Analyzing the Factors Affecting the Performance of the Jordanian Commercial Banks Using the Components of CAMELS Model: An Applied Study

Abstract

This study aimed to analyze the factors affecting the performance of the Jordanian commercial banks using the components of CAMELS model and to identify the most influential factors among them. The study used a sample of 13 Jordanian commercial banks listed in the ASE during the period (2009-2014). The study used two variables to measure the banks’ performance; return on assets (ROA) and return on equity (ROE), while the independent variables included the components of CAMELS model; namely, capital adequacy, asset quality, management efficiency, profitability, liquidity and sensitivity to market risk, in addition to two macroeconomic variables; economic growth and inflation rate. The results indicated that capital adequacy, asset quality, management efficiency and profitability were the most important factors that affect the performance of Jordanian commercial banks measured by ROA and ROE. The study suggested a reduced model called CAME model, which is derived from CAMELS model and has a good ability to explain the performance of Jordanian commercial banks. The study also recommended the Central Bank of Jordan to use CAME model to evaluate bank performance.