DOMESTIC VERSUS FOREIGN BANKS PROFITABILITY: EVIDENCE FROM PALESTINE AND JORDAN
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Date
2023-06-05
Authors
Haya Fawzi Abu-ALrub
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Abstract
This study compares the profitability of Palestinian and Jordanian foreign and domestic banks from 2008 to 2019. In this study, the researcher used specific bank data to determine the difference between domestic and foreign banks operating in Palestine and Jordan. The data was collected from the individual banks' financial statements. Moreover, the researcher used a set of control variables that include macroeconomic data for the two countries, which the researcher collected from the World Bank database. The sample consists of 7 local and 7 foreign Palestinian banks and another 16 local and 8 foreign Jordanian banks. For the analysis, the researcher applied the panel data model. Return on assets, return on equity, and net interest margin are used to approximate banks' profitability. Our results are important to investors, creditors, decision-makers, regulators, and boards of directors as they are interested in the performance of the banking institutions. The researcher measured the profitability of banks using three distinct dependent variables: return on assets (ROA), return on equity (ROE), and net interest margin (NIM). The independent variables include bank specific factors and control variables. Bank specific factors include profitability, liquidity and risk. Control variables include macroeconomic indicators such as growth in gross domestic product (GDP), and inflation. After analyzing the 35 local and foreign banks in Palestine and Jordan from 2008 to 2019, and assessing their profitability with return on assets, return on equity, and net interest margin, the results showed higher liquidity and profitability for foreign banks. In addition, the bank specific internal factors significantly affected the banks’ profitability measured by return on assets (ROA) and return on equity (ROE), except for Assets Quality Ratio (AQ) and liquidity (LIQ) for local and foreign banks. Furthermore, liquidity (LIQ) had a significant impact only on Net Interest Margin (NIM), as it explained 3.9% of its variability.
Keyword: bank profitability, domestic banks, foreign banks, internal & external factors.