The Impacts of Credit Risks on the Financial Stability of Jordanian Commercial Banks between 2010 and 2020

Banks are unique establishments that are exposed to both returns and risks across various dimensions. Among the risks they face, credit risk stands out as one of the most critical, stemming from banking transactions with customers and institutions. Risk is an inherent aspect of the banking business, particularly due to factors such as increased competitiveness, technological advancements, larger banking transactions, and the presence of large banks. Today, banks encounter a range of banking risks, varying in their levels of severity across different institutions. To ensure their continued existence in the banking market with reasonable returns and minimal risks, banks must conduct thorough evaluations and analyses while effectively managing all potential risks. These measures contribute to their success. This study specifically examines the influence of credit risk on the financial stability of Jordanian commercial banks during the period of 2010–2020. The study incorporates key drivers of financial stability, including the capital adequacy index, liquidity ratio, return on assets, and costs, which were derived from previous research. The study’s findings indicate that the leverage ratio (expressed as a percentage) of credit risks had no impact on the financial stability of Jordanian commercial banks between 2010 and 2020. However, there was an impact observed in relation to credit risks represented by the ratio of nonperforming loans to total loans (expressed as a percentage), affecting the financial stability of these banks. Based on the final results and discussions of the study, it is recommended to prioritize transparency, as it plays a crucial role in achieving financial stability even in the face of financial, political, and epidemic crises. Additionally, adherence to institutional governance principles in financial markets and establishing a link between economic indicators and banking safety are essential. Overall, this study underscores the significance of effectively managing credit risks and implementing measures to ensure financial stability in the banking sector.

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