Abstract Purpose – This study aims to investigate the moderating role of corporate governance (CG) on the relationship between credit risk (CRs) and financial performance (FP) of banks listed in the Palestine Securities’ Exchange (PEX) and Amman Securities’ Exchange (ASE). Design/methodology/approach – This study used a hypothesis-testing research design to collect data from the annual reports of 21 banks listed on (PEX) and (ASE). Secondary data, annual reports and disclosures were used between from 2009 to 2019. Descriptive and inferential statistics were used, along with correlation analysis to evaluate linear relationships between variables. Data was collected based on panel data, the VIF was used to test multicollinearity and binary logistic regression was used to develop the research model. Findings – The regression results showed the association between CR and firm performance depends on the measurement of each factor applied. The results showed mixed results between loans to total assets (LTA) and nonperforming loans to total loans (NPLs) with FP. LTA has a significant and positive effect on TOBINSQ and return on equity (ROE), but an insignificant and positive effect on return on assets (ROA). On the other hand, NPLs have a significant and negative effect on ROA, whereas NPLs have a weak and positive effect on TOBINSQ. However, there is an insignificant and positive effect of NPLs on ROE. Moreover, the results demonstrated that CG moderated the relationship between CRs and FP of banks. The practical contribution of this paper, for bank policymakers and authorities, the study’s implications are noteworthy. Understanding the varied impacts of different CR measures on FP can help regulators and policymakers design more tailored and effective risk management frameworks for banks. Research limitations/implications – This study had limitations that future research might be able to address. First, the small size of the sample used in the study included 21 banks listed on the PEX and ASE. Likewise, the ASE and PEX are considered developing stock exchanges, so the results of this study may differ from those of other stock exchanges. Second, only CRs were considered in this study when examining the association between the profitability of Palestinian banks and ASE. Other studies can be undertaken on other nonfinancial risks, such as operational risk, to measure the differences between them and examine their effects on the profitability of Palestinian and Jordanian banks. Other studies might be performed to compare CRs and its impact on profitability in Palestinian and Jordanian banks with those in other Western and Eastern banks. Furthermore, in addition to TOBINSQ, ROA and ROE, researchers can use other financial indicators to measure profitability. This will contribute to substantiating the present study’s findings. Originality/value – Although several studies have examined the relationship between CRs and FP in developed and developing countries, the results have been mixed. However, this study is one of the few Financial performance in banking industry Received 27 November 2023 Revised 10 February 2024 Accepted 5 March 2024 Journal of Islamic Marketing © Emerald Publishing Limited 1759-0833 DOI 10.1108/JIMA-11-2023-0378 The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/1759-0833.htm studies that examined the moderating role of CG in association with CRs and FP, especially on Palestinian and Jordanian contexts. Finally, the findings offer policymakers and practitioners of Palestinian and Jordanian contexts. Keywords Credit risk, Financial performance, Corporate governance, Banking industry

Title

Journal of Islamic Marketing

Publisher

Emerald group

Publisher Country

United Kingdom

Indexing

Scopus

Impact Factor

3.6

Publication Type

Both (Printed and Online)

Volume

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Year

2024

Pages

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