The effect of lending policy on the profitability of commercial banks: Evidence from Jordan

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Abstract

This study aims to find out the impact of the lending policies adopted by Jordanian commercial banks on their profitability. This study relied on the descriptive analytical approach to describe and review the theoretical framework of the study. The preliminary information was gathered through a questionnaire prepared for this purpose. The study population consisted of all the commercial banks operating in Jordan, numbering 13 banks during the period 2016-2020. The study concluded that the credit decisions in the Jordanian commercial banks are contributing to about 75.3% of their returns, and there is a statistically significant effect of lending policies (with their combined variables) on the profitability of commercial banks operating in Jordan. Also, the lending policies adopted by the Jordanian commercial banks have interpreted 53.9% of their profitability, and that is due to the strict lending policy adopted by these banks, and this result is adverse of Munyiri’s (2010) results stating that a friendly lending policy will maximize demand and increases bank’s profitability. Depending on the results, the study recommended that the Jordanian commercial banks should focus on a clearly allocated task, responsibilities, and powers within credit policies so that different administrative levels are granted the right to make high-quality credit decisions that enhance the speed of taking a decision, thereby increasing customer’s base and profits.

Keywords: Lending Policies, Credit Risk, Credit Decisions, Profitability of Commercial Banks, Jordan

Authors’ individual contribution: Conceptualization – O.S.; Methodology – O.S.; Writing – Z.H. and O.S.; Investigation – Z.H. and O.S.; Resources – Z.H. and O.S.; Visualization – O.S.; Supervision – O.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: E50, G32, E58

Received: 03.10.2020
Accepted: 01.12.2020
Published online: 02.12.2020

How to cite this paper: Al-hawatmah, Z., & Shaban, O. S. (2020). The effect of lending policy on the profitability of commercial banks: Evidence from Jordan. Journal of Governance & Regulation, 9(4), 47-58. https://doi.org/10.22495/jgrv9i4art4