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

Rasha Istaiteyeh (), Maysa’a Munir Milhem, Farah Najem and Ahmed Elsayed
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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

IJFS, 2024, vol. 12, issue 1, 1-17

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.

Keywords: operating efficiency; panel analysis; banks; Jordan; financial performance; economic development (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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