”
1) INTRODUCTION
(1.0) Background
Malayan bank is public sector organisation of Malaysia which provides securities on
deposited fund and financial aid through loan and advances to public globally. It is wide spread,
and trust worthy entity in all over the world whose revenue is RM21.24 billion in 2015.
However, there are so many evolutions identified in its banking system that win maximum
satisfaction from public and reliability on its operations. In this regard, there is around 45000
bankers perform job across country as well internationally also remains able to increasing in
financial services through net banking, mobile banking etc. Including this, management system
of Malayan bank is quite easy and understanding that provide effective comfort ability with its
facilities as well social welfare. Along with this, it uses CSR implementations for customer
dealing and enhancing market value by setting interest rates on loan facilities in accordance to
people's standard and their social lives. Therefore, in present time, this bank is providing
financial services on large scale to a million customers over the globe. In addition to this, there
are very huge importance of the banking sector in the world by which customer and society can
get their financial transaction. Economic condition of the country can directly impact the growth
of finance and banking sector in the Malaysia.
In the present research study, the scholar have major aim is to analyse the impact of
economic condition on the growth of finance and banking sector of Malaysia with respect of the
Malayan bank. Economic condition of the country direct affect every sectors like finance, bank,
retail, hospitality etc. If country have effective economic condition then it because easy to grow
the business enterprise. On the other hand, if within the country there is ineffective economic
condition then it becomes difficult to survive the business. In the context of banking and finance
sector, economic condition of the country plays a very crucial role in its growth and progress. If
country have well condition of economy then it becomes easy to improve banking performance.
On the other hand if country's economic condition is weak then banking sector directly influence.
Thus, in the present research study investigator have used various methods of the research
methodology by which they can obtain an appropriate solution of the research issue. In addition

to this, in this research study, scholar have focused on the literature review under which various
themes has prepared related to the topic. Moreover, several recommendations are justified for
effective financial and banking services in wide range. Besides this, different research methods
and variables are introduced for financial development and analysing organisation's role in
country's effectiveness is introduced. The major objective of this research study is to understand
the importance of economic value in the growth and development of banking sector. With help
of this study, scholar can bale to understand the various factor which affect the banking activities
ad functions in the country.
Malayan bank is a public-sector organization which is functioning in Malaysia since June
1996. Its main objective is to provide quality banking services to its customers. Flexible
assistance is provided based upon financial needs of the client. Loan assistance and financial
aiding is another core objective of Malayan Bank in Malaysia (Impact of a banking crisis, 2017).
The present research has aim to analyse the impact of economic condition on growth of
finance and banking sector of Malaysia by making a comprehensive assessment of Malayan
Bank. There is a significant and direct impact of prevailing economic conditions of the country
on banking and financial sector. Thereby, the research will help in understanding various aspects
of economy so that appropriate solution can be attained to the issue specified in research aim.
(1.1) Problem statement
In the environment, economic factor is one of the component which can change very
frequent basis. In this component includes financial condition of the country, interest rate,
inflation, recession etc. The major issue in this present research study is related to changing
economic condition of the country which directly affect the growth and progress of the banking
and finance sector. In addition to this, there are also several issues in the economic condition of
Malaysia like regular changes in government policies for reserving fund as well securities and
setting interest rates, Issues in increasing in NPA affects revenue and profitability of Malayan
bank for further operations. Another major issue related to the Cut throat competition and
potential to contribute in nation's economic growth. Thus, it can be said that there are several
issue related to the growth and progress of banking sector due to the economic condition of the
country. Due to changes in government policies as rates in CRR, SLR, repo and reverse repo rate
affect interest rates and market structure for providing banking sector. Thus, it can be said that
progress and growth of the banking sector is directly related to the economic condition of the

