Hassanudin Mohd Thas Thaker, Department of Business Studies, HELP University Malaysia
Tan Siew Ee, Department of Business Studies, HELP University Malaysia
Chuan Fui Sin, Department of Business Studies, HELP University Malaysia

The financial landscape in the Malaysian banking sector has undergone major structural changes in this era of globalization with various liberalization measures introduced during the last decade. These include government reforms to improve the bank infrastructure, existing ownership structures, lending practices and capital requirements; deregulation to allow for increased competition and greater focus on consolidation and mergers and acquisitions (Abdul Rahman et al, 2006). As part of the reform to develop large and high-performing banks to support growth at home and abroad, the government encouraged the banking sector to move towards a more private market- driven industry sector; to implement Basel Accord II and to adopt similar risk management standards as well as to improve bank services such as lending and borrowing activities and performance in the home country (Aziz, 2006). In this context, our study aims to discuss the impact of macroeconomic variables on bank credit in Malaysia between 1991 and 2011.Using quarterly data for January 1991 to December 2011, unit root test, cointegration test and the vector error correction model were applied to uncover the dynamic long run relationship between macroeconomic variables and bank credit. Overall, it can be clearly seen that all these three macroeconomic variables have contributed positively towards bank credit in the Malaysia. It is also statistically proven that they also have positive long run relationship with the bank credit.

Keywords: Bank Credit, Unit Root Test, Cointegration Test, Vector Error Correction Model, Malaysia.

Suggested citation: Thaker, H. M. T., Ee, T. S., Sin, C. F., & Man, W. H. (2013). The macroeconomic determinants of bank credit in Malaysia: An analysis via the error correction model (ECM). Skyline Business Journal, Volume 9, Issue 1, pp 1-9.

Thaker, H. M. T., Ee, T. S., Sin, C. F., & Man, W. H. (2013). The macroeconomic determinants of bank credit in Malaysia: An analysis via the error correction model (ECM). Skyline Business Journal, Volume 9, Issue 1, pp 1-9.