Determinants of Operating Efficiency for the Jordanian Banks: A Panel Data Econometric Approach
Abstract
:1. Introduction
2. Literature Review
3. Methodology
Analysis Methods
4. Results
- There was a statistically significantly positive relationship between the operating efficiency ratio (CIR) and return on assets (ROA, β = 57.1628), bank size (LOTA, β = 0.5117), and the ratio of loan loss provisions to net interest income (LLPII, β = 1.4303);
- There was a statistically significantly negative relationship between the operating efficiency ratio (CIR) and the total expense ratio (TCTA, β = −25.4522);
- There was no statistically significant relationship between the operating efficiency ratio (CIR) and credit risk (CR), the equity-to-asset ratio (TETA), the deposit-to-liability ratio (TDTL), and the equity-to-liability ratio (TETL).
5. Findings and Discussion
6. Conclusions
Author Contributions
Funding
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
References
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Number | Bank Name | Type |
---|---|---|
1 | Arab Bank | Conventional |
2 | Arab Banking Corporation (Jordan) | Conventional |
3 | Arab Jordan Investment Bank | Conventional |
4 | Bank Al Etihad | Conventional |
5 | Bank of Jordan | Conventional |
6 | Cairo Amman Bank | Conventional |
7 | Capital Bank of Jordan | Conventional |
8 | INVESTBANK | Conventional |
9 | Jordan Ahli Bank | Conventional |
10 | Jordan Commercial Bank | Conventional |
11 | Jordan Kuwait Bank | Conventional |
12 | Societe Generale De Banque (Jordanie) | Conventional |
13 | The Housing Bank for Trade & Finance | Conventional |
14 | Islamic International Arab Bank (IIAB) | Islamic |
15 | Jordan Islamic Bank (JIB) | Islamic |
Variable | Symbol | Measurement |
---|---|---|
Operating efficiency ratio | CIR | Operating income/(Operating cost–Loan loss provision) |
Credit risk | CR | Non-Performing Loans/Total Loans |
Return on assets | ROA | Net income/Total assets |
Return on equity | ROE | Net income/Total equity |
Equity-to-asset ratio | TETA | Total equity/Total assets |
Deposit-to-liability ratio | TDTL | Total deposit/Total liability |
Total expense ratio | TCTA | Total cost/Total assets |
Bank size | LOTA | The logarithm of total assets |
Equity-to-liability ratio | TETL | Total equity/Total liability |
Ratio of loan loss provisions to net interest income | LLPII | Loan loss provisions/Net interest income |
Variable | Mean | SD | Min | Max |
---|---|---|---|---|
CIR | 0.766 | 0.585 | −0.060 | 3.681 |
CR | 0.079 | 0.052 | 0.001 | 0.281 |
ROA | 0.012 | 0.005 | −0.002 | 0.025 |
ROE | 0.095 | 0.042 | −0.010 | 0.218 |
TETA | 0.132 | 0.031 | 0.071 | 0.220 |
TDTL | 1.588 | 0.366 | 0.232 | 3.221 |
TCTA | 0.024 | 0.010 | 0.007 | 0.074 |
LOTA | 9.118 | 0.560 | 7.266 | 10.454 |
