Impact of Economic Variables on the Performance of the Jordanian Banking Sector

AuthorGhazi Abdulmajeed Alrgaibat
PositionAssistant Professor, Department of Banking and Finance - Faculty of finance and Business administration / Al al-Bay Universityt

Problem of the study : I have to highlight the problem of the study by answering the questions:

1 - Do macroeconomic factors affecting the degree of performance of commercial banks that operating in Jordan?

2 - Is the banking concentration affects on the degree of performance?

3 - Is the size of the bank affects the degree of performance?

Hypotheses of the study:

The main hypothesis: There is no statistically significant effect of the four largest banks concentration and macro-economic variables, and performance of banking on the other hand. And emanated the following sub-hypotheses:

  1. No statistically significant effect of a concentration ratio between the four largest banks and (IA) performance.

  2. No statistically significant effect of a concentration ratio between the largest four banks and the rate (INF) inflation.

  3. No statistically significant effect of a concentration ratio between the largest four banks and the rate Growth in GDP.

    4. No statistically significant effect factor affecting the rate of four banks concentration among the factors that affecting the concentration ratio greater banks in terms of deposits and in terms of credit facilities

    Aim of study: This study aimed to measure the performance of commercial banks because of the large role played by commercial banks in the various sectors of the states economic to access the output of high quality and excellence.

    Objectives of the study:

    It came this study to achieve the following objectives;

  4. To identify the macroeconomic factors that affecting on the performance of commercial banks.

  5. Identify the impact of banking concentration on the performance

  6. Identify the factors that affecting on the concentration of banking.

    Methodology of the study. Mathematical models will be tested, to clarify the community and a sample of the study, to measure the variables of the study, through these data were collected and the statistical methods used in data analysis.

    Society and the study sample . Consists of the study population of all Jordanian commercial banks and foreign banks which operating in Jordan( the twenty-four banks at the end of 2011), divided by thirteen banks as Jordanian, eight branches of foreign banks operating in Jordan, and three Islamic banks, I have been selected some Jordanian commercial banks that listed their names in Amman Stock Exchange .

    Data collection methods; The information and data that were used in this study by secondary sources which include reports and statistical bulletins issued by the Central Bank of Jordan, the annual reports of the income statements and balance sheets that issued by the Jordanian commercial banks and foreign banks. The study aimed to identify the degree of performance of commercial banks, to test the hypotheses, it's used multiple regression analysis (Pooled Data Regression)), based on a statistical program (E.Views 5.0) The advantage of multiple regression analysis is to commensurate with the data in the form of time series and cross-sectoral, is the most suitable for analysis , multiple regression analysis was used (White'sheteroskedasticity consistent standard errors & covariance, 1980) in order to get rid of the problem of heterogeneity of variance, which may contain data , where the homogeneity of variance is one of the basic assumptions underlying the regression analysis, as well as there is another assumption important for the decline is the lack of a correlation sequence between the values ​​of the dependent variable Autocorrelation)) and this is also corrected automatically because the analysis is based on the residuals and not on the actual values ​​of the variables, as well as the requirement of normal distribution of data is not necessary according to the methodology of multiple regression analysis for the same reason as before, and finally, the presumption of the lack of multi-linear variables is automatically because the analysis as mentioned earlier is based on the residuals and not on the actual values ​​of the variables.

    The study models; To measure the performance of commercial bank , rely on (Panzar-Rosse Approach) methodology to assess performance in commercial banks, using a (Panzar-Rosse) , based on the methodology for the purposes of testing hypotheses that have been formulated and designed the model will identify the impact of independent factors on the dependent variable, and therefore can be formulated the following equation:

    IAit = f (Wt + Zt) + et ........................................................ (1)

    Where:

    IAit: the dependent variable ( represents the profitability of the bank), which is a percentage of net profits before taxes to total assets of the Bank. Wt: are the independent variables associated with the structuring of the Jordanian banking sector that include the concentration ratio. (CR4)

    Zt; is an independent variables related to the economy of Jordan, including the inflation rate (INF), and the rate of growth in gross domestic product (GDP), and the percentage of the current account balance of payments to GDP (PB), and the percentage of the budget deficit to GDP . (PBD)et: a coefficient of the error in calculation. In more detail, we can recast the previous equation as follows:

    IAi,t= at+B1 CR4+B2 INFt+ B3 GDPt +B4 PBt + B5 PBDt ………………………..(2 )

    Where is;

    IAit: is a percentage of net profits before taxes to total assets.

    CR4t: focus on the ratio of the four largest banks in the Jordan, period t measured in either the size or the size of deposits, credit facilities.

    INFt: is the rate of inflation in period t.

    GDPt: is the rate of growth in GDP in the periodt

    PBt: is the ratio of current account balance of payments to GDP in periodt PBDt: the proportion of the budget deficit to gross domestic product.

    et: is the coefficient of error in the calculation.

    Finally used a third model (below) to clarify the factors affecting the performance, where performance measurement through the concentration ratio in deposits CRD 4 and the percentage of concentration in the credit facilities CRL4, so that these two variables dependent variables in the model and then use a number of independent variables, and It is worth mentioning here that the rate of concentration in the four banks indicate the proportion of the control of the four largest banks in terms of both volume of deposits or the volume of credit facilities ,thus I formulated mathematical model as follows; CRD4t , CRL4t = at +B1 IAi,t + B2 INFt + B3 GDPt + et……………………………(3)

    Previews studies

    Study(Ahmed Almazari ,2011) entitled :" Financial Performance Evaluation of Some Selected Jordanian Commercial Banks . This study attempted basically to measure the financial performance of some selected Jordanian commercial banks for the period 2005-2009. It is evaluator in nature, drawing sources of information from secondary data. The financial performance of banks is studied on the basis of financial variables and ratios. In this paper an attempt was made to analyze the financial performance of seven selected Jordanian commercial banks using simple regression in order to estimate the impact of independent variable represented by; the bank size, asset management, and operational efficiency on dependent variable financial performance represented by; return on assets and interest income size. It was found that banks with higher total deposits, credits, assets, and shareholders’ equity do not always mean that has better profitability performance. It was also found that there exists a positive correlation between financial performance and asset size, asset utilization and operational efficiency, which was also confirmed with regression analysis that financial performance is greatly influenced by these independent factors. This study can be a source of help to bank managers to improve their financial...

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