A Study on Financial Performance of the Jordanian Commercial Banks using the CAMEL Model and Panel Data Approach

Abstract

The purpose of this research paper is to extensively investigate and examine the effect of the CAMEL model variables on the profitability and financial soundness of the thirteen Jordanian commercial banks for the period of 2013 to 2019, the primary data were collected from the published audited financial reports of the Jordanian commercial banks. The study uses CAMEL model variables of Capital adequacy, Asset Quality, Management efficiency, Earnings ability, and Liquidity management to rank banks as per their overall performance and measuring their effect on banks’ profitability measures of Return on Assets and Return on Equity separately through applying the fixed effect regression model. It is concluded that the ranking approach shows that Bank of Jordan was in the top position followed by the Capital Bank of Jordan. Jordan Ahli Bank was in the lowest rank in most positions. Furthermore, the empirical results indicates that Non-Interest Income to Total Assets and Net Interest Income to Total Loans and Advances have significant positive relationships with both profitability measures whereas cost to Total Income and Non-Interest Income to Total Assets have strong negative relationships with the profitability measures. In addition, Equity to Total Assets has strong negative relationship with ROE. The study suggests that Jordanian commercial banks can improve their profitability through the concentration on main activities, efficiently managing their capital adequacy, maintaining high quality level of lending policy, and utilization of full assets. Additionally, the current study recommends conducting more studies on banks’ performance determinants with an expanded scope and using more financial models besides the CAMEL model.

Keywords: {'name': 'Key Words: CAMEL Model, Determinants, Jordanian Banks, Performance.'}

Authors & affiliations

Jamil Al Zaidanin
Affiliation not supplied

Deposited references

Supplied references, not a list of publications citing this article.

DOI: 10.26643/gis.v13i3.3287

DOI: 10.26643/gis.v13i3.3287

Afolabi , B., & Adawale, A. A. (2013). Measuring Bank Performance Using The C.A.M.E.L. Analytical Technique In A Liberalized Economy; A Case Study Of The Nigerian Economy (1971-2005). SSRN Electronic Journal, 10.2139/ssrn.2316694,.

Ahmeti, H., & Bekteshi. (2014). Analysis of Financial Performance in the Banking System in Kosovo - the Period 2006-2012. Journal of Knowledge Management, Economics and Information Technology, 4(2).

DOI: 10.21474/IJAR01/11889

Alper, D., & Anbar, A. (2011). Bank-specific and Macroeconomic Determinants of Commercial Bank Profitability: Empirical Evidence from Turkey. Business and Economics Research Journal, 140-152.

DOI: 10.1016/S0014-2921(00)00091-X

DOI: 10.5430/afr.v6n1p77

DOI: 10.2139/ssrn.4162071

Athanasoglou, P. P., Delis, M. D., & Staikouras, C. K. (2008). Determinants of Bank Profitability in the South Eastern European Region. Munich Personal RePEc Archive.

Aydogan, K. (1990). An Investigation of Performance and Operational Efficiency in Turkish Banking Industry. Discussion Paper(No: 9022.).

Azizi , M., & Sarkani, Y. A. (2014). Review financial performance of MELLAT Bank According to CAMEL Model. A journal of multidisciplinary research, 3(1), 32-42.

Badola, B. S., & Verma, R. (2006). Determinants of Profitability of Banks in India: A Multivariate Ananlysis. Delhi Business Review, 7(2), 79-88.

Baltagi, B. H. (2005). Econometric analysis of panel data. New York, NY:: Wiley.

DOI: 10.1016/0378-4266(89)90020-4

DOI: 10.1017/CBO9781139540872

Burger, A., & Moormann, J. (2008). Productivity in banks: myths & truths of the cost income ratio. Banks and bank systems, 3(4), pp. 92-101.

Chisti, K. A. (2012). The impact of Asset Quality on Profitability of Private Banks in India. Journal of African Macroeconomic Review, 2(1).

DOI: 10.1108/978-1-78635-899-820161005

Cooper, D. R., & Schindler , P. S. (2014). Business Research Methods (12 ed.). McGraw-Hill Publishing Company Limited.

Dang , U. (2011). The CAMEL rating system in banking supervision: a case study of Arcada University of applied Sceiences . International business.

Davydenko, A. (2010). Determinants of bank profitability in Ukraine. Undergraduate Economiv Review, 7(1).

Dietrich, A., & Wanzenrid, G. (2009). What Determines the Profitability of Commercial Banks? New Evidence from Switzerland. 12th Conference of the Swiss Society for Financial Market Researches . Geneva.

DOI: 10.20525/ijfbs.v6i1.627

Ezike, J. E., & MO, O. (2013). Capital Adequacy Standards, Basle Accord and Bank Performance: The Nigerian Experience (A Case Study of Selected Banks in Nigeria). Asian Economic and Financial Review, 3(2), 146-159.

Farooq, U., Maqbool, M. Q., Humanyun, A. A., Nawaz, M. S., & Abbas, M. (2015). An Empirical Study on Impact Liquidity Risk Management on Firm Performance in the Conventional Banking of Pakistan. IOSR Journal of Business and Management (IOSR-JBM), 17(2), 110-118.

DOI: 10.1111/j.1467-9957.2004.00397.x

Golin J, J. (2001). The bank credit analysis handbook: a guide for analysts, bankers and investors . John Wiley & Sons (Asia) Pre Ltd.

Gulia, Y. (2014). Financial Performance Of Private Banks In India. Global Journal for Research Analysis, 3(9).

