Effect of interest rate risk on financial performance the mediating role of banking security degree: evidence from the financial sector in Jordan
Abstract
The current study aims to determine the effect of interest rate risk on financial performance through the banking security degree as a mediating variable. The study population includes 13 Jordanian commercial banks from 2011 to 2018. To achieve the current study objectives, a descriptive and analytical approaches were used. Furthermore, Baron and Kenny’s test (1986) were adopted to examine the current study hypotheses. The results found that the banking security degree partially affects the relationship between interest rate risk and financial performance. Accordingly, this study provides a set of recommendations. Among them, we encourage policymakers and bank owners, and managers to develop efficient interest rate risk policies continuously in addition to strengthening the monetary and financial policies of the banking sector. They should strive to achieve a balance between each of the risks of interest rate, performance, and banking security degree.
Keyword : interest rate risk, financial performance, banking security degree
How to Cite
Al-Slehat, Z. A. F. (2022). Effect of interest rate risk on financial performance the mediating role of banking security degree: evidence from the financial sector in Jordan. Business: Theory and Practice, 23(1), 165–174. https://doi.org/10.3846/btp.2022.13884
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Kolapo, F., & Fapetu, D. (2015). The influence of interest rate risk on the performance of deposit money banks In Nigeria. International Journal of Economics, Commerce and Management, III(5), 1218–1227.
Kumar, S. (2015). Project report on “Risk management in banking sector”. Knowledge Bank’s International Journal of Multidisciplinary Studies, 1(1), 1–3.
Lelyuk, N., & Rodchenko, S. (2019). Identification of threats to the financial security of bank. Economics of Enterprises: Economics and Management of Enterprise, Technology Audit and Production Reserves, 2/4(46), 28–33. https://doi.org/10.15587/2312-8372.2019.168431
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Musiega, M., Olweny, T., Mukanzi, C., & Mutua, M. (2017). Influence of interest rate risk on performance of commercial banks in Kenya. Economics and Finance Review, 5(02), 14–23.
Muriithi, J., & Waweru, K. (2017). Liquidity risk and financial performance of commercial banks in Kenya. International Journal of Economics and Finance, 9(3), 256–265. https://doi.org/10.5539/ijef.v9n3p256
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Mwenda, K. (2000). Banking supervision and systemic bank restructuring: An international and comparative legal perspective (first published). Cavendish Publishing Limited. https://doi.org/10.4324/9781843140115
Ngalawa, J., & Ngare, P. (2014). Interest rate risk management for commercial banks in Kenya. IOSR Journal of Economics and Finance (IOSR-JEF), 4(1), 11–21. https://doi.org/10.9790/5933-0411121
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Oludhe, J. (2011). The impact of credit risk management on financial performance of commercial banks in Kenya [Unpublished Masters Thesis, University of Nairobi].
Omran, M. (2015). The effect of the banking risks in the degree of banking security in the commercial banks operating in Syria “Proposed Model”. Tishreen University Journal for Research and Scientific Studies – Economic and Legal Sciences Series, 73(1), 461–482.
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Santomero, A. (1997). Commercial bank risk management: An analysis of the Process. The Journal of Risk and Insurance, 64(2), 231–270. https://doi.org/10.2307/253730
Savitri, E. (2018). Relationship between family ownership, agency costs towards financial performance and business strategy as mediation. Business: Theory and Practice, 19, 49–58. https://doi.org/10.3846/btp.2018.06
Shaheen, A., & Sabah, B. (2011). The impact of risk management on the degree of security in the Palestinian banking sector. Journal of Al-Aqsa University: Series of Human Sciences, 15(1), 1–29.
Sikolia, B., & Miroga, J. (2018). Effects of bank specific guidelines on financial performance of commercial banks in Kenya: A Case of Kenya commercial bank. Journal of International Business, Innovation and Strategic Management, 1(7), 41–60.
