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Bank Concentration and Financial Risk in Jordan

Author

Listed:
  • Rakan Fuad Aldomy
  • Chan Kok Thim
  • Nguyen Thi Phuong Lan
  • Mariati Binti Norhashim

Abstract

The main aim of this paper is to investigate the relationship be-tween bank concentration and bank risk in the Jordanian banking industry from 2005 to 2016. While controlling for bank fundamen-tals and business cycle, we used two measurements to measure bank risk (Z-score and Non-performing loan ratio) and three meas-urements of bank concentration (Herfindahl–Hirschmann Index, Concentration Ratio and the Lerner Index). We applied the two-step Generalized Method of Moments (GMM) to analysis this relationship between concentration and risk. The empirical evidence shows bank concentration has a positive relationship with risk measured using non-performing loan ratio, and a negative relationship using Z-score. This suggests greater market power leads to greater risks, which in turn supports the concentration-fragility theory.

Suggested Citation

  • Rakan Fuad Aldomy & Chan Kok Thim & Nguyen Thi Phuong Lan & Mariati Binti Norhashim, 2020. "Bank Concentration and Financial Risk in Jordan," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 16(3), pages 31-44.
    • Handle: RePEc:mje:mjejnl:v:16:y:2020:i:3:31-44
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