Factors Affecting Profitability of the Jordanian Banking Sector

This paper attempts to identify determinants of the 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 capital, size, 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 the 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 variable represented by capital and external factor represented by real GDP are positively and statistically significant effect on the Jordanian banking sector profitability, while internal variable represented by size affects negatively and statistically significant on the profitability of the Jordanian banking sector. Finally, ROA is economically and negatively affected by tangible assets. These results are useful to both academics and policy makers.