Interview: Nemeh Sabbagh
How would you assess the current compliance environment in the kingdom, and how is this a positive force for business development?
NEMEH SABBAGH: In an environment of evolving regulatory developments and increased complexity, banks in Jordan continue to be fully committed to compliance, which is a hallmark for a sound and stable banking system and a positive force for business expansion. The Central Bank of Jordan (CBJ) plays a critical role by providing strong oversight and supervision of banks on both a micro and macro level, including focusing on conduct risk and governance, to help them achieve financial stability and ensure the appropriate management of risks. This continuous raising of the bar will act as a further catalyst for enhanced financial transparency, leading to improved customer service and trust, and thus to more opportunities for business development.
To what extent is liquidity management an issue for local banks, and how can the CBJ assist in this?
SABBAGH: Jordanian banks manage liquidity with great care, as evidenced by consistently very low loan-to-deposit ratios. The regulatory and operational framework provided by the CBJ has proved to be very effective in helping the banks manage surplus liquidity. Tools such as the Central Bank Window, Central Bank CDs, T-Bills and Treasury bonds are all widely used by all banks. Further funding tools such as overnight and one-week CBJ repos are available to banks, to add flexibility to how Jordanian banks manage their day-to-day liquidity.
In what ways can the government help the sector increase funding to small and medium-sized enterprises (SMEs) and reduce their capital costs?
SABBAGH: Increasing the role of SMEs, which are critical for job creation and addressing the unemployment challenge, is important. Expanding SME financing is a key component in this process. To this effect, the CBJ has undertaken several initiatives to boost financing for SMEs