The role of mutual funds and noninterest income activities on bank profitability and risk in Malaysia

Abstract

Over recent years, banks have faced many challenges imposed by the new operating environment. As a result, banks have developed new products and created new forms of intermediation and other fee-based activities, and traditional business - making loans and funding them by issuing short-dated deposits - has decreased. Many banks have entered the mutual funds industry as a means for retaining customers, increasing fee income and diversifying their operations. The purpose for conducting this study was to contribute positively to the development and utilisation of non-interest income and mutual funds activities by providing the results of an analysis of their impact on bank performance and risk. The research reported on in this thesis was carried out for the years 2003 to 2012 by analysing the annual reports and financial statements of up to 30 banks, including both Islamic and conventional banks, in Malaysia to determine the role of non-interest income and mutual funds and their impact on bank's performance and associated risks. The study analysed the impact of the global financial crisis on directions of internal and external variables. This has resulted in useful insights about the effect of non-interest income, mutual funds and other variables on the performance of banks, and on risks before and after the GFC.