The Stability of Deposits in the Interest-Based and Interest-Free Banking Systems in Malaysia

This study empirically examines the stability and the main factors thathave influenced the deposits in the Malaysian banking system. Astructural model of the Malaysian money deposits applied to annualdata for the 1983-2001 periods was designed. This structural modelconsists offive behavioural equations and three identities. A structuralmodel functional form is used and estimated using the ordinary leastsquares in the log linear form. The behavioural equations are used toestimate the influences of various factors on the conventional demanddeposits, conventional time deposits, Islamic demand deposits, Islamictime deposits, and Islamic investment deposits. DIe implications of thestudy are that the increase in real gross domestic product, interest ratestability, and an increase in the profit-share/or savings and investmentsare important for maintaining Gild enhancing the development ofMalaysian money deposits. The results show that all the models(conventional and Islamic banks deposits) are stable; however Islamicdemand deposits and Islamic time deposits are more stable thanconventional demand deposits and conventional time deposits, becausetheir Chow tests values are smaller than those ofconventional deposits.The findings of this study suggests that as shariah compliant depositsare more stable than their conventional equivalents, then this makes arUI1 011 deposits less likely, reducing the potential amount of capitaladequacy cover needed.