Bank Risks and Total Productivity Changes in Malaysian Banks

This study employs non-parametric Data Envelopment Analysis (DEA) to obtain the Malmquist total factor productivity index (MPI). The analysis is based on 19 Malaysian banks (domestic and foreign) and the period of study is from 2010 to 2014. The results indicate that the progress or retrogress of 14 Malaysian banks’ efficiency were largely due to scale rather than pure technical efficiency with 64.29% and 35.71%, respectively. The remaining five banks recorded stagnant stage, namely Affin Bank, Alliance Bank, Bank of China, J.P. Morgan Chase Bank Berhad and United Overseas Bank (Malaysia). The 7.7% progress in productivity among Malaysian banks could be attributed to the 9.85% increase in technological change. The findings regarding the relationship between bank risk and total productivity change are reported based on panel random effect regression model. Banks with higher liquidity risk and which are heavily diversified face declines in total productivity change. The positive effects of total productivity change could be seen in capital risk and bank loan to assets ratio.