Determinants of Banks' Credit Risk: Evidence from Jordanian Banks Listed on Amman Stock Exchange

Abstract

This paper aims to identify the determinants of credit risk in Jordanian banks. The sample consist of all banks listed on Amman Stock Exchange (ASE); which include 13 conventional banks and 2 Islamic banks, with the data covering the period from 2012 - 2019. Credit risk is represented by the percentage of nonperforming loans over total loans given by the bank. Both bank-specific variables and macroeconomic variables that are likely to influence credit risk are examined. Based on the multiple regression analysis, the results indicate that the level of credit risk faced by Jordanian banks is negatively related to each of the banks' profitability, interest income earned by the bank, the size of the bank, and the type of the bank. The results also show that there is a significant positive relationship between the banks' loans quality and the unemployment rate in Jordan with the level of credit risk. The results, however, indicate that there is no a significant relationship between liquidity, inflation, and gross domestic products with credit risk faced by Jordanian banks.