Financial Risk, Liquidity Risk and their Effect on the Listed Jordanian Islamic Bank's Performance

Abstract

The Islamic Banking Industry is growing fast in Jordan, and occupying important status in the global financial position. So the present study focused on illustrate this importance through studying the effect of Financial risk and Liquidity risk on the Listed Jordanian Islamic Bank's Performance, on the other words effect of the total liabilities to equity (LTE), and cash to deposit (CTD) on the listed Jordanian Islamic Bank's return on investment (ROI), because the growing market request and concern given to the Islamic banking and finance industry has sent the research interest in this area as well. The main contribution of the current study is to display the effect of two serious types of risks jointly on the performance of one of the most modern and vital sector in Jordan, known Islamic Banks. This is due that the Islamic banks’ asset and liabilities parts have singular risk attributes. The study applied statistical tests such as Correlation of residual value through BreuschGodfrey, Variance of the residual and Regression analysis, and some other techniques to reach the study results during the period from 2010 to 2015.The analysis results not accept the first null hypotheses, and accept the alternative hypotheses, so there is a significant effect of total liabilities to equity (LTE) separately on the listed Jordanian Islamic Bank's return on investment (ROI), but accept the second null hypotheses that there is no significant effect of cash to deposit (CTD) separately on the listed Jordanian Islamic Bank's return on investment (ROI), and finally not accept the main null hypotheses, and accept the alternative hypotheses that there is a significant effect of financial risk and liquidity risk jointly on listed Jordanian Islamic Bank's performance.