Relationship between Macroeconomic Variables and their Impact on Non-Performing Loans in Jordanian Banks

Abstract

This study aims at showing the impact of macroeconomic variables such as GDP, unemployment rate, interest rates, remittances of workers abroad and external grants on non-performing loans in Jordanian banks. To achieve the objectives of the study and to test its hypothesis, the Autoregressive Distributed-lagged model (ARDL) was used. The study found that there is a long-term equilibrium relationship between these variables of the study. It also found that there is an inverse relationship with a significant effect on the long and short term for both external grants, GDP (Gross Domestic Product) and interest rates on non-performing loans in Jordanian banks. On the other hand, the study concluded that there is no impact on the long and short run for both remittances of workers abroad and the rate of unemployment on non-performing loans in Jordanian banks because these variables are not significant. The study recommends the Jordanian government to adopt policies and programs aiming at the reduction of the cost of borrowing to cut down NPAs, to promote the development of local investments and explore new international markets to attract Jordanian labor.