The Determinants of Bank’s Profitability:Evidence from the Jordanian Banking Sector (1992 – 2006)

Fadi Y. Mashharawi, Khaled A. Al-Zu’bi

Abstract


This paper examines the determinants of the Jordanian bank's profitability during the time period 1992 - 2006. Data set comprises a sample of ten Jordanian banks. Three categories of explanatory variables are used include, bank specific variables, financial structure variables, and macroeconomic factors. Using pooled data regression, under ordinary least square (OLS) and seemingly unrelated regression (SUR), the results indicate that the most important factors that affect bank's profitability are overhead ratio (OVERHD), relative size (RSIZE), concentration ratio (CR3), and economic growth (GRTH). Accordingly, banks need to better handle their overhead expense and monitor their cost. Also, small banks should seek to increase their competiveness to face the concentration of large banks.

JEL Classification Numbers: G21, G28,


Keywords


Bank profitability, Bank-specific characteristics, Jordanian-banking industry.

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