  Citation: ALrfai, Mohammad Motasem, Danilah Binti Salleh, and Waeibrorheem Waemustafa. 2022. Empirical Examination of Credit Risk Determinant of Commercial Banks in Jordan. Risks 10: 85. https:// doi.org/10.3390/risks10040085 Academic Editor: Krzysztof Jajuga Received: 7 March 2022 Accepted: 30 March 2022 Published: 14 April 2022 Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affil- iations. Copyright: © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). risks Article Empirical Examination of Credit Risk Determinant of Commercial Banks in Jordan Mohammad Motasem ALrfai *, Danilah Binti Salleh and Waeibrorheem Waemustafa Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia, Sintok 06010, Kedah, Malaysia; danilah@uum.edu.my (D.B.S.); waeibrorheem@uum.edu.my (W.W.) * Correspondence: mohammad_motasem@oyagsb.uum.edu.my or mohammadalrfai92@gmail.com Abstract: The current research aims to examine the credit risk determinants in Jordan’s banks. Macroeconomic factors were included to examine credit risk in commercial banks by adopting the balanced data for the examination between 2008–2019. The result shows that credit risk relates to foreign direct investment (FDI) and the output gap. The relation existed since FDI helped the country create job opportunities, increase administrative efficiency and capacity, and work to exchange technologies, ideas, opinions, and human resources, especially in emerging economies. The output gap relates to CR by the ability that borrowers’ cash inflows are reduced when growth slows or turns negative, making it harder for them to meet the interest and principal of bank loans in exchange, especially in markets that have the potential to decrease the output gap. The result specified that as remittance (REMIT) grows, credit risk considerably accelerates, and the same effect was also recognised for public debt (DEBT). The outcomes revealed an important influence of tax on personal income (TAXINC). The examination result proves that credit risk is affected by several factors, which may relate significantly to implications as expected. Keywords: credit risk; non-performing loans; Jordan; macro-economic 1. Introduction The stability of the financial sector is critical for every country’s economic progress. The global economic crisis (GFC) of 2008–2009 was a threat that directly affected global financial stability. Internal and external risks like ineffective managers, bad regulation, and economic difficulties, to name a few, may have an impact on the banking sector’s essential role (Naili and Lahrichi 2022; Tehulu and Olana 2014). Considering the impact of various types of risks, credit risk (CR) is regarded as the first type that can jeopardise a bank’s survival and financial stability (Caruso et al. 2021). The GFC has recently paid more attention to non-performing loans (NPLs) by regulators and commercial banks since it threatens the bank’s stability and can lead to bank failure (Naili and Lahrichi 2022; Ghosh 2015). This form of risk is rooted in the conventional role of banks, which is essentially to provide credit. According to Caruso et al. (2021), a bank’s earnings are most often shaped by the interest on the bank’s money that is lent. Banks should ensure consumers’ ability to repay the amount owed as well as the loan interest, which can be a difficult process and may not always be as fruitful as estimated. Furthermore, according to a recent study, macroeconomic considerations have had the greatest influence on NPLs since 2008, and the macroeconomic climate is currently the most widely reflected determinant of NPLs (Manz 2019; Us 2017; Katuka 2017). Lately, there has been a growing interest in investigating NPLs, as the rising ratio of NPLs is viewed as the primary reason for financial crisis and breakdown (Adebola et al. 2011). The banking sector in Jordan is recognised as the nation’s largest and strongest sector, contributing over 20% of the country’s GDP in 2019. The banking sector remains stable and Risks 2022, 10, 85. https://doi.org/10.3390/risks10040085 https://www.mdpi.com/journal/risks