Intellectual capital performance of commercial banks in Malaysia

Abstract

Purpose: This paper measured the intellectual capital performance of commercial banks in Malaysia for the period 2001 to 2003, using efficiency coefficient called VAIC™ developed by Ante Pulic.Design/methodology/approach: Data required to calculate human capital, structural capital and capital employed efficiencies were obtained from annual reports.Findings: As a whole, all banks have relatively higher human capital efficiency than structural and capital efficiencies. Domestic banks were generally less efficient compared to foreign banks. Hong Leong Bank, Public Bank and Southern Bank were the top three efficient domestic banks based on VAIC^TM assessment, while Scotia Bank is the most efficient foreign bank. Public Bank and EON Bank have consistently showed improvement in efficiency in the three years. There were significant differences between rankings of bank according to efficiency and traditional accounting measures. In view of the findings that seven out of ten domestic banks did not show improvement in efficiency following the consolidation exercise requires an urgent attention and remedial actions.Research limitations/implications: This study failed to study all foreign banks operating in Malaysia. Future study should therefore further improve on the aspect of coverage.Practical implications: The findings allowed banks to benchmark themselves based on the level of efficiency rankings, to establish priorities and develop strategic plans, which will in turn enhance their future performance. The findings also could help stakeholders and investors assess the value creating potential of banks; and policy makers to formulate and implement policies for establishment of a resilient banking sector.Originality/value: This study is the first study on Malaysian banks' intellectual capital performance.