country. Thus, in order to understand the various issue of the banking sector and impact of the
economic condition on the growth of banking, scholar has used various methods of the research
methodology. As per the research it has been founded that in the 2015 the population of the
Malaysia is 31.2 and it increased in 2016 by 31.7.The rate of GDP was in 2015 was 298 and it
has increased 300 in the 2016.Thus, from this data it can be said that economy of Malaysia is
continuously changed and its directly impact on the banking sector. It fiscal balance and public
debt has also increased by 3.1 to 3.5 in the 2016.
Study Gap
In the present study, the major aim is to analyse the impact of economic condition on the growth
of finance and banking sector in the Malaysia. In the previous study, only impact of the
economic condition on the banking sector growth has addressed while in the new terms, scholar
have used various methods of the research methodology for obtain an appropriate solution of the
research problem. In the previous study there is not accurate statistical data about the economic
condition of the Malaysia. The major reason for conduct this investigation is to analyse the
impact of economic condition of the banking sector in the Malaysia.
(1.2) Research objectives
In the present study, scholar have main aim is to analyse the impact of economic
condition on the growth of the finance and banking sector of Malaysia with respect of Malayan
bank. In order to attain this aim, scholar required to attain various objectives which are as
follows-
 To analyse the importance of economy in the banking sector
 To identify the factor which affect the economic condition in the Malaysia
 To evaluate relationship between economic conditions and growth of Malayan Bank
(1.3) Significance of Research
In the present study, the major aim is to analyse the impact of economic condition on the
growth of finance and banking sector in the Malaysia. In order to attain this aim, scholar have to
address various objectives such as determine significance of economic value in baking sector,
identify components which affect working of finance and banking sector in the Malaysia and
evaluate the relationship between the economic condition and growth of the Malaysia. However,
various issues obtained for finance and banking services evolving credit risk, market instability,

economic slowdown etc (Fiegen, 2010). In addition to this, the report is able to explain research
frame including hypothesis for further operations. In addition to this, tools for conducting
research and collecting data are understood for analysing actual position of banking system and
its management critically. Along with this, collected data is presented and determined by using
statistical tools such as reliability and normative tests proceed to prepare strategy for further
operations and enhancing economic position of bank systematically. Thus, it can be said that the
present research study provide detail understanding about the various issue in the banking sector
and impact of economic condition on the banking sector. This report provides effective
understanding about the significance of economic value in the banking sector. With help of this
study, stakeholder of the company can also able to identify the beneficial point from the country
economy. The decision maker can also beneficial by this investigation because they able to know
that how they should take the decision by analysing the economic condition of the country. With
help of this investigation, decision maker can able to take decision about investment in the
company. With help of this study, researcher can easily analyse the relationship between the
banking sector and economic condition. They can understand that how economic condition affect
the banking function and activities.
Rationale of the research
It is important that the research that is going to be conducted by the researcher holds some
relevance. Every study must have the potential to serve some specific purpose. The study aims at
analysing the impact of economic condition on growth of finance and banking sector of
Malaysia. The research has helped the scholar to gather knowledge regarding the subject matter.
Since, the researcher does not hold adequate amount of knowledge regarding various economic
conditions prevailing in the banking and finance sector of Malaysia. The research will help in
gathering that information.
TASK 2 (LITERATURE REVIEW)
To determine the significance of economic value in the banking sector
As per the view of Gale and et.al., (2013) in the business environment, there are various
components consist with it. Each factor plays a very crucial role in improving and growing the
business enterprise. In this manner, economic factor is one of the component which affect
directly and indirectly affect business firm. Economic factor consist with various things like
inflation, recession, interest rate, pricing policies etc. Economic growth is one of the ultimate

goal of any economic system. Country's economic condition plays a very crucial role as by
which every sector like hospitality, banking, travel and tourism affected. If country's economic
condition is good and effective then it directly positively affect the progress and growth of the
business sector. On the other hand if country's economic condition is ineffective then it will
negatively affect the growth and progress of the business sector. In the opinion of (Andrews and
Hampel, (2015) in the context of bank, economic value plays a very crucial role because while
country have effective economic condition then bank performance can automatically improve.
Financial recession and inflation can direct affect the growth of bank. There is a huge importance
of the economy in the banking sector because the growth and development of bank is largely
depends upon the country's economic condition. If the economic condition of the country is good
then public can more invest and involve in the banking services. Economic condition reflects the
entire progress, inflation, recession of the country.
To ascertain the impact of economic condition on banking sector
According to Usman and Khan (2012), prevailing economic factors play vital role in
growth and development of banking sector. There is a direct relationship between the two. An
increase in economy will also increase and develop banking sector of a country. There are higher
chances of large amount of Non-Performing Assets (NPA) due to deteriorating economic
condition of the country. It shows that there is less amount of cash in the hands of businesses
which thereby increases the chances of defaulters from the people who have taken loan from the
bank. Further, it also becomes difficult for the bank to maintain inflow and outflow of cash
within the organization. However, in contrast to this, as per the views of Joshi and et.al. (2013),
a bank tends to generate income by lending money at a higher rate of interest from the one which
is provided by it on deposits. A severe and prolonged bad economic condition leads to high rates
in bankruptcy higher NPA results in less profits to the organization. The economic condition of
the country exerts strong pressure on risk and profitability of the bank. The main element of any
bank in to operate with different strategies and keep on adapting the change that is occurring in
the economy. Otherwise, the survival of bank becomes difficult in the market. It also reduces the
risk of failure in the market and also helps in increasing the profitability. Failure of bank then
reduces credit availability in the market which leads the market to less profitable then before.
According to Panneerselvam (2014), prevailing economic conditions of the country can
upgrade or degrade present banking sector in the economy. The core functions of the banks can

