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

Author

Listed:
  • Rasha Istaiteyeh

    (Faculty of Business, Department of Economics, The Hashemite University, Zarqa 13133, Jordan)

  • Maysa’a Munir Milhem

    (Faculty of Al-Sharee’a and Islamic Studies, Department of Islamic Economics and Banking, Yarmouk University, Irbid 21163, Jordan)

  • Farah Najem

    (Independent Researcher, Amman 11942, Jordan)

  • Ahmed Elsayed

    (Independent Researcher, Amman 11942, Jordan)

Abstract

This paper presents a comprehensive analysis of key financial indicators influencing the operational efficiency of banks in Jordan over the period 2006 to 2021. The study, focusing on fifteen commercial banks, employs seven regression models to assess the impact of selected variables on bank operating efficiency. Our findings reveal novel insights with substantial contributions to banking practice. We identify a statistically significant influence of both bank-specific factors and temporal effects, demonstrating the nuanced dynamics shaping the operational efficiency of Jordanian banks. Notably, a positive and significant correlation is established between the operating efficiency ratio and return on assets, bank size, and the ratio of loan loss provisions to net interest income, providing valuable strategic guidance for effective management. Conversely, a significant negative relationship is observed between the operating efficiency ratio and the total expense ratio, underscoring the critical importance of careful cost management. No significant associations are found between the operating efficiency ratio and credit risk, the equity-to-asset ratio, the deposit-to-liability ratio, and the equity-to-liability ratio. This study makes a unique contribution by shedding light on these previously unexplored correlations, offering actionable insights for enhancing operational efficiency in the banking sector. Additionally, our research advocates for the Central Bank of Jordan (CBJ) to persist in adaptive policy measures, which are crucial for ongoing banking reforms and improved monitoring practices. Based on our empirical findings, these recommendations aim to fortify the resilience and adaptability of Jordan’s banking sector, contributing both academically and practically. Importantly, they reinforce the symbiotic link between a stable banking sector and sustained economic development in Jordan.

Suggested Citation

  • Rasha Istaiteyeh & Maysa’a Munir Milhem & Farah Najem & Ahmed Elsayed, 2024. "Determinants of Operating Efficiency for the Jordanian Banks: A Panel Data Econometric Approach," IJFS, MDPI, vol. 12(1), pages 1-17, January.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:1:p:12-:d:1330176
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    References listed on IDEAS

    as
    1. Mohd Mahmoud Ajlouni & Mohammad Waleed Hmedat & Waleed Hmedat, 2011. "The Relative Efficiency of Jordanian Banks and its Determinants Using Data Envelopment Analysis," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 1(3), pages 1-3.
    2. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
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    4. Abedalfattah Zuhair Al-abedallat, 2017. "The Role of the Jordanian Banking Sector in Economic Development," International Business Research, Canadian Center of Science and Education, vol. 10(4), pages 139-147, April.
    5. Xiaoqing (Maggie) Fu & Yongjia (Rebecca) Lin & Philip Molyneux, 2018. "The quality and quantity of bank intermediation and economic growth: evidence from Asia Pacific," Applied Economics, Taylor & Francis Journals, vol. 50(41), pages 4427-4446, September.
    6. Constantinos Alexiou & Voyazas Sofoklis, 2009. "Determinants Of Bank Profitability: Evidence From The Greek Banking Sector," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 54(182), pages 93-118, July – Se.
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