Citation

Aldomy, Rakan Fuad Mahmoud (2020) Concentration, competition and financial risk assessment: Empirical evidence from banks in Jordan. PhD thesis, Multimedia University.

Full text not available from this repository.

Abstract

Strong banks can support a vibrant economy by enabling high productivity, low inflation, and international trade. Bank stability is dependent upon the financial risk that comes from its exposure to market, operational and credit factors. Banks should be able to control these factors through their liquidity, loan approval policy, operational efficiency, and various other performance management decisions. The stabilization and managing the risk that faces the bank in Jordan is very important to keep and remain, not only for the banks themselves but also for a country’s economy as a whole. In Jordan, banks play a vital role in the economy, as the bank sector is one of the main contributors to the economy. Currently, Jordanian banks have the highest non-performing loans (NPL) compared to other Arabic nations. High NPL rates occur when the general economic conditions are poor, lenient lending policy and poor management capability. Jordan is currently in the midst of a volatile region with wars in Iraq, Syria and Palestine. Moreover, pressure on the Jordanian economy is exacerbated by hosting refugees. Thus, it is critical for Jordan to have banks that are stable to ensure that the country can survive these challenges. The literature on bank stability reveals two opposing theories regarding what makes a bank stable particularly with regards to competition and concentration among the banks. One theory, Competition-Fragility at same time Concentration-Stability posits that greater competition will lead to greater risk, whereas, the other theory, CompetitionStability and Concentration-Fragility believes that great competition would lead to greater stability. This study aims to discover which theory suits the Jordan banking industry. The CAMEL fundamentals (Capital Adequacy, Management capability, Earnings and Liquidity) model has been used to diagnose banks stability, however, previous studies have not examined the financial stability or financial risk in Jordan, as well as have not use the bank type (i.e. Islamic vs conventional banks) as a control variable. Previous studies suggest that there is a difference between commercial and Islamic banks in terms of stability. This analysis would also reveal the Jordanian banks’ ability to face the challenges and thus provide insights on how they can improve their strength through managing the various fundamentals. This study adopts the Competition, Concentration, CAMEL model and controls for macroeconomic factors; Gross Domestic Product (GDP) and inflation and Bank characteristics (Bank type, Bank size and Ownership status). The dependent variable of financial risk are measured via Z-score and NPL ratio. The sample of this research is taken from the Jordanian banking sector, comprising 17 banks, over a 12 year period from 2005- 2016. The data was collected using annual bank statements, Bankscope and Bloomberg databases. For not listed banks, the data collected manually from the bank itself. This research applied the Generalized Method of Moments (GMM) to analysis the data through STATA statistical software. The results support both views of competition and concentration with financial risk. However, after running a robust check the results provide strong support for the “Competition-stability” and “Concentration-fragility” view which can apply to the Jordanian banking industry. Moreover, the results suggest that an increase in the proportion of capital adequacy will make a bank more stable. Management quality shows a positive impact on financial risk, suggesting that to avoid risks banks should have a good management team. Hence, profitability shows a positive relationship with bank stability, suggesting constant healthy earnings are crucial to sustaining banking operation and stability. The surprising finding was that Jordanian banks have high levels of liquidity in spite of having high NPLs. Liquidity shows an unclear relationship with Z-score and Nonperforming loan. However, the results support having too much liquidity will lead to greater risk and movement towards an unstable environment.

Item Type:	Thesis (PhD)
Additional Information:	Call No.: HD61 .A43 2020
Uncontrolled Keywords:	Financial risk management
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28-70 Management. Industrial Management > HD61 Risk in industry. Risk management
Divisions:	Faculty of Management (FOM)
Depositing User:	Ms Nurul Iqtiani Ahmad
Date Deposited:	02 Oct 2025 02:10
Last Modified:	02 Oct 2025 02:10
URII:	http://shdl.mmu.edu.my/id/eprint/14638

Downloads

Edit (login required)