The Impact of Enhancing Financial Inclusion on Achieving Financial Stability: An Applied Study on Palestinian Banks

Abstract

The current study aims to identify the impact of the dimensions of financial inclusion represented by access (banking penetration) and utilization (SME loans) on financial stability in Palestine, expressed through three indicators: Zscore, non-performing loans, and return on equity, with internal control variables: bank liquidity, operational efficiency, and external control variables: inflation rate, GDP growth rate, and crises. To achieve the objective of the study, the quantitative method was used by collecting secondary data extracted from the annual reports of Palestinian local banks and the reports of the Palestinian Monetary Authority during the study years (2006-2023). The study found that there is no impact of the first financial inclusion variable, banking penetration on financial stability expressed by Zscore and non-performing loans, while it has a positive impact on the third financial stability indicator, return on equity rate, as for the second financial inclusion variable, SME loans. The study recommends conducting research in countries with contexts similar to Palestine, and incorporating additional variables related to financial inclusion.