Determinants Of Bank Lending In Malaysia: Internal And External Perspectives
Nurul Aisyah Binti Rahman
Department of Banking and Risk Management, School of Economics, Finance and Banking, Universiti Utara Malaysia, Malaysia
Abstract
Bank lending plays a crucial role in the stability and growth of financial systems, serving as the primary channel through which funds are allocated to productive sectors of the economy. While a large body of literature has examined the determinants of bank lending across different countries, limited research exists on the Malaysian context. This study investigates both bank-specific characteristics and macroeconomic determinants of commercial bank lending in Malaysia. Drawing from prior studies in Vietnam, Russia, Turkey, and Nigeria, key bank-specific variables considered include non-performing loans, deposit volume, liquidity, and bank size. At the macroeconomic level, factors such as gross domestic product (GDP), lending rates, and cash reserve requirements are examined for their influence on bank lending behavior. The review of earlier works highlights that while internal bank performance metrics significantly affect credit allocation, broader macroeconomic conditions also play a critical role in shaping lending decisions. However, existing evidence specific to Malaysia remains scarce, with only Karim et al. (2011) providing a related analysis through the lens of monetary transmission channels. By addressing this gap, the present study aims to provide a more comprehensive understanding of how internal and external factors influence lending behavior in the Malaysian banking sector. The findings are expected to contribute to policy formulation, enhance risk management practices, and provide insights into how banks can optimize lending decisions in response to evolving economic conditions