Sisay, D. (2017). The effect of financial risk on performance of insurance companies in Ethiopia [Unpublished masters thesis, Addis Ababa University].
Stavroula, K. (2009). Risk management in banking; the case of Greek banking industry [Unpublished master thesis, University of Macedonia Economic and Social Sciences].
Talib, A., Al-Mousawi, S., & Al-Aqili, S. (2017). The relationship of stress tests in achieving bank security. Iraqi Academic Scientific Journals, 13(53), 1–23.
Tarullo, D. (2008). Banking on basel the future of international financial regulation. Peterson Institute for International Economics.
Wekesa, N. (2016). The relationship between liquidity risk and financial performance of commercial banks in Kenya [Unpublished Masters thesis, University of Nairobi].
Wood, A., & McConney, S. (2017). The impact of risk management on the financial performance of the commercial banking sector in Barbados. https://cert-net.com/files/publications/conference/2017/AnthonyWoodandShaniseMcConneySHANWOOD2.pdf
Yaylali, P., & Safakli, O. (2015). Risk management in the banking sector: Case of TRNC. International Journal of Academic Research in Economics and Management Sciences, 4(2), 20–33. https://doi.org/10.6007/IJAREMS/v4-i2/1654
Ahmadyan, A. (2017). Measuring liquidity risk management and impact on bank performance in Iran. Journal of Money and Economy, 12(3), 295–315.
Al Ajlouni, M., & Alrgaibat, G. (2014). Impact of risk on the degree of banking safety in traditional Jordanian banks (2000–2011). Global Journal of Management and Business Research: C Finance, 14(3), 29–36.
Al-Ali, R. (2002). Banking management: A quantitative analytical approach (1st ed.). Dar Al-Fiker For Printing & Publishing & Distribution.
Al-Daami, A., & Al-Marsoumi, M. (2017). The effect of liquidity risk management on banking financial performance. Journal of Administration and Economics, 5(20), 73–100.
Al-Sayed, A., & Al-Issa, N. (2004). Money and banks and financial markets (1st ed.). Dar Al-Hamed, Amman, Jordan.
Al-Shabib, D. (2015). Banking operations management (1st ed.). Dar Al-Maseru, Amman, Jordan.
Amsalu, M. (2019). The effect of financial risk on the financial performace of Ethiopian commercial banks [Unpublished masters thesis, Addis Ababa University].
Anderloni, L., Liewellyn, D., & Schmidt, R. (2009). Financial innovation in retail and corporate banking, new horizons in money and finance. Edward Elgar Publishing Limited. https://doi.org/10.4337/9781848447189
Apatachioae, A. (2015). The performance, banking risks and their regulation. Procedia Economics and Finance, 20, 35–43. https://doi.org/10.1016/S2212-5671(15)00044-1
Ballester, L., Gonzalea, C., & Ferrer, R. (2009). Interest rate risk and bank-specific characteristic. ResearchGate. https://www.researchgate.net/publication/267568319
Baron, R., & Kenny, D. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182. https://doi.org/10.1037//0022-3514.51.6.1173
Bessis, J. (2010). Risk management in banking (3rd ed.). John Wiley and Sons Ltd.
Bojinov, B. (2016). Challenges for ensuring the data security of commercial banks. Information and Communications Technologies, 3/2016, 7–20. https://doi.org/10.2139/ssrn.2889350
Brealey, R., & Myers, S. (2003). Principles of corporate finance (7th ed.). The McGraw-Hill Companies.
Breslin, J., Cahill, D., Cotter, A., Darby, J., Doyle, T., Gavin, J., Gilvarry, T., & Moloney, N. (2003). Banking & corporate financial services professional practice guide. Cavendish Publishing Limited.
Cherubini, U., & Lunga, G. (2007). Structured finance the object-oriented approach. John Wiley and Sons Ltd.
