Abstract
The study aims at showing the effect of banking liquidity on the profitability of commercial banks in Jordan for the period 2013-2017. The liquidity was measured by the variables of (liquidity, legal liquidity, employment ratio) as well as the profitability of commercial banks as a return on equity and assets (Liquidity ratio, legal liquidity ratio, employment ratios) on the return on assets of Jordanian commercial banks. In addition, it was found that there is an effect of bank liquidity (liquidity ratio, legal liquidity ratio) On the return on equity of the Jordanian commercial banks for the period 2013-2017. It also found that the impact of bank liquidity (liquidity ratio, legal liquidity ratio, employment ratios) on the profitability of commercial banks for the period 2013-2017 is attributable to the size of the bank. The study recommends that commercial banks should consider banking liquidity because it is of great importance in two ways. First, in the face of withdrawals from deposits, in order to avoid destabilizing the trust between the two parties, the bank and the depositors, thus leading to harm the shareholders. The second aspect is satisfying the needs of individuals with credit facilities. Therefore, commercial banks are required to measure bank liquidity and satisfy their needs because they have a negative impact on the size of bank liquidity, if it is large and with low profits, and on the other hand, the size may be low leading to bankruptcy of the bank.Keywords: bank liquidity, return on assets, return on equity, size of the bank.JEL Classifications: G2, G21DOI: https://doi.org/10.32479/ijefi.8304
Highlights
Due to the importance of liquidity, banks should conduct studies on an ongoing and accurate basis to estimate the appropriate liquidity ratio of the bank, based on the type, amount and behavior of deposits, low liquidity means inability to meet its obligations towards depositors. (Stephen, 2000 p104-105) In addition, the increase in the liquidity ratio of the bank and its non-exploitation means the loss of profit opportunities for the bank, ie the non-employment of the bank’s money and the entry of guaranteed and profitable investments contribute to the impact on the amount of profits achieved, the ratio of liquidity available in banks in the appropriate amount is very important because of the different effects on the activities and functions of the bank
The results of the study on the effect of bank liquidity on the profitability of commercial banks showed that an effect of bank liquidity on the return on assets (ROA) of Jordanian commercial banks for the period 20132017
It was found that the effect of bank liquidity on the return on equity of Jordanian commercial banks for the period 2013-2017
Summary
Commercial banks seek to profit by investing cash resources in lending and diversified investmentsand providing liquidity to be able to meet cash withdrawals by depositors. Due to the importance of liquidity, banks should conduct studies on an ongoing and accurate basis to estimate the appropriate liquidity ratio of the bank, based on the type, amount and behavior of deposits, low liquidity means inability to meet its obligations towards depositors. The subject of the study was the study on the effect of banking liquidity on the profitability of Jordanian commercial banks for the period 2010-2017. The retention of liquidity makes it possible for the bank to meet obligations such as depositors’ withdrawals and borrowing requests. Retention reflects negatively on the levels of fundraising and
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