A study on Jordanian commercial banking
: an empirical investigation on the effects of liquidity risk, risk-based capital requirements and capital regulations

  • Nusiebeh Nahar Falah Alrwashdeh

Student thesis: Doctoral Thesis

Abstract

The research contained in this thesis investigates the main determinants of Jordanian bank performance and related issues covering liquidity risk, risk-based capital requirements and capital regulations using data for 13 Jordanian commercial banks covering the period 2003-2015. This period includes measures taken by policy makers, including the Central Bank of Jordan (CBJ), to liberalize and reform the Jordanian banking sector to improve bank performance. The thesis is structured as follows: chapter one introduces the subject matter of the thesis; chapter two provides a select survey of the literature. Chapter three briefly discusses developments in the Jordanian banking sector, including the reform measures since the 1990s. Chapters four, five, six and seven are the core empirical chapters of the thesis. Chapter four examines the impact of competition, liquidity risk and market interest rate environment on Jordanian banks’ profitability using Fixed Effects (FE), Random Effects (RE) and Generalized Method of Moments (GMM) methods. The findings of chapter four provide evidence that reform policies favored the overall profitability and efficiency of the Jordanian banking sector. However, the evidence suggests the need for improvements in bank competition. Liquidity risk is shown to have a significant positive impact on profitability, while the banks’ size, capital adequacy ratio, and equity to assets all reduce profitability measures. Chapter five examines the relationship between bank efficiency/productivity, capital, and risk using Three-Stage Least Square (3SLS) methods. The results show that return on assets (ROA), capital, size and stock market development (SMD) are essential for Jordanian banks’ efficiency and risk measures. Chapter six measures how competition and efficiency of the banking sector influence the cost of credit for borrowing firms using data from 118 firms using fixed effect and random effect method. The findings indicate that firm size, bank competition, and GDP are the main drivers of firms borrowing costs. Chapter seven studies the impact of bank funding liquidity risk on Jordanian commercial banks' risk-taking behavior and analyses the impact of the CBJ 2000 imposed deposit insurance scheme on Jordanian banks' liquidity creation using a FE, a RE and difference in difference methods (DD). In relation to the risk determinants, the results show that large-capitalized banks tend to be involved in riskier investment decisions than their less capitalized counterparts. Also, an increase in deposit funding increases both liquidity creation and risk-weighted assets. The difference in differences results indicates that after the introduction of the deposit insurance scheme, banks with excessive deposits have lower rates of liquidity funding risk, and consequently reduced probability to default.
Date of AwardApr 2021
Original languageEnglish
SupervisorArief Daynes (Supervisor) & Everton Dockery (Supervisor)

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