Determinants of Financial Performance of Commercial Banks in Jordan: Application of CAMELS Model

Abstract

This study aims to evaluate and analyse the financial performance of the banks listed on the Amman Stock Exchange (ASE) for the period 2016-2020. The study covers 13 commercial banks and excludes the three Islamic banks from the listed banks on the ASE. The study also examines the relationship between CAMELS model components and banks profitability represented by Return on Assets (ROA) and Return on Equity (ROE). All data are collected from the financial statements of the Jordanian commercial banks, the Central Bank of Jordan, previous studies, and the Amman Stock Exchange. Sufficient and adequate analysis is used to analyse the data in this research – Regression Analysis, Coefficient Correlation, and Cluster Analysis using SPSS. The findings show that the Capital Adequacy Ratio, Earning Ability, and Liquidity have a positive but non-statistically significant influence on the financial performance of the Jordanian Commercial banks, as measured by the ratio of ROA and the ratio of ROE. The results also demonstrate that the Asset Quality, Management Efficiency, and Sensitivity to Market Risks all have a negative and non-statistically significant impact on Jordanian Commercial banks financial performance as evaluated by the ROA and the ROE ratios.