The Impact of Asset Liability Management on the Profitability of Jordanian Commercial Banks
Abstract
This study examines the impact of Asset-Liability Management (ALM) on the profitability of Jordanian commercial banks. The Statistical Cost Accounting (SCA) model was employed, using balance sheet components, macroeconomic indicators, and bank-specific variables as explanatory factors. Profitability was measured by Return on Assets (ROA), with the study sample comprising 12 commercial banks over the period 2014–2023. Results from the fixed-effects analysis reveal that investments in securities portfolios have a significant positive impact on bank profitability. The findings further indicate that current deposits represent the most cost-effective source of funding, contributing significantly to the profitability of Jordanian banks. Conversely, borrowing from other financial institutions exerted a significant negative impact on profitability, suggesting that reliance on non-deposit financing often entails higher costs and narrower profit margins. Additionally, the results show that non-performing loans (NPLs) negatively affect ROA, highlighting credit risk as a primary factor undermining the profitability of Jordanian commercial banks. The rise in NPL ratios necessitates higher loan loss provisions, which directly reduce net income. The study recommends adopting strategic marketing initiatives to attract more current account deposits, given their flexibility and lower cost relative to alternative funding sources.