The Role of Using CAMELS Model in Analyzing the Factors Affecting the Performance of The Jordanian Commercial Banks (2014-2019)

Abstract

In this study, the factors affecting the performance of Jordanian commercial banks have been analyzed using the elements of the CAMELS model, along with identifying the most important factors. The study targeted the impact of twenty Jordanian commercial banks on performance-; these banks were listed on the Amman Stock Exchange during the period of 2014-2019. The researcher used the Data Pooled Regression Method, due to its relevance to the nature of the data used in the study, where this method is used in the case of a time series and cross-sectorial data. The Rate of Return on Assets and the Rate of Return on Equity were used as the two variables on which the banks’ performance was measured. However, the independent variables included the CAMELS model elements which are capital adequacy, asset quality, management efficiency, earnings, liquidity, and sensitivity to market risks, in addition to macroeconomic variables, which include the rate of economic growth and the rate of inflation. The study concluded that capital adequacy, asset quality, management efficiency, and earnings are among the most important and most influential factors with regards to the Jordanian commercial banks, which - are is represented by the Rate of Return on Assets and the Rate of Return on Equity. Moreover, the study also concluded that it is possible to derive a miniature model from the CAMELS model called the CAME model, which has a great ability to explain and measure the performance of commercial banks in Jordan. Finally, the study recommended the Central Bank of Jordan to use the CAMELS model to evaluate Jordanian commercial banks.