Determinants of Credit Risk: Comparative Analysis of Islamic Banks and Conventional Banks in Malaysia

Mohamad Nizam Jaafar, Nursuraya Izwanieza Saidudi, Amirul Afif Muhamat and Norzita Abdul Karim
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Mohamad Nizam Jaafar: Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Shah Alam, Selangor, MALAYSIA
Nursuraya Izwanieza Saidudi: Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Shah Alam, Selangor, MALAYSIA
Amirul Afif Muhamat: Faculty of Business Management, Universiti Teknologi MARA, Puncak Alam, Selangor, MALAYSIA
Norzita Abdul Karim: Faculty of Business Management, Universiti Teknologi MARA, Puncak Alam, Selangor, MALAYSIA

International Journal of Research and Innovation in Social Science, 2025, vol. 9, issue 14, 1022-1032

Abstract: This study presents a comparative analysis of the key determinants of credit risk in Islamic and conventional banks in Malaysia, a country with a dual banking system. Using panel data from 16 Islamic and 25 conventional banks between 2013 and 2022, the study applies the Random Effects Model to assess the impact of bank-specific variables: size, capitalization, financing growth, liquidity, and profitability. Results indicate significant variations in how these factors influence credit risk across the two banking systems. Notably, profitability is the most influential determinant for Islamic banks, while capitalization dominates in conventional banks. These findings underscore the importance of tailored credit risk strategies and offer policy insights for improving banking stability in dual-system economies.

Date: 2025
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