Ciuhureanu, A. T., & Baltes, N. (2014). Study on the risk management in banking institutions. Studies in Business and Economics, 5(3), 67–78. https://www.researchgate.net/publication/227351347
Cortes-Sanchez, J., & Rivera, L. (2019). Mission statements and financial performance in Latin-American firms. Business: Theory and Practice, 20, 270–283. https://doi.org/10.3846/btp.2019.26
Dassie, L. (2018). The effect of liquidity risk management on financial performance of commercial banks in Sierra Leone [Unpublished masters thesis, University of Nairobi].
Ebba, M. (2016). The relationship between non-performing loans and financial performance of commercial banks in Ethiopia [Unpublished masters thesis, University of Nairobi].
Ebenezer, O., Islam, A., Yusoff, W., & Rahman, S. (2019). The effects of liquidity risk and interest-rate risk on profitability and firm value among banks in ASEAN-5 Countries. Journal of Reviews on Global Economics, 8, 337–349. https://doi.org/10.6000/1929-7092.2019.08.29
Ekinci, R., & Poyraz, G. (2019). The effect of credit risk on financial performance of deposit banks In Turkey. Procedia Computer Science, 158, 979–987. https://doi.org/10.1016/j.procs.2019.09.139
Frost, S. (2004). The bank analysts handbook money, risk and conjuring tricks. John Wiley and Sons Ltd.
Giwa, Y. (2019). Effect of cost of capital on financial performance of listed construction companies in Nigeria [Unpublished masters thesis, Nigerian Defence Academy].
Gweyi, M., Olweny, T., & Oloko, M. (2018). Effect of liquidity risk on financial performance of deposit taking savings and credit societies in Kenya. International Journal of Economics, Commerce and Management, VI(1), 259–283.
Ishtiaq, M. (2015). Risk management in banks: Determination of practices and relationship with performance [Doctoral Dissertation, University of Bedfordshire].
Khrawish Khaled, H. A., Al-Abadi, A. A.-Z., M. I. (2004). Factors affecting the level of banking Hedging: Applied application. Journal of King Abdulaziz University: Economics and Administration, 18(1), 59–77. https://doi.org/10.4197/Eco.18-2.3
Kolapo, F., & Fapetu, D. (2015). The influence of interest rate risk on the performance of deposit money banks In Nigeria. International Journal of Economics, Commerce and Management, III(5), 1218–1227.
Kumar, S. (2015). Project report on “Risk management in banking sector”. Knowledge Bank’s International Journal of Multidisciplinary Studies, 1(1), 1–3.
Lelyuk, N., & Rodchenko, S. (2019). Identification of threats to the financial security of bank. Economics of Enterprises: Economics and Management of Enterprise, Technology Audit and Production Reserves, 2/4(46), 28–33. https://doi.org/10.15587/2312-8372.2019.168431
Matthews, K., & Thompsom, J. (2005). The economics of banking. John Wiley and Sons Ltd.
Mishkin, F. (2004). The economics of money, banking and financial markets (7th ed.). Pearson Addison Wesley.
Mobarak, M. (2020). The impact of liquidity risk management on financial performance of the Islamic banks in Egypt. Alexandria Journal of Accounting Research, 2(4), 1–24.
Mohammad, S., Asutay, M., Dixon, R., & Platonova, E. (2020). Liquidity risk exposure and its determinants in the banking sector: A comparative analysis between Islamic, conventional and hybrid banks. Journal of International Financial Markets, Institutions & Money, 66, 101196. https://doi.org/10.1016/j.intfin.2020.101196
Muiruri, W., & Wepukhulu, J. (2018). Effect of financing decisions on financial performance of listed companies at the Nairobi securities exchange, Kenya. Journal of International Business, Innovation and Strategic Management, 1(7), 101–114.
Musiega, M., Olweny, T., Mukanzi, C., & Mutua, M. (2017). Influence of interest rate risk on performance of commercial banks in Kenya. Economics and Finance Review, 5(02), 14–23.
