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Abstract
Investigation of Jordanian Islamic and Conventional Banks’ Stability and Profitability Determinants:
Evidence from the Recent Financial Crisis
Imane  Yousfi
Mu’tah University, 2011

This study is concerned with examining the stability and profitability determinants of Jordanian Islamic and conventional banks. Specifically, it had two main objectives: First, to test and compare the stability of these banks pre and post the financial crisis, using the daily returns for the period 02/01/2005 to 26/01/2010. Second, to investigate the profitability (ROA and ROE) determinants of these banks' (capital, size, liquidity, deposits growth, efficiency and risk) as internal determinants and the financial crisis (dummy) as an external one during the time period 1998-2009. The study covered a sample of ten conventional and two Islamic banks.

The conditional variance (volatility) of returns was used to measure stability. The GARCH, E-GARCH and GJR-GARCH models were used to estimate volatility due to their ability to take into account the leverage effect. The results of this study showed that Islamic bank were more stable than conventional banks, which may due to their links with the real economy.

The profitability determinants were tested using the pooled least square method with fixed effect. The results indicated that the most important factors that affected Islamic bank‘s profitability were: capital, risk and size. However, the most significant factors that affected conventional banks profitability were capital and efficiency. Finally, the results revealed that the financial crisis had a significant effect on conventional banks‘ profitability, but it had no effect on the profitability of Islamic banks.

The study recommended that Islamic banks in Jordan need to improve the branch network throughout the country, and conventional banks must open Islamic branches, to benefit from this worthy system and to diversify their risks.