THE NEXUX BETWEEN FINANCIAL DEVELOPMENT, FOREIGN DEPOSITS, RETAIL BANKING AND FINANCIAL INCLUSION: THE JORDANIAN CASE

Year 2017, Volume: 3 Issue: 1, 118 - 130, 30.06.2017

Ghassan Omet Morad Abdel-halim

https://doi.org/10.17261/Pressacademia.2017.398

Abstract

As a major part of the Jordanian financial system, this paper examines
the banking sector at both the macro and micro levels. Based on the time period
1982-2015, and time series methodologies (co-integration, Vector Error
Correction Model, and Granger Causality), the macrolevel analysis examines the
impact of foreign exchange deposits on financial development. Using the
Seemingly-Unrelated Regression (SUR), the micro-level aspect examines the
impact of foreign exchange deposits and retail banking on the performance of
banks in terms of their net interest margin and accounting performance.
Finally, the fact that greater financial inclusion promotes credit to the
private sector, we estimate an Ordered Probit Model to examine the determinants
of financial inclusion in Jordan. We conclude that foreign exchange deposits
reflect weak evidence in explaining the variability of bank credit. In other
words, foreign exchange deposits do not promote financial development. The
micro-level analysis, on the other hand, reveals that foreign exchange deposits
and retail banking impact bank profitability in a positive manner. However,
this impact (positive) comes only at the expense of widening net interest
margins. Finally, the results reveal that higher income, better education,
being a man, and being older are associated with greater levels of financial
inclusion. Naturally, based on the empirical results, the paper outlines a number of recommendations
whose aim is to promote financial development as well as the performance of the
banking system. 

Keywords

Financial Development, dollarization, net-interest margin, return on assets, financial inclusion

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