Interview: Nemeh Sabbagh

How might new corporate governance rules encourage consolidation in the banking sector and what is the probability of this happening?

NEMEH SABBAGH: Whether the new corporate governance code alone will encourage banking consolidation is debatable. However, the increased regulatory requirements and the enhancement of corporate governance will entail substantial amounts of investment by the banks in expertise and resources at different levels, which could trigger discussions around the benefit of consolidation for certain banks.

To what extent will the new credit bureau facilitate and accelerate lending to small and medium-sized enterprises (SMEs)?

SABBAGH: The Central Bank of Jordan (CBJ) has taken many steps to incentivise lending to SMEs. In addition to providing direct funding to Jordanian banks at lower interest rates so that banks can lend to SMEs at preferential rates, it has also encouraged banks to sign agreements with local and international institutions, such as the Overseas Private Investment Corporation and the Jordan Loan Guarantee Corporation, to guarantee loans to SMEs. The new credit bureau will supply banks with the needed information to make sound credit decisions, which will in turn incentivise Jordanian banks to provide further services to SMEs. A credit bureau would positively affect the economy and the banking industry, reducing the risk arising from credit relations between customers and banks through the availability of reliable information, and will also help speed up loan processing times.

To what extent are regional conflicts impacting GDP growth prospects in the coming year?

SABBAGH: Jordan is a secure and stable country but regional conflicts do take a toll on growth prospects. A major part of this is due to the increased cost which comes with hosting a large number of people seeking refuge in Jordan. At the same time, regional conflicts bring a sense of uncertainty for investors, which reduces their appetite and results in reduced demand for credit by the private sector.

Moreover, regional developments reduce tourist flows, particularly by people from far away who may not recognise the stability and security of Jordan due to conflicts in the surrounding areas. Also, conflicts in neighbouring countries have increased the difficulty and cost of trading with and through neighbouring countries. This cost is particularly noticeable for an economy like Jordan, which relies heavily on international trade. Yet, the Jordanian economy is expected to draw on its long-established resilience for improved overall prospects, particularly following recent and ongoing government reforms and increased international support.

To what extent does the CBJ’s continuous lowering of interest rates – most recently in February 2015 – reflect sustained economic growth?

SABBAGH: The CBJ has lowered policy interest rates four times between August 2013 and February 2015, with a cumulative reduction of the overnight deposit window rate by 225 bps. The latest rate reduction became effective on February 3, 2015, and was done in the context of updating the monetary policy framework.

Lowering the policy interest rates has reflected increased confidence in the dinar, a result of high growth rates of JD deposits, a downward trend in the rate of deposit dollarisation, and very comfortable levels of foreign reserves.

As these developments reflect monetary stability and increased confidence, they will also provide the basis for supporting higher levels of growth.