Factors Affecting Profitability of the Jordanian Banking Sector

This paper attempts to identify determinants of profitability of the banking sector in Jordan. To achieve this purpose, yearly data over the period 1993-2014 and Ordinary Least Square (OLS) method are used to investigate the impact of assets, capital, tangible assets, and economic growth on the profitability of the Jordanian banking sector represented by return on asset (ROA). While the profitability of Jordanian commercial banks or Jordanian Islamic banks has been examined by previous research, this study is the first to address the determinants of profitability of the banking sector in Jordan. This paper has shown strong evidence that internal characteristics and external factor have a strong influence on the profitability. The first internal characteristic represented by capital and external factor represented by real GDP are positively and statistically significant related to the Jordanian banking sector profitability, while both internal characteristics represented by size and tangible assets are negatively and statistically significant related to the profitability of the Jordanian banking sector. These results are useful to both academics and policy makers.