Credit Risk and Financial Performance of the Jordanian Commercial Banks: A Panel Data Analysis

Abstract

This study examines the impact of credit risk (CR) on the financial performance of Jordanian commercial banks listed in Amman Stock Exchange, for the period 2008-2017. A panel data analysis of both fixed and random-effect models and GLS method are employed to determine the impact of CR on performance of 16 Jordanian listed banks. The results showed that CR has a negative and significant impact on return on assets (ROA) and return on equity (ROE). Further, the results indicated that CR (measured by the ratio of doubtful debts to total loans, non-performing loans and loan losses to total loans) has a negative and significant impact on ROA, and ROE. While, the total deposits and bank size have positive and significant impact on financial performance of these Jordanian commercial banks.

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