Impact of Liquidity Management and Macroeconomic Determinants on Bank's Profitability in the Jordanian Commercial Banks

Abstract

The aim of this research is to check the impact of the liquidity management and macroeconomic determinants on profitability of commercial banks in the Jordan. Liquidity management and macroeconomic determinants are independent variables and profitability is dependent variable. The secondary data has been  used for this study and has been taken from published annual reports of six Jordanian commercial banks during the time period 2009–2016.The data has been analyzed by using correlation, descriptive statistics and regression techniques through E-views. Six banks have been choosen to express on the whole Jordanian commercial banks. Liquidity management is measured through capital ratio, liquid ratio, investment ratio, assets quality ratio and current ratio. Macroeconomic determinants include real gross domestic product and inflation and data for these variables is obtained from CIA world fact book. Profitability is measured through return on assets and return on equity. The results of this study found that the capital ratio has significant relationship with banks profitability. While, liquid ratio, investment ratio, current ratio and assets quality ratio has insignificant relationship with banks profitability. With regard to macroeconomic determinants real gross domestic product has significant relationship and inflation has positive and insignificant relationship with profitability of Jordanian commercial banks. Overall our research findings will help the bank managers and investment managers in devising their liquidity management strategies.

Keywords: Liquidity management, Macroeconomic determinants and Banks profitability