Bank Valuation in Malaysia: An Empirical Comparison of Conventional and Interest-Free (Islamic) Banking Models

• Main Authors: CHAROENWONG, Charlie, MAYSAMI, Ramin Cooper, DING, David K.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: Islamic banking; Malaysia; financial institutions; Asian Studies; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4732; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5731/viewcontent/BankValuation_Malaysia_2014_jibrp.pdf
• Institution: Singapore Management University

Islamic banking, according to institute for Islamic Banking and Insurance "refers to a system of banking or banking activity that is consistent with the principles of the Shari'ah (Islamic rulings) and its practical application through the development of Islamic economics. Shari'ah prohibits the payment or acceptance of interest charges (riba) for the lending and accepting of money, as well as carrying out trade and other activities that provide goods or services considered contrary to its principles." The thrust of the current article is to examine the underlying factors and variables that guide the valuation of a sample of five Malaysian banks—four hybrid banks engaged in both Islamic and conventional banking facilities and one which provides only Islamic financial products. The goal is to understand the fundamental differences in the value drivers for the two banking systems. The study employs the traditional financial and accounting information obtained for the 5-year period beginning 1999 obtained from the annual financial reports of the following publicly listed financial institution: Malayan Banking Berhad (MayBank), Public Bank Berhad (Public Bank), Hong Leong Bank Berhad (Hong Leong), Southern Bank Berhad (SBB), and Bank Islam Malaysia Berhad (BIMB), the fully Islamic institution. May 1999 is selected because it coincides with the introduction of the Syariah Index at the Kuala Lumpur Stock Exchange (KLSE).