Factors may drive the commercial banks lending: evidence from Jordan

Ayman Mansour Khalaf Alkhazaleh

doi:10.21511/bbs.12(2).2017.03

Abstract

In an attempt to shed more light on the behavior of lending in banks, especially in the environment of developing countries, this study aims at explaining the impact of some factors proposed as determinants of bank lending in Jordanian commercial banks by benefiting from the financial reports of thirteen banks during the period 2010-2016. The study, in order to achieve the objectives and to test the main hypotheses has adopted Ordinary least square model (OLS). The most important results of the study are a statistically significant adverse effect of both credit risk and liquidity on bank lending, while there is a significant positive effect of the return on assets, size of the bank measured by assets, inflation, money supply and growth in gross domestic product in determining the level of lending. In addition, the study does not show a significant statistical effect between investments, the volume of deposits and bank lending in the same time frame. The review points out that because of the negative impact of liquidity and credit risk factors, commercial banks need to focus more on reducing their impact because presence of this impact at the end will decrease the ability of these banks to provide loans and stay in the banking market.

Highlights

There is no doubt that banks are considered in most of the literature to be the most important institutions that have a great impact on the economy of any country no matter of small or large size, and Banga (2013) pointed out banks to be considered the spirit of economy
The most important results of the study are a statistically significant adverse effect of both credit risk and liquidity on bank lending, while there is a significant positive effect of the return on assets, size of the bank measured by assets, inflation, money supply and growth in gross domestic product in determining the level of lending
The results showed that factors contributed to the enhancement of bank credit to the private sector such as gross domestic product (GDP) growth, inflation, deposit growth, and money supply, while the study showed that the lending interest rate, credit risk, T-bill rate, public borrowing, and remittance inflows have a negative impact on loan growth

Summary

Introduction

There is no doubt that banks are considered in most of the literature to be the most important institutions that have a great impact on the economy of any country no matter of small or large size, and Banga (2013) pointed out banks to be considered the spirit of economy. The importance of bank lending and the provision of credit facilities is in the fact that the more banks that perform better, the more different sectors of the economy can benefit more and, achieve an adequate growth rate. The bank credit is deliberated as one of the vital functions executed by banks, where it adds to the arrangement of the essential financing for all the sectors in the country, comprising the sectors of the household, business and government. The credit granted to those sectors is considered to be important for exercising their tasks in business, operations and investments, which helps. Ayman Mansour Khalaf Alkhazaleh, Assistant Professor, Middle East University, Amman, Jordan

Objectives

Methods

Results