Determinants of Banks’ Stability in Jordan

Abstract

This paper aims to examine the determinants of financial stability in Jordanian commercial banks based on annual data for the period from 2011 to 2018. Based on the pooled effect model, this study shows that SME loans and capital adequacy positively and statistically affect the stability of Jordanian commercial banks, while financial inclusion, liquidity risk and credit risk negatively and statistically affect the stability of Jordanian commercial banks. The study recommends increasing the directing of bank loans towards small and medium enterprises, and the necessity for bank managers to commit to capital adequacy requirements because of their positive impact on banks’ stability. This study recommends that banks experiencing financial stability accelerate the increase in the rate of financial inclusion because financial inclusion ratios are very low in most of these stable banks. On the other hand, Jordanian commercial banks that have relatively high rates of financial inclusion should reduce the operating expenses resulting from financial inclusion. Bank managers also have to maintain sufficient liquidity in their banks and enhance credit standards by increasing collateral requirement from customers.

Determinants of Operating Efficiency for the Jordanian Banks: A Panel Data Econometric Approach

“…Notably, the study found a significant performance disparity, with larger banks outperforming their smaller and medium-sized counterparts, establishing bank size as an important determinant of efficiency. Kharabsheh and Gharaibeh (2022) conducted a comprehensive investigation into the factors influencing financial stability within the context of Jordanian banks. The findings of their study revealed a significant and positive impact on the stability of commercial banks in Jordan attributable to SME loans and capital adequacy.…”

Factors and determinants affecting banking sector stability: empirical evidence from conventional and Islamic banks listed on the Palestine stock exchange

“…The investigation found that funding risk significantly enhances banks’ sustainability. In earlier work, Salike and Ao (2018), Chai et al (2022) and Kharabsheh and Gharaibeh (2022) looked at how various risk categories affected the stability of 15 Pakistani banks between 2009 and 2020. The empirical results show that while financing risk has no discernible impact on stability, both credit risk and liquidity risk are inversely correlated with the stability of banking sector.…”

“…According to theory, FI and DFSs can minimize problems with agency and knowledge imbalances between lenders and borrowers (Beck et al , 2014; Agur et al , 2020; Kharabsheh and Gharaibeh, 2022). In addition, FI and DFSs can result in greater stability because it has the potential to draw funds from a broad client base, hence, lowering the volatility of bank financing.…”

“…The bank is seen as a trusted agency since all of its transactions are founded on customer and bank confidence, and it also contributes to the growth of the national economy (Irfan et al , 2019). Corporate banks’ capacity to continue operating depends on making a profit, but banking oversight organizations are increasingly concerned about banks’ stability, particularly in the wake of the global financial crisis that began in 2008 (Hassan Al‐Tamimi, 2012; Kharabsheh and Gharaibeh, 2022). To safeguard business banks from the risk of filing for bankruptcy and to boost their sustainability, the growing dangers that banks face, whether they be supplying risks, credit risks or risks related to liquidity, have forced banking regulators to pay consideration to bank capital adequacy and financial integration.…”

“…To safeguard business banks from the risk of filing for bankruptcy and to boost their sustainability, the growing dangers that banks face, whether they be supplying risks, credit risks or risks related to liquidity, have forced banking regulators to pay consideration to bank capital adequacy and financial integration. Since banks oversee and manage the banking sector in any country, liquidity is crucial (Thuy Tu Pham et al , 2021; Kharabsheh and Gharaibeh, 2022). Banks have connections to both businesses and families as well as to one another.…”