Abstract:

In recent years, the financial crisis has led to a global impact, affecting the performance of banking system. For the countries which implemented dual banking system, the extent of the impacts in both systems might not be similar because of the characteristics of the banking system structure. Thus, this paper aims to assess the impact of financial crisis and bank risks on deposit variation in Malaysia Islamic banks. The impact of the crisis will be evaluated by a dichotomous variable, which aims to assess level of deposits during the crisis period. Using 15 Islamic banks in Malaysia spanning from 2008 to 2016, with 135 observations, panel data estimation technique is applied. Finding shows that the financial crisis has deteriorated the level of deposits in Islamic banks. It implies that Islamic banks might face a panic attack when crisis happened. This has led  banks for not been able to survive during financial crisis as there are huge amount withdrawals of the deposit. While, two major bank risks which are credit and bank risk are used to test whether they can significantly variate the deposit in Islamic banks have reveal a clear indication to Islamic banks that undertaking risks will let to the losses in their deposits. Thus, further actions should be taken to by Islamic banks to overcome the impact of financial crises and bank risks problem.