be divided in primary and secondary. Primary functions of the bank include, accepting deposits
and granting loans. However, secondary functions of the banks are, agency and utility functions
such as, fund transfer, periodic collection and payments, collection and deposition of cheques,
managing portfolios. Certain facilities are also provided to the people in the form of locker,
underwriting, drafts etc. To serve these functions properly, a bank must be able to manage its
credit and liquidity risk properly. Any change in the economic functions can reduce or increase
the loan advancing power of people in the market. Moreover, change in the power can directly
impact paying off capabilities of the people who have taken loan from the bank. However, in
contrast to this, asper the views of Sufian and Habibullah (2012) a healthy economic condition in
the country helps in adequately delivering its functions to the people and attaining the profit
objectives as well. It is important for the bank to measure their risk appropriately so that the
harm from the same can be reduced to minimum. Further, dynamic economy can will not be able
to affect the profitability of the bank.
To identify the factor that might affect the working of finance and banking sector
According to the view of Speight and et.al., (2016) inflation rate is one of the factor
which affect the bank working and its performance. This affect the value of currency and this can
huge affect the banking sector. In addition to this, liquidity structure and processes inflation
causes instability in currencies. On the contradicting view O'Leary, (2013) stated that exchange
rate across the world also largely affect the banks all over the globe. While the rate of exchange
for the currencies decrease then banking sector may face the major problem in its working. In
the opinion of Ricciardi and et,al,, (2015) stated that income of the country and its economic
level can also affect the banking sector. Income flow in a country affect banks in terms of the
amount of capital. In the opinion of Huang and et.al., (2013) laws and regulation of the country
can also affect the working and performance of the bank. In every country there are various
rules, regulation, code of conduct, legislation which follow the bank in order to process its
activities and functions. In order to survive the banking function, bank have to follow all
legislation, regulation and code of conduct. While government change any policies, practices,
code of conduct and legislation then it directly affects the banking process. Thus, it can be said
that governmental rules, regulation, legislation is one of the major factor which affect the
working of finance and banking sector. The income of the country and its economic level always
affect the banking sector. Income flows in a country affect banks in terms of the amount of

capital they can access and customer that are ready to bank with them. In addition to this,
economic policies, macroeconomic policies can have far reaching influence on the banking
sector. While in the country there may develop unfavourable policies then the banking sector is
bound to lose on the other hand while in the country there may effective macroeconomic policies
then country's bank can able to grow. Thus, from the entire discussion it can be said that there are
various kinds of the components which can affect the growth and development of banking sector.
These factor includes inflation rate, economic policies, exchange rates, law and regulation.
Income of the country etc.
To assess the factors affecting working of finance and banking sector
According to Sufian and Shah Habibullah (2013), there are various internal and external
factors that can directly impact working of finance and banking sector. Some of the internal
factors include, earnings and reserve of the bank that has been gathered by the bank or any other
financial institution. It helps in coping up with the working capital requirement of the entity
which further assist in its smooth functioning. Other internal factor that has direct impact is the
interest rates that has been decided by the bank so as to extend loan to the customers. However,
the important external factors that affect the functioning of financial institutions and banks are as
follows;
 Income of the country and it economic level: Fluctuating income level of the country
can have direct impact on the functioning of banking sector and financial institutions. It
is considered as one of the most important sector of the economy and hence a
regulation on it from the side of government is important for smooth functioning.
 Inflation rates: A high rate of inflation is the duration when the banks suffer the most.
The reason is that it has significant impact on the value of currency of the country and
hence affect banking sector. Instability in the currency causes liquidity issues. The
confidence of client is affected specially the foreign investors who are liable to assess
the requirement of particular currency.
 Economic policies: There are certain economic policies that can affect the environment
of the bank. Further, it also has significant impact on growth of the bank as well.
However, there are certain policies that can also promote growth in the banks as well.
 Exchange rates in the world: Prevailing interest rates in the world can also affect the
functioning of the banks. Effect of some strong currencies such as, US Dollar, Japanese