TETL | 0.211 | 0.175 | 0.085 | 1.834 |
LLPII | 0.110 | 0.108 | −0.014 | 0.788 |
Variables | CIR | CR | ROA | ROE | TETA | TDTL | TCTA | LOTA | TETL | LLPII |
---|---|---|---|---|---|---|---|---|---|---|
CIR | 1 | −0.049 | 0.545 * | 0.474 * | 0.086 | 0.135 ** | −0.568 * | 0.156 ** | 0.120 | −0.037 |
CR | 1 | −0.229 * | −0.386 * | 0.253 * | 0.120 | 0.121 | −0.115 | −0.013 | 0.212 * | |
ROA | 1 | 0.802 * | 0.268 * | −0.037 | −0.161 ** | 0.037 | 0.216 * | −0.408 * | ||
ROE | 1 | −0.310 * | 0.028 | −0.337 * | 0.193 * | 0.047 | −0.503 * | |||
TETA | 1 | −0.184 * | 0.284 * | −0.303 * | 0.263 * | 0.190 * | ||||
TDTL | 1 | −0.194 * | −0.077 | −0.151 ** | −0.091 | |||||
TCTA | 1 | −0.125 | −0.037 | 0.214 * | ||||||
LOTA | 1 | −0.036 | −0.087 | |||||||
TETL | 1 | 0.059 | ||||||||
LLPII | 1 |
Variables | All Explanatory Variables | After Removing ROE |
---|---|---|
CR | 1.144 | 1.236 |
ROA | 17.312 | 1.649 |
ROE | 17.690 | |
TETA | 7.206 | 1.734 |
TDTL | 1.185 | 1.141 |
TCTA | 1.234 | 1.210 |
LOTA | 1.155 | 1.146 |
TETL | 1.146 | 1.139 |
LLPII | 1.382 | 1.382 |
Model | Equation |
---|---|
POLS | |
FE1g | |
RE1g | |
FE1t | |
RE1t | |
FE2 | |
RE2 |
Variable | POLS | FE1g | RE1g | FE1t | RE1t | FE2 | RE2 |
---|---|---|---|---|---|---|---|
Intercept | −1.0806 (0.6622) | 2.3743 (1.7208) | −1.2568 (1.3519) | −1.1192 (0.5982) *** | −1.0318 (0.5285) *** | −4.7331 (2.3568) ** | −1.2346 (0.9648) |
CR | 0.8116 (0.4780) *** | 1.1653 (0.7605) | 0.8331 (0.8631) | 0.3461 (0.4944) | 0.6606 (0.3954) *** | 0.4442 (0.6493) | 0.5762 (0.5805) |
ROA | 67.8018 (5.8310) * | 62.5929 (5.3917) * | 64.4635 (9.2808) * | 67.1775 (5.7283) * | 67.7325 (5.1268) * | 57.1628 (4.8961) * | 62.7066 (5.8042) * |
TETA | 1.2528 (1.3092) | 1.5327 (1.7250) | 1.3453 (1.9663) | 0.7278 (1.2262) | 1.0420 (1.1878) | 0.9018 (1.6803) | 0.9479 (1.5219) |
TDTL | 0.1399 (0.0753) *** | 0.1868 (0.0761) ** | 0.1598 (0.1290) | 0.1119 (0.0744) | 0.1309 (0.0624) ** | 0.0827 (0.0853) | 0.1437 (0.0787) *** |
TCTA | −32.9976 (6.2054) * | −28.9000 (6.2486) * | −31.3605 (5.7669) * | −29.8022 (6.0004) * | −31.8448 (5.8321) * | −25.4522 (5.5594) * | −29.0802 (6.2379) * |
LOTA | 0.1332 (0.0577) ** | 0.2699 (0.1651) | 0.1482 (0.1253) | 0.1295 (0.0508) ** | 0.1311 (0.0472) * | 0.5117 (0.1820) * | 0.1531 (0.0900) *** |
TETL | −0.1508 (0.1989) | −0.1352 (0.2314) | −0.1350 (0.2239) | −0.1138 (0.1978) | −0.1350 (0.1989) | −0.0282 (0.1980) | −0.0948 (0.2128) |
LLPII | 1.6939 (0.2930) * | 1.5137 (0.2655) * | 1.6171 (0.3890) * | 1.5624 (0.2810) * | 1.6434 (0.2789) * | 1.4303 (0.2335) * | 1.5192 (0.2684) * |
F test for fixed group effect | F(14, 217) = 1.93, p = 0.0244 | ||||||
F test for fixed time effect | F(15, 216) = 1.78, p = 0.0389 | ||||||
F test for fixed group and time effects | F(29, 202) = 2.18, p = 0.0010 | ||||||
