Improving Working Capital Solvency of Islamic Banks Under Macroeconomic Variables

Abstract

Purpose: The aim of this paper examines the impact of macroeconomic variables: public debt growth, inflation, money supply, balance of payments, and unemployment rate on the solvency of the working capital of Islamic banks in Jordan. Theoretical framework: The financial ratio index is used by Alhayali and Albutma (1996) to compare total Assets to equity and assess whether the owners have enough rights to keep investing in fixed assets. we couldn't determine the type of relationship of macroeconomic factors on capital solvency. Design/Methodology/Approach: The study analyzed multiple linear regression data of economic variables and performance data in Islamic banks during the period 2005-2021. Findings: The findings demonstrated that economic parameters, with the exception of money supply, are negatively correlated with the solvency of working capital (return on assets, return on deposits, and capital adequacy ratio). And the balance of payments has a positive effect. Research, practical & social implications: The researcher suggested that the government should reduce the growth rates of public debt, inflation, and unemployment rate, Increasing the balance of payments and the money supply through the establishment of projects that are characterized by labor, and are financed through Islamic banks. Originality/Value: The improvement of working capital comes as a result of an increase in projects, which in turn will lead to an increase in employment, cash flow, an improvement in exports, and the balance of payments, a decrease in unemployment, and inflation, and thus an improvement in the capacity of working capital.