Muriithi, J., & Waweru, K. (2017). Liquidity risk and financial performance of commercial banks in Kenya. International Journal of Economics and Finance, 9(3), 256–265. https://doi.org/10.5539/ijef.v9n3p256
Musa, K. (2011). The relationship between interest rate and financial performance of commercial banks in Kenya [Unpublished Masters thesis, University of Nairobi].
Mwenda, K. (2000). Banking supervision and systemic bank restructuring: An international and comparative legal perspective (first published). Cavendish Publishing Limited. https://doi.org/10.4324/9781843140115
Ngalawa, J., & Ngare, P. (2014). Interest rate risk management for commercial banks in Kenya. IOSR Journal of Economics and Finance (IOSR-JEF), 4(1), 11–21. https://doi.org/10.9790/5933-0411121
Nuhiu, A., Hoti, A., & Bektashi, M. (2017). Determinants of commercial banks profitability through analysis of performance indicators: Evidence from Kosovo. Business: Theory and Practice, 18, 160–170. https://doi.org/10.3846/btp.2017.017
Oludhe, J. (2011). The impact of credit risk management on financial performance of commercial banks in Kenya [Unpublished Masters Thesis, University of Nairobi].
Omran, M. (2015). The effect of the banking risks in the degree of banking security in the commercial banks operating in Syria “Proposed Model”. Tishreen University Journal for Research and Scientific Studies – Economic and Legal Sciences Series, 73(1), 461–482.
Quantpsy. (2021). Calculation for the Sobel test. http://quantpsy.org/sobel/sobel.htm
Ramadan, Z., & Judah, M. (2013). Contemporary trends in banking management (4th ed.). Dar Wa’el for Publishing.
Ross, S., Westerfield, R., & Jordan, B. (2010). Fundamentals of corporate finance (9th ed.). McGraw-Hill/Irwin.
Santomero, A. (1997). Commercial bank risk management: An analysis of the Process. The Journal of Risk and Insurance, 64(2), 231–270. https://doi.org/10.2307/253730
Savitri, E. (2018). Relationship between family ownership, agency costs towards financial performance and business strategy as mediation. Business: Theory and Practice, 19, 49–58. https://doi.org/10.3846/btp.2018.06
Shaheen, A., & Sabah, B. (2011). The impact of risk management on the degree of security in the Palestinian banking sector. Journal of Al-Aqsa University: Series of Human Sciences, 15(1), 1–29.
Sikolia, B., & Miroga, J. (2018). Effects of bank specific guidelines on financial performance of commercial banks in Kenya: A Case of Kenya commercial bank. Journal of International Business, Innovation and Strategic Management, 1(7), 41–60.
Sisay, D. (2017). The effect of financial risk on performance of insurance companies in Ethiopia [Unpublished masters thesis, Addis Ababa University].
Stavroula, K. (2009). Risk management in banking; the case of Greek banking industry [Unpublished master thesis, University of Macedonia Economic and Social Sciences].
Talib, A., Al-Mousawi, S., & Al-Aqili, S. (2017). The relationship of stress tests in achieving bank security. Iraqi Academic Scientific Journals, 13(53), 1–23.
Tarullo, D. (2008). Banking on basel the future of international financial regulation. Peterson Institute for International Economics.
Wekesa, N. (2016). The relationship between liquidity risk and financial performance of commercial banks in Kenya [Unpublished Masters thesis, University of Nairobi].
Wood, A., & McConney, S. (2017). The impact of risk management on the financial performance of the commercial banking sector in Barbados. https://cert-net.com/files/publications/conference/2017/AnthonyWoodandShaniseMcConneySHANWOOD2.pdf
Yaylali, P., & Safakli, O. (2015). Risk management in the banking sector: Case of TRNC. International Journal of Academic Research in Economics and Management Sciences, 4(2), 20–33. https://doi.org/10.6007/IJAREMS/v4-i2/1654