Conventional Banking: Socio-Economic Impact in Malaysia

This report provides a comprehensive analysis of the socio-economic contributions of conventional banks in Malaysia, focusing on the city of Johor. It begins with an overview of the research, including the background, problem statement, research aims, objectives, and questions. The literature review explores the roles of society and socio-economic factors in enhancing the conventional banking system, models of conventional banking, and the impact of socio-economic factors on growth. The research methodology is outlined, followed by data collection, findings, and discussion. The report addresses challenges faced by conventional banks, such as competition with Islamic banking, and analyzes the contribution of assets and growth rates. The purpose of the research is to clarify the role of conventional banking and its benefits, including its impact on customer satisfaction and profitability. The study aims to identify the key elements that contribute to the development and growth of conventional banking in Malaysia, offering insights into the roles of individuals, groups, and corporations within the system.

CONVENTIONAL
BANKING

Table of Contents
TITLE..............................................................................................................................................1
CHAPTER 1: INTRODUCTION....................................................................................................1
Overview of the Research......................................................................................................1
Background of the Research...................................................................................................1
Problem statement..................................................................................................................2
Purpose of Research...............................................................................................................3
Research Aim.........................................................................................................................3
Research Objectives...............................................................................................................4
Research Question..................................................................................................................4
Research hypothesis...............................................................................................................5
CHAPTER 2: LITERATURE REVIEW.........................................................................................6
2.1 Roles of society and socio-economic factors to enhance conventional banking system in
Malaysia.................................................................................................................................6
2.2 Separate base or model regarding the conventional banking structure............................9
2.3 Impact of socio-economic factors' contribution in conventional banking growth.........11
2.4 Key elements to growth and development of conventional banking structure in Malaysia
..............................................................................................................................................14
CHAPTER 3: RESEARCH METHODOLOGY...........................................................................15
CHAPTER 4 DATA COLLECTION AND FINDINGS...............................................................23
RESULTS.............................................................................................................................26
Discussion:...........................................................................................................................65
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS...................................................67
REFERENCES..............................................................................................................................71
APPENDIX....................................................................................................................................73

TITLE
“To analyse the socio-economic contribution of conventional banks in Malaysia.”
CHAPTER 1: INTRODUCTION
Overview of the Research
Banks and financial institutions are considered as a party or body that provides financial assistance to business, corporates,
individuals and groups to assess the requirement of business function, needs of individual or groups, providing care and safety of
deposits or savings of individuals. Conventional banking system is a common banking system followed by banking industries across
the world. Banking system of Malaysia is influenced by mainly two banking system; one is conventional banking system and second
is Islamic banking system. Traditional or conventional banking system is centralised around generating monetary reserves,
profitability and earning by spending financial resources in the form of loans, advances and bond to corporates. Revenues generated in
the form of interest which is considered as profitable factor and the analysis mainly associated with determining. Interest and profit-
oriented banking system is being widely considered in conventional banking system. Profitability is the main distinguish factor that
diversify the conventional banking system to the Islamic banking system. Mortgage loans, housing loans, card facilities, securities,
schedule payments, payment of interest and repayment of the principle are the main functions and services provided under
conventional banking system in Malaysia. Financing, banking facilities are mainly focused around getting more revenues and profit
through interest. The conventional baking system is analysed in respect of JOHAR city, Malaysia.
Background of the Research
Malaysia is one of the Asian country that retain top position in finance sector subject to provide finance assistance for Islamic
finance apart from the Middle east. The research elaborates the concept of banking. Conventional banks work as normal banks and
provides type of services as lending, depository and credit facilities. It is observed that the Islamic banking system abolish the interest
system and do not adopt the interest policy. Socio culture of banking industry in Malaysia sustain potential to those organisations and
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corporates interested in taking loans and lending from commercial banking. These factors have positive impact subject to growth of
conventional system of banking in Malaysia. Most of the customers and community groups are willing to get low interest rates lending
and high interest rate of return subject to their investments. Banking satisfaction towards associated with increasing competitive
situations and the satisfaction due to focusing on intentions. Interest avoidance and theoretical framework of Islamic banking is the
base principle to enhance the banking structure and encourage profit and trade. Even having nil interest policy in Islamic banking
system, it is considered less profitable and less revenue generating system in comparison to conventional baking system. Socio
economic impact upon contribution was recorded increased in subject to enhance the growth of conventional baking system in
Malaysia. The potential factors and aspects associated with conventional banking structure are explained and evaluated on the basis of
social economic culture and system.
There are type of conventional banks working in Malaysia are working efficiently such as ABN banks, Bank of America,
Citibank, Standard Chartered and the Union bank of Switzerland. These banks have established their septate banking structure form
the Islamic banking system. A window system has been developed to manage the operate financial activities and transactions.