DOI: 10.3848/iif.2007.258.1464

DOI: 10.9790/487X-161494102

Guru, B. K., Staaunton, J., & Balahanmugam, B. (2002). Determinants of Commercial Bank Profitability in Malaysia. 12th. Annual Finance and Banking Conferense. Sidney.

DOI: 10.1080/09603107.2011.636019

Hawaldar , Lokesha, Kumar, Pinto , & Sison. (2017). Performance Analysis of Commercial Banks in the Kingdom of Bahrain (2001-2015). International Journal of Economics and Financial, 7(3), 729-737.

DOI: 10.2139/ssrn.1239466

DOI: 10.18488/journal.11/2014.3.5/11.5.295.306

Iqbal, T. H., Lokesha, K., A. K., Parakash, P., & Sheila, M. S. (2017). Performance analysis of commercial banks in the Kingdom of Bahrain (2001-2015). International Journal of Economic and Financial Issues, 7(3), 729-737.

Javaid, S., Anwar, J., Zaman, K., & Gafoor, A. (2011). Determinants of Bank Profitability in Pakistan: Internal Factor Analysis . Mediterranean Journal of Social Sciences, 2(1), 59-78.

DOI: 10.5296/ifb.v3i2.9847

DOI: 10.1355/AE18-3D

DOI: 10.19041/APSTRACT/2014/1/9

Kumari. (2017). A study on the financial performance of foreihn commercial banks in Sril Lanka: An application of CAMEL rating system. Economics, Commerce and Trade Management: An International Journal (ECTIJ), 1(1), 59-70.

lhomovich, S. E. (2009). Factors Affecting the Performance of Foreign Banks in Malaysia Masterof Science (Banking) College of Business (Finance and Banking), University Utara Malaysia.

Lipunga, A. M. (2014). Determinants of profitability of listed Commercial Banks in Developing Countries: Evidence from Malawi. Reserach Journal of Finance and Accounting, 5(6), 41-49.

DOI: 10.1080/09603107.2010.526577

Mamatzakis, E. C., & Ramoundo, P. C. (2003). Determinats of Greek Commercial Banks Profitability, 1989-2000. SPOUDAI, 53(1), pp. 94-94.

DOI: 10.1108/17554171211252565

DOI: 10.5958/2249-7323.2019.00005.1

DOI: 10.13189/ujaf.2014.020504

DOI: 10.1016/0378-4266(92)90065-8

Muhmad , S. N., & Hashim, H. B. (2015). CAMEL Framework and Bank Performance: Evidence in Malaysia. International Journal of Economics, Management and Accounting, 23(1), 109-127.

Mustafa, & Taqi . (2017). A Study on the Financial Performance Evaluation of Punjab National Bank. International Journal of Business and Management Invention, 6(1), 05-15.

DOI: 10.19041/APSTRACT/2014/1/9

Nagarkar . (2015). Analysis of Financial Performance of Banks in India. Annual Research Journal of Symbiosis Centre for Management Studies, 3, 26-37.

Nassreddine , G., Fatma , S., & Anis, J. (2013). Determinants of bank performance: Viewing test by cognitive mapping technique a case of Biat. 2(1), 20-35.

Nazir, M. S., & Alam, A. (2010). The Impact of Financial Restructuring on the Performance of Pakistani Banks: A DEA Approach. The IUP Journal of Applied Finance, 16(1), 71-86.

DOI: 10.3846/btp.2017.017

DOI: 10.15388/omee.2013.4.2.14251

Olalere, O. E., & Wan, A. B. (2016). The empirical effect of Credit Risk on Profitability of Commercial Banks: Evidence fro Nigeria. International Journal of Science and Research, 5(8), 1645-1650.

Ong, S. T., & Teh, B. H. (2013). Factors affecting the profitability of Malaysian commercial banks. African Journal of Business Management, 7(8), 649-660.

DOI: 10.1007/s10693-011-0103-1

Rahman , A. A., Mansor , I., & Meera , A. M. (2009). Lending structure and bank insolvency risk: A comparative study between Islamic and conventional banks. 4(2), 189-211.

Rani, D. M., & Zergaw , L. N. (2017). Bank specific, industry specific and macroeconomic determinants of bank profitability in Ethiopia. International Journal of Advanced Research in Management and Social Sciences, 6(3), 74-96.

Rani., D. M., & Zergaw, L. N. (2017). Bank specific, industry specific and macroeconomic determinants of bank profitability in Ethiopia. International Journal of Advanced Research in Management and Social Sciences, 6(3), 74–96.

Reddy , D., & Prasad, K. N. (2011). Evaluating performance of Regional Rural banks: an application of CAMEL Model. Journal of Arts, Science & Commerce, 2(4), 61-67.

DOI: 10.1016/S0148-6195(96)00041-0

Rose, P. (2002). Commercial bank management (International ed.). U.S.A: McGraw-Hill.

Saeed, M. S. (2014). Bank - related, Industry - realted and Macroeconomic Factors Affecting Bank Profitability: A case of the United Kingdom. Research Journal of Finance and Accounting, 5(2), pp. 42-50.

Siva , S., & Natarajan, P. (2011). CAMEL Rating Scanning (CRS) of SBI Groups. Journal of Banking Financial Services and Insurance Research, 1(7), 1-17.

Staikouras CH, C., & Wood, G. (2003). The determinants of bank profitability in Europe. European Applied Business Research Conference. Venice.

DOI: 10.2139/ssrn.2126761

DOI: 10.15208/beh.2018.50