Hausman test | χ2(8) = 21.35, p = 0.0063 | χ2(8) = 16.99, p = 0.0302 | χ2(8) = 15.67, p = 0.0474 | ||||
Breusch-Pagan LM test | χ2(1) = 2.02, p = 0.1554 | χ2(1) = 1.32, p = 0.2513 | χ2(1) = 2.20, p = 0.1380 | ||||
MSE | 0.1257 | 0.1190 | 0.1188 | 0.1204 | 0.1205 | 0.1095 | 0.1094 |
R2 | 0.6445 | 0.6839 | 0.5962 | 0.6817 | 0.6299 | 0.7291 | 0.5489 |
Variable | β | SE | t | DF | p |
---|---|---|---|---|---|
Intercept | −1.0806 | 0.6622 | −1.63 | 231 | 0.1041 |
CR | 0.8116 | 0.4780 | 1.70 | 231 | 0.0909 |
ROA | 67.8018 | 5.8310 | 11.63 | 231 | <0.0001 |
TETA | 1.2528 | 1.3092 | 0.96 | 231 | 0.3396 |
TDTL | 0.1399 | 0.0753 | 1.86 | 231 | 0.0644 |
TCTA | −32.9976 | 6.2054 | −5.32 | 231 | <0.0001 |
LOTA | 0.1332 | 0.0577 | 2.31 | 231 | 0.0219 |
TETL | −0.1508 | 0.1989 | −0.76 | 231 | 0.4491 |
LLPII | 1.6939 | 0.2930 | 5.78 | 231 | <0.0001 |
FE1g | RE1g | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Variable | β | SE | t | DF | p | β | SE | t | DF | p |
Cross section effect 1 | 0.2491 | 0.3481 | 0.72 | 217 | 0.4750 | |||||
Cross section effect 2 | −0.1501 | 0.1547 | −0.97 | 217 | 0.3328 | |||||
Cross section effect 3 | −0.1940 | 0.1617 | −1.20 | 217 | 0.2317 | |||||
Cross section effect 4 | −0.2343 | 0.1419 | −1.65 | 217 | 0.1003 | |||||
Cross section effect 5 | 0.1377 | 0.1465 | 0.94 | 217 | 0.3481 | |||||
Cross section effect 6 | −0.2215 | 0.1367 | −1.62 | 217 | 0.1068 | |||||
Cross section effect 7 | −0.2701 | 0.1624 | −1.66 | 217 | 0.0977 | |||||
Cross section effect 8 | −0.2250 | 0.1623 | −1.39 | 217 | 0.1670 | |||||
Cross section effect 9 | −0.2556 | 0.1447 | −1.77 | 217 | 0.0788 | |||||
Cross section effect 10 | −0.1150 | 0.1525 | −0.75 | 217 | 0.4516 | |||||
Cross section effect 11 | −0.0175 | 0.1604 | −0.11 | 217 | 0.9133 | |||||
Cross section effect 12 | −0.1475 | 0.1606 | −0.92 | 217 | 0.3593 | |||||
Cross section effect 13 | −0.0851 | 0.1911 | −0.45 | 217 | 0.6565 | |||||
Cross section effect 14 | −0.1397 | 0.1429 | −0.98 | 217 | 0.3295 | |||||
Intercept | −2.3743 | 1.7208 | −1.38 | 217 | 0.1691 | −1.2568 | 1.3519 | −0.93 | 231 | 0.3535 |
CR | 1.1653 | 0.7605 | 1.53 | 217 | 0.1269 | 0.8331 | 0.8631 | 0.97 | 231 | 0.3355 |
ROA | 62.5929 | 5.3917 | 11.61 | 217 | <0.0001 | 64.4635 | 9.2808 | 6.95 | 231 | <0.0001 |
TETA | 1.5327 | 1.7250 | 0.89 | 217 | 0.3752 | 1.3453 | 1.9663 | 0.68 | 231 | 0.4945 |
TDTL | 0.1868 | 0.0761 | 2.46 | 217 | 0.0149 | 0.1598 | 0.1290 | 1.24 | 231 | 0.2165 |
TCTA | −28.9000 | 6.2486 | −4.63 | 217 | <0.0001 | −31.3605 | 5.7669 | −5.44 | 231 | <0.0001 |
LOTA | 0.2699 | 0.1651 | 1.63 | 217 | 0.1036 | 0.1482 | 0.1253 | 1.18 | 231 | 0.2380 |
TETL | −0.1352 | 0.2314 | −0.58 | 217 | 0.5596 | −0.1350 | 0.2239 | −0.60 | 231 | 0.5472 |
LLPII | 1.5137 | 0.2655 | 5.70 | 217 | <0.0001 | 1.6171 | 0.3890 | 4.16 | 231 | <0.0001 |