Conventional banking has been achieved a septate position subject to providing services and the products according to individual
needs, requirements and corporate requirements. It is analysed that various type of measurement tools and aspects were considered to
highlight the key emerging factors in conventional banking that assisted to create a separate base in Malaysia.
Problem statement
This research is formed to analyse the aspect and structure of conventional banking in JOHOR city in Malaysia. There are two
Major banking systems are found in Malaysia such as Islamic banking and conventional banking structure. It is observed that
conventional banks have faced lots of challenges to Islamic banking culture. Conventional banks had to go through tough
circumstances during the financial crisis. Lack of interest nature reduced the sustainability of Islamic banking that impacted the rights.
Tendency of people are shrieking towards traditional banking system in Malaysia and this was the main challenge in front of
commercial banks to enter in Malaysia. For economic, infrastructure and industry growth and development it was important to
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introduce different commercial and non-commercial banking system to Country. The Central bank of Malaysia build up a sustainable
base with significant changes among its subsidiary banks. The challenges at initial stage faced by conventional banking industry will
be separately highlighted in this report. As per the annual statistical report of banking statistics Negara Malaysia (2016), the
contribution of assets was counted as approximately $65.6 billion with average growth rate of 18 to 20% at annual basis. It indicates
towards the Malaysian domestic culture diversified with conventional banks. The major challenge is to develop a conventional
banking structure and financial institutions in Malaysia that was completely depended on awareness of Public and other financial
institutions, public education and campaigns are required to clarify the concept of conventional and its futuristic benefits to them.
Purpose of Research
This purpose of this research project is to elaborate the conservative aspects of conventional banking system and ruin the
myths and conflicts between the traditional banking system comparative to Islamic banking system. On the basis of critical analysis
and review it is tried to analyse the impact of socio-economic factor in terms of dividing the plans and structure of business. The
importance of conventional banking system is subject to enhance the profitability and revenues in JOHOR city, Malaysia. There is
lack of clarity found in different type of research regarding the banking culture in Malaysia. Various discussions, Arguments and
matters were created in terms of diversify the nature of banking system in Malaysia but it do not provide proper Justification and
conclusive information regarding. This research is prepared to elaborate a separate concept and evaluation of conventional banking
system in Malaysian banking industry. Users will be able to correlate the traditional banking and Islamic banking system in terms of
maintaining the customer satisfaction and improving the profitability by considering the concept. Socio economic contribution is
evaluated and counted in order to improve the conventional banking structure of in Malaysia.
Research Aim
Aim is considered as cumulative or summarised statement regarding attain the research objectives and criteria. It helps to
validate the reason of acquiring the research and conducting the plan with specific structure. It is a document that defines the major
objective and purpose of assessment of research. As the above research is formed to address the mean value of customers and evaluate
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the contribution of socio economic to emphasise the conventional banking structure in Malaysia. A clear description and analysis
formed to define the banking system considering different type of groups whether, individual groups and corporates.
Aim of this research is - “To analyse the socio-economic contribution of conventional banks in Malaysia.”
Research Objectives
A clear information, summarisation and statements that present clear vision of research or plan are considered as research
objectives. Information and details are organised in the sequential manner to justify the investigation. Variables and relevant factors
are analysed with proper direction and clear basis of the statement. The objectives are considered in terms of analysing the
performance related to deliver the required criteria in specific and significant manner.
 To identify the roles and contribution of individual, group and corporates to emerge the conventional banking system in
Malaysia.
 To examine a separate structure to understand the conventional banking.
 To analyse the performance of conventional banks after getting contribution from society
 To find out the key elements subject to emerging structure of conventional banking in Malaysia
Research Question
Research questions remain based upon the objective that clarify the clear vision and direction to meet the criteria of research.
All the research questions are elaborated in descriptive manner in literature review section. Research questions helps to frame the
research objective in predetermined and classified format to understand the key characteristics of research aim.
 What are the roles of society and socio-economic factors to enhance the conventional banking system in Malaysia?
 Is there any separate base or model regarding the conventional banking structure?
 Whether any significant impact fall upon conventional banking structure after getting contribution form socio-economic
factors?
 What are the key elements associated with development and growth of conventional banking structure in Malaysia?
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Research hypothesis
A research based hypothetical analysis also carried out by implementing different type of hypothetical analysis such as
descriptive analysis, T-test, reliability test, probability value, r-square, result analysis and discussion. It is evaluated that the derivative
ad the variable was based upon the analysis of realistic data and segmentation test that are taken on the basis of sample-based
overview and aspects from public. To analyse the impact of socio-economic factor the analysis of index list provided by central banks
are considered in research.
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CHAPTER 2: LITERATURE REVIEW
Literature review is a review of article, scholar paper or theoretical description given by a writer or specialist. It is considered
as a secondary source of getting information and analyse the subject in own understanding and knowledge. It is a very important part
of research that validates the academic work. Most of the literature review are found as secondary sources and reported original
experimental that appears in publications.
2.1 Roles of society and socio-economic factors to enhance conventional banking system in Malaysia
Banking industry in Malaysia influenced by both Islamic and traditional banking culture. At global level conventional banking
nature is a common banking structure assist manager for better financial control and management. Most of the consumer groups and
corporates interest and tendency is shrieking towards conventional banking due to wide options for financial growth. Different type of
financial instruments and products are offered to customers in conventional banking system. Clients can avail the offers and plans as
per their requirement. Customers prefer conventional banking due to its diversity of products and flexible loans of and of the main
aspect considered essential in terms of gross proceeds. Loans, mortgage, credit cards, short term and long-term loans credit are the
main facilities provided by banks. All the products are retaining the same nature and revenues from these products are earned in the
form of interest. Rate of interest drive as per nature of products and services. Home financing and the facilities remain more flexible
and strong in terms of providing financial help to individual and social economic project. Restrictions and guidelines are more strict
and comprehensive in terms of getting financial credit from banks and financial institutions. Revenues from lending and interest
income are prohibited at some certain limits.
Relations of stakeholders, clients and customers get increased due to conventional banking system. There were some financial
agreements between the conventional and Islamic financial institutions that played significant role in order to maintain effective and
efficient customer relations. After global financial crisis lots of financial challenges faced by conventional banks and had to struggle to
maintain the social economic value among customers, clients and stakeholders. Society put interest subject to build an effective
financial structure for economic growth and development. Government reduces the burden and legislation to encourage the household
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loans and credits. There was a particular stability and performance was recorded in terms of determining the nature and deviation for
managing the principle for Shariah. Market concentration, structure, risk aversion and size are some conventional margins that affect
the scope of marketing and the manageableness to deal with financial challenges and encouraging the scope of conventional banking
system.
As per report Market share of conventional securities (2016) Bank Negara Malaysia which is a central bank of Malaysia
published a report regarding the financial stability and payment. This report highlights the major issues and the finding regarding
analysis of financial capacity with circular way. The development initiatives taken by conventional banks for making better financial
structure of economy and regulatory are considered in this context. It is analysed that the services and the formation process was also
along with social welfare and government project that assisted the sustainable financial structure and promoting the interest payment
system with safety and continuous changes. It is analysed that conventional insurance plans and commodities also follow positive
impact subject to determining the value of customers and satisfactory elements.
It is analysed that various projection and evaluations were counted in terms of engaging stakeholders and members for better
evaluation and control. Society contribution to conventional banks increased by 12.5% and was counted as 76.2% with total takaful
business in Malaysia. While considering the payment ratio and interest share form different segments were counted fluctuating it is
analysed that various challenges and parts were analysed in terms voiding the variable factors and share price with 57.8% of total
gross family takaful contribution Active role of operations subject to supporting government and the introduction for home financing
schemes get more exploratory and conservative. Resulted this the conventional trade finance share was calculated as 3.4% RM50.3
billion. Conventional insurers or re insurers were counted stable in terms of exceptional circumstances. It contains the retakful
capacity which remain stable in conventional banking system. It is analysed that the core activities are analysed subject to analysed
with more significant and specific manner. Foreign exchange and rates were also counted more effective subject to manage the foreign
regulations. Stakeholders invested in debt securities that enhanced the contribution to conventional banking sector in Malaysia. The
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domestic FX market record lower that effected the flex rate and the average daily rate and turnover of USD 8.1 billion and the 20.6%.
the capital adequacy ratio of conventional acceptance are analysed in term of making the lawful consideration and the flex method.
The General contribution was recorded in terms of exceeding the life insurance and the excess income over the outgo for the
new business premiums and the contributions. The underwriting profit was evaluating the general profit for managing the gross
domestic and the predictability of claims and the rations for various matters. Gross direct premiums also get increased due to claim
ratios and the capital adequacy ratio. Impaired loans and ratios of business sector also get increased by 3-8%. these figures show the
positive growth rate and the diversification in order to bifurcate the functions and the management operation for the dividend payable
facilities and the ratio of return on assets. The structure of the banking in Malaysia get increased by 3 to 5%. Net risk weighted capital
ratio also get increased due to interest rates and the common equity tire capital and the capital ratio. Return on assets and the net
impaired financing ratios are considered more voidable and constructive way to elaborate the financial structure of conventional
banking sector and the management roles. It is considered that the micro economic programs and the importance were counted
religious sensitiveness of the Muslim. It is seen that after introducing the interest banking sector growth rate increased form last two or
three years. Capital structure and banking fictions was supposed to sponsor the viability and the conductibility of file structure and
analysing the factors related to different derivatives and variables. Type of socio economic factors were associated with conventional
banking such as;
Customer's interest and attitude towards loans and credit-based banking: Most of the customer groups show diverse
attitude towards bank loans and credit services. This is one of the socio-economic factor that affect the mind set of customers and
organisations.
Traditional approach subject to loans and advances: A traditional approach and aspects become the barrier subject to adopt
new policies and changes in organisations. This socio-economic factor engages customers with the traditional banking and financial
structure.
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Herd Behaviour: It is observed that most of the individual and groups relay on existing customers or past experiences. The
stock level is centralised around making the structure of conventional banking by ratio of herd behaviour and applied theories.
Market experience: this is a favourable and effective socio-economic factor considered in conventional banking structure.
Organisations be able to understand the nature subject to generating the finance requirement.
Reference groups: this socio-economic factor affect the inters of referenced groups. Suggestions, advises and concepts are
determined on the basis of referenced customer groups. This enhanced the nature of conventional banking assumption.
2.2 Separate base or model regarding the conventional banking structure
Structure is considered as a base that help in aligning the departments and sections of any entity or organisation with a
particular motive. Commercial banking and conventional banking are similar in nature. Wide range of products in commercial
banking is the only difference creating factor that created diversity form conventional banking system. Malaysia has developed dual
financial system by considering requirement of different religion, communities and individuals. Insurance, money market and capital
market are the essential element of conventional banking structure. There are five septate conventional banks are categorised in
Malaysia as investment banking, wealth management and the and window system that offer Islamic financial products.
As per Charap and Cevik (2011) conventional banks has established their separate existence in terms of managing the bearing
instruments and the banking adherence and the equity participation. In equity participation was measured comparative to investment
banking. It is analysed that the banking structure in Malaysia started growing after commencing the different financial activities such
as providing loans, credits, short terms credit facilities. The most important part of the conventional banks is that they used to take
deposit from savers and investors and used to pay interest on some of these accounts in the desire of earning reliable amount of yield
in the form of return. On the other hand, they used to lend all these collected capital to borrowers to retain interest on them
accordingly. By doing this, conventional banks used to make profit from the spread among the rate that used to pay to depositors and
on that rates that they receive from the borrowers. This ability of the banks to pool deposits from plenty of sources that can be lent to
various borrowers to create the flow of capital those are characteristic of banking operations. In order to increase maximum profit,
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conventional banks use classical theories of the firm for this purpose, they used to consider profitability, liquidity and safety as
primary factors.
Capital structure and keeping money fictions guessed support the feasibility and the conductibility of record structure and
dissecting the elements identified with various subordinates and factors. The most vital piece of the customary banks is that they used
to take store from savers and speculators and used to pay enthusiasm on a portion of these records in the longing of winning
dependable measure of yield as return. The most vital piece of the ordinary banks is that they used to take store from savers and
financial specialists and used to pay enthusiasm on a portion of these records in the craving of procuring solid measure of yield as
return. Outside trade and rates were additionally checked more successful subject to deal with the remote directions. Malaysian money
related framework limit and the budgetary intermediation jobs subject to economy are canvassed in this report. Market focus,
structure, hazard avoidance and size are some ordinary edges that influence the extent of promoting and the reasonability to manage
money related difficulties and empowering the extent of customary keeping money framework. Protection, currency market and
capital market are the basic component of ordinary managing an account structure.
According to Zeitun, (2012) conventional bank has contributed enormous contribution to make the banking structure smooth
and flexible at global level. Equity based system was one of the essential principle introduced under the structure of conventional
banking. Conventional counter parts also analysed with in more comprehensive way to determine the assets evaluation and control for
debts and the instruments. Some factual aspects were commenced while implementing the conventional banking system in Malaysia
and commercial banks in Johor. The structure of banks was reformed again subject to analyse the absorbed rate of alternatives and
valuation changes. More over the information are analysed and emphasized subject to deliver the equity base and the market valuation
techniques. An Absorption rate was changed to make the liquidation market more viable and transparent.
As per Yusniza Kamarulzaman and Azian Madun, (2013) Type of guidelines and commencements made under the banking
regulation act 2001 that impact the conventional banking structure in Malaysia. There was lack of consistency found in previous
banking system that was overcome after commencing new guidelines and rules. Huge contrast recorded in terms of determining the
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