Yen, European Euro, British Pound and Canadian Dollar, have direct impact on the
currency exchange rate of all around the world which certainly affect banks
functioning. A drop in these currency increases the problems for banking sector.
 Laws and regulatory framework: Each country designs its own regulations and
policies for banks and financial institutions in order to guide, supervise and monitor
their roles. It plays an important role in taking key decisions such as, interest rates,
banking services, rules for loans and even the small aspects of working hours of
banking sector. A change in regulatory framework of the country can also affect
profits of bank.
However, in contrast to this, as per the views of Husna and Rahman (2012), it is important
for the companies to have risk assessment and management plan so that as and when the risks
arise in the market, plan of action can be implemented on the banks and financial institutions.
Ascertaining the relationship between economic condition and growth
According to Ariffin (2012), economic growth refers to outward shift in Production
Possibility Curve (PPC) which is considered as an alternative way to define the output being
gathered from the country in the form of Gross Domestic Product (GDP). It also helps in
increasing the production of the country as well. Higher the GDP of the country, higher will be
the growth. It has direct impact on different sectors of the country as well such as, financial
aspects, foreign direct investment etc. A major turn is taken by financial institutions and banks.
The relationship between the two terms, that is, economic development and economic growth is
positive. However, economic growth is a narrow concept in comparison to that of economic
development. It helps in increasing the real level output of the country by offering quality
resources to the citizens of the nation. The common method of measuring the growth is with the
help of GDP. In case of economic growth, it is a inflation adjusted market value of goods and
services being offered to the market. However, in contrast to this, as per the views of Usman and
Khan (2012), Banks have direct impact of economic growth and development of the country. A
significant amount of increase of decrease in demand of loan has been noticed which reduces the
profitability of the banks. Further, decrease in purchasing power of the people in Malaysia can
also reduce the affect growth of banking sector in the economy.
According to Kyzy, Thim and Choong (2012), the principal objectives of banks and
financial institution functioning in Malaysia is to promote financial and monetary stability in the

market so that Malaysian economy can experience sustainable growth. A significant role is
played by banks to instigate progress and growth in financial sector of the nation. It helps in
preserving core foundation of the country and has immediate contribution towards growth and
development. Inclusive and sustainable growth in this sector can be initiated only if the policies
of this sector are constantly changes as per the changing economic conditions of the world. The
performance of the bank is important to be improved otherwise it can have direct impact on the
overall growth of the economy. However, in contrast to this, as per the views of Cooray (2012),
an ineffective economy can have negative influences on the outcome of the country and its
sectors. The majorly affected sector in this case is finance and it is important to have adequate
amount of policies with this regard in the bank and from the side of government as well.
Influence of inflation and recession on financial and banking sector of Malaysia
According to Laeven and Valencia (2013), a sustained increase in the price levels of goods
and services which consequently decrease the purchasing power of the customers. The attempt of
central bank is to limit inflation so that the economy can be run smoothly. Some of the common
impact of inflation which directly affects banking and financial sector of the country are as
follows:
 Decreases purchasing power: The first and foremost impact of inflation is that it
decreases the purchasing power of currency. It results in rise in the prices in the
economy. It is important for the banks to effectively divide their resources at this
duration. However, there is an inverse relationship. A rise in inflation results have
reduced impact on lending activities of the bank.
 Causes more inflation: People find this time to decline their investment and spending
which causes more inflation in the market. People tend to hold their money for future.
It leads to depreciation in the currency. In other words, the supply of money exceeds
the demand in the market for cash. It leads to falling of purchasing power of currency
at faster pace than usual.
 Rise in cost of borrowing: The cost of borrowing gets increased as the interest rates are
elevated by the central bank with the aim to control inflation in the financial market.
An inflation rate is chosen and policies are framed to maintain that target. To serve this
purpose, central bank keeps increasing or decreasing the interest rate so as to reduce
the level of money in the market.