FE1t | RE1t | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Variable | β | SE | t | DF | p | β | SE | t | DF | p |
Time effect 1 | −0.0122 | 0.1488 | −0.08 | 216 | 0.9349 | |||||
Time effect 2 | 0.1754 | 0.1441 | 1.22 | 216 | 0.2249 | |||||
Time effect 3 | 0.0925 | 0.1406 | 0.66 | 216 | 0.5114 | |||||
Time effect 4 | 0.0825 | 0.1350 | 0.61 | 216 | 0.5416 | |||||
Time effect 5 | 0.2394 | 0.1376 | 1.74 | 216 | 0.0833 | |||||
Time effect 6 | 0.4097 | 0.1359 | 3.01 | 216 | 0.0029 | |||||
Time effect 7 | 0.3792 | 0.1348 | 2.81 | 216 | 0.0054 | |||||
Time effect 8 | 0.2280 | 0.1344 | 1.70 | 216 | 0.0911 | |||||
Time effect 9 | 0.1452 | 0.1337 | 1.09 | 216 | 0.2784 | |||||
Time effect 10 | 0.1836 | 0.1308 | 1.40 | 216 | 0.162 | |||||
Time effect 11 | 0.2946 | 0.1297 | 2.27 | 216 | 0.0241 | |||||
Time effect 12 | 0.0952 | 0.1291 | 0.74 | 216 | 0.4619 | |||||
Time effect 13 | 0.0808 | 0.1292 | 0.63 | 216 | 0.5326 | |||||
Time effect 14 | 0.0367 | 0.1279 | 0.29 | 216 | 0.7741 | |||||
Time effect 15 | 0.1288 | 0.1306 | 0.99 | 216 | 0.3248 | |||||
Intercept | −1.1192 | 0.5982 | −1.87 | 216 | 0.0627 | −1.0318 | 0.5285 | −1.95 | 231 | 0.0521 |
CR | 0.3461 | 0.4944 | 0.70 | 216 | 0.4846 | 0.6606 | 0.3954 | 1.67 | 231 | 0.0962 |
ROA | 67.1775 | 5.7283 | 11.73 | 216 | <0.0001 | 67.7325 | 5.1268 | 13.21 | 231 | <0.0001 |
TETA | 0.7278 | 1.2262 | 0.59 | 216 | 0.5534 | 1.0420 | 1.1878 | 0.88 | 231 | 0.3813 |
TDTL | 0.1119 | 0.0744 | 1.50 | 216 | 0.1340 | 0.1309 | 0.0624 | 2.10 | 231 | 0.0370 |
TCTA | −29.8022 | 6.0004 | −4.97 | 216 | <0.0001 | −31.8428 | 5.8321 | −5.46 | 231 | <0.0001 |
LOTA | 0.1295 | 0.0508 | 2.55 | 216 | 0.0115 | 0.1311 | 0.0472 | 2.78 | 231 | 0.0059 |
TETL | −0.1138 | 0.1978 | −0.58 | 216 | 0.5658 | −0.1350 | 0.1989 | −0.68 | 231 | 0.4979 |
LLPII | 1.5624 | 0.2810 | 5.56 | 216 | <0.0001 | 1.6434 | 0.2789 | 5.89 | 231 | <0.0001 |
FE2 | RE2 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Variable | β | SE | t | DF | p | β | SE | t | DF | p |
Cross section effect 1 | 0.8536 | 0.4911 | 1.74 | 202 | 0.0837 | |||||
Cross section effect 2 | 0.0353 | 0.1735 | 0.20 | 202 | 0.8391 | |||||
Cross section effect 3 | 0.0001 | 0.1780 | 0 | 202 | 0.9993 | |||||
Cross section effect 4 | −0.1457 | 0.1391 | −1.05 | 202 | 0.2963 | |||||
Cross section effect 5 | 0.2768 | 0.1458 | 1.90 | 202 | 0.0591 | |||||
Cross section effect 6 | −0.1068 | 0.1377 | −0.78 | 202 | 0.4392 | |||||
Cross section effect 7 | −0.1337 | 0.1618 | −0.83 | 202 | 0.4095 | |||||
Cross section effect 8 | −0.0680 | 0.1777 | −0.38 | 202 | 0.7026 | |||||
Cross section effect 9 | −0.1466 | 0.1437 | −1.02 | 202 | 0.3091 | |||||
Cross section effect 10 | 0.0640 | 0.1732 | 0.37 | 202 | 0.7121 | |||||
Cross section effect 11 | 0.0679 | 0.1565 | 0.43 | 202 | 0.6648 | |||||
Cross section effect 12 | 0.1096 | 0.1970 | 0.56 | 202 | 0.5786 | |||||
Cross section effect 13 | −0.0302 | 0.1937 | −0.16 | 202 | 0.8761 | |||||
Cross section effect 14 | 0.0338 | 0.1586 | 0.21 | 202 | 0.8315 | |||||
Time effect 1 | 0.2393 | 0.1819 | 1.32 | 202 | 0.1898 | |||||
Time effect 2 | 0.3670 | 0.1704 | 2.15 | 202 | 0.0325 | |||||
Time effect 3 | 0.2654 | 0.1595 | 1.66 | 202 | 0.0976 | |||||
Time effect 4 | 0.2240 | 0.1500 | 1.49 | 202 | 0.1369 | |||||
Time effect 5 | 0.4002 | 0.1496 | 2.68 | 202 | 0.0081 | |||||
Time effect 6 | 0.5539 | 0.1457 | 3.8 | 202 | 0.0002 | |||||
Time effect 7 | 0.5191 | 0.1399 | 3.71 | 202 | 0.0003 | |||||
Time effect 8 | 0.3505 | 0.1381 | 2.54 | 202 | 0.0119 | |||||
Time effect 9 | 0.2544 | 0.1349 | 1.89 | 202 | 0.0607 | |||||
Time effect 10 | 0.2521 | 0.1283 | 1.96 | 202 | 0.0508 | |||||
Time effect 11 | 0.3815 | 0.1277 | 2.99 | 202 | 0.0032 | |||||
Time effect 12 | 0.1246 | 0.1254 | 0.99 | 202 | 0.3215 | |||||
Time effect 13 | 0.1171 | 0.1247 | 0.94 | 202 | 0.3487 | |||||
Time effect 14 | 0.0698 | 0.1230 | 0.57 | 202 | 0.5712 | |||||
Time effect 15 | 0.0921 | 0.1265 | 0.73 | 202 | 0.4676 | |||||
Intercept | −4.7331 | 2.3568 | −2.01 | 202 | 0.0459 | −1.2346 | 0.9648 | −1.28 | 231 | 0.2020 |
CR | 0.4442 | 0.6493 | 0.68 | 202 | 0.4947 | 0.5762 | 0.5805 | 0.99 | 231 | 0.3220 |
ROA | 57.1628 | 4.8961 | 11.68 | 202 | <0.0001 | 62.7066 | 5.8042 | 10.80 | 231 | <0.0001 |
TETA | 0.9018 | 1.6803 | 0.54 | 202 | 0.5920 | 0.9479 | 1.5219 | 0.62 | 231 | 0.5340 |
TDTL | 0.0827 | 0.0853 | 0.97 | 202 | 0.3335 | 0.1437 | 0.0787 | 1.83 | 231 | 0.0692 |
TCTA | −25.4522 | 5.5594 | −4.58 | 202 | <0.0001 | −29.0802 | 6.2379 | −4.66 | 231 | <0.0001 |
LOTA | 0.5117 | 0.1820 | 2.81 | 202 | 0.0054 | 0.1531 | 0.0900 | 1.70 | 231 | 0.0903 |
TETL | −0.0282 | 0.1980 | −0.14 | 202 | 0.8868 | −0.0948 | 0.2128 | −0.45 | 231 | 0.6564 |
LLPII | 1.4303 | 0.2335 | 6.13 | 202 | <0.0001 | 1.5192 | 0.2684 | 5.66 | 231 | <0.0001 |
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Istaiteyeh, R.; Milhem, M.M.; Najem, F.; Elsayed, A. Determinants of Operating Efficiency for the Jordanian Banks: A Panel Data Econometric Approach. Int. J. Financial Stud. 2024, 12, 12. https://doi.org/10.3390/ijfs12010012
Istaiteyeh R, Milhem MM, Najem F, Elsayed A. Determinants of Operating Efficiency for the Jordanian Banks: A Panel Data Econometric Approach. International Journal of Financial Studies. 2024; 12(1):12. https://doi.org/10.3390/ijfs12010012
Chicago/Turabian StyleIstaiteyeh, Rasha, Maysa’a Munir Milhem, Farah Najem, and Ahmed Elsayed. 2024. "Determinants of Operating Efficiency for the Jordanian Banks: A Panel Data Econometric Approach" International Journal of Financial Studies 12, no. 1: 12. https://doi.org/10.3390/ijfs12010012