The determinants of lending interest rates of Jordanian listed commercial banks

This study aimed to examine the determinants (Liquidity, profitability (ROA), bank size, operating cost ratio, deposit interest rate and inflation rate) of lending interest rates of 13 Jordanian commercial banks listed on the Amman Stock Exchange for the period 2011-2018. The fixed effects model was performed as suggested by Hausman test. The results of fixed effects model shows that ROA and bank size have a negative significant impact on lending interest rates. Liquidity has a negative insignificant impact. The results also show that deposit interest rate and inflation have a positive significant impact on lending interest rate of Jordanian commercial banks. Operating cost ratio has a positive insignificant impact. Thus, the results indicate that ROA, bank size, deposit interest rate and inflation are good determinants of the lending interest rates of Jordanian listed commercial banks. The study suggests that banks should use profitability and the size of the bank as tools to reduce the lending interest rate, as it is one of the factors that can cause a further decrease in the lending interest rates.