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3.2 VariablesThe objective of this study is to determine factors influence in credit risk level ofMalaysian Islamic banks. Credit risk in this study has been defined as a ratio of nonperformingfinancing to total financing. The definition of non-performing financing isvaries among countries. In Malaysia non-performing financing is defined as;“(i) where the principal or interest/profit or both is past due for more than 90 days or3 months. In the case of revolving facilities (e.g. overdraft facilities), the facility shallbe classified as impaired where the outstanding amount has remained in excess ofthe approved limit for a period of more than 90 days or 3 months; or(ii) where the amount is past due or the outstanding amount has been in excess ofthe approved limit for 90 days or 3 months or less, the loan/financing exhibitsweaknesses8 that render a classification appropriate according to the bankinginstitution‟s credit risk grading framework.”Sources: Central Bank of Malaysia (2010).This study only used bank specific variables (BSV) as the independent variables.Five independent variables and three dummies are being regress against thedependent variable to determine the relationship between BSV and credit risk levelfor Malaysian Islamic banks. The independent variables are constructed using theinformation from balance sheet and income statement of each Islamic bank. Table 2explained the detail of the variables definition used in this study.6
Table 2: Independent and Dependent variablesVariables Definition Expected SignCredit Risk (CR)FinancingExpansion (TL)Financing Quality(LLP)Non-performing financing to totalfinancing outstandingTotal financing to total assets +Loan loss provisions to total assets +Capital Buffer(TE) Total equity to total assets -Capital Ratio(CAPR)Total capital (TIER 1 and TIER 2capital) to total assets ratioSize (TA) Natural logarithm of total assets +/-DABDDBDSBDummy variables; „1‟ for offering assetbased financing and „0‟ for not offeringasset based financingDummy variables; „1‟ for offering debtbased financing and „0‟ for not offeringdebt based financingDummy variables; „1‟ for offeringsupporting based financing and „0‟ fornot offering supporting basedfinancing+/-+++/-3.3 Descriptive StatisticsTable 3 provide a summary of descriptive statistic for the variables used in this study.In average, credit risk level of Malaysian Islamic banks is about 4.35 percent (from1995 to 2010). This figure can be considered low as compared to the amount offinancing. As we can see, TL (total financing to total assets) is 50 percent. It is meanthat 50 percent of the assets in Malaysian Islamic banks is contributed by financingactivities.Looking to the provision for loss, Malaysian Islamic banks make quite a smallamount of provision. In average Islamic banks in Malaysia only make a provisionabout 0.7 percent and the highest is 9 percent. This amount of provision is quitelower compared as compared to the ratio of financing to total assets (TL).Size is one of the important BSV that will determine credit risk in bank. In this study,size is measured by taking a value of total assets (TA). Total assets value forMalaysian Islamic banks range from RM291 million to RM44157 million. The range isbig may due to the different in age of the sample banks.7
Page 1 and 2: Financing Structures, Bank Specific
Page 3 and 4: credit risk management becomes more
Page 5: Yasuda (2004) reports mixed results
Page 9 and 10: 4.0 Analysis of Finding4.1 Correlat
Page 11 and 12: 6.0 ReferencesAHMAD, N. H. & AHMAD,

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