Financial Performance Uncovered: Asian Commercial, Savings, and Islamic Banks in Focus

Abstract

This study delves into the financial performance analysis of commercial, savings, and Islamic banks across five Asian economies: Hong Kong, South Korea, Taiwan, Malaysia, and Vietnam. By focusing on key metrics such as Return on Assets (ROA), Net Interest Margin (NIM), Non-Performing Loan (NPL) ratio, and Loan-to-Deposit (LTD) ratio, this research provides a comprehensive comparison of these three types of banks. Utilizing data from 2010 to 2022 sourced from the Orbis database, the analysis employs random effects regression and dynamic panel-data estimation (Two-Step System GMM) to ensure robust results. The findings indicate that while savings banks tend to have higher NIM and ROA compared to commercial banks, these differences are not statistically significant. This suggests that, although there may be a tendency for savings banks to perform better in these areas, the variations are not substantial enough to be deemed conclusive. Consequently, it implies that the financial performance of savings banks, commercial banks, and Islamic banks may not differ markedly in terms of profitability and interest margins within the studied regions. Islamic banks, adhering to Sharia-compliant financial principles, show lower NIM and ROA, reflecting their unique operational frameworks. This study contributes to the literature by offering a detailed cross-country analysis of different banking models in Asia, highlighting the impact of regulatory environments, economic conditions, and institutional characteristics on key performance metrics. The results provide valuable insights for stakeholders, including investors, regulators, and policymakers, to make informed decisions and enhance the stability and performance of the banking sector.