BANKS’ PERFORMANCE AND THE CONTRADICTING ROLE OF SYSTEMATIC RISK DRIVERS - ASSESSMENT ACROSS COMMERCIAL BANKS

Abstract

The Jordanian banking sector is vulnerable to many macrofactors that impact its performance, and due to the prominence importance of preserving the banking sector sustainable financial health, this study came to investigate the impact of macroeconomic risk factors represented in inflation rate, gross domestic product, and interest rate on ROA and ROE as a proxy of the financial performance of Jordanian commercial banks listed at Amman Stock Exchange for the period (2006–2020). The study employed a mean, standard deviation, and multiple regression analysis model. The results indicated a positive relationship between GDP and banks’ performance (ROA and ROE). But inflation rate and interest rate demonstrated an insignificant impact on ROA and ROE. Additionally, the results also indicted that there is a large fluctuation of inflation rate during the study period and this will lead to reluctance in investing in Jordan. Based on that, the study recommends that real measures be taken by the government to curb the inflation rate. Also, banks’ management should employ sophisticated techniques in stabilizing the lending interest rate and search for other investment opportunities to enhance their financial performance. The microeconomic risks such as liquidity risk positively affect banks’ performance, while the credit risk and operational risk negatively affect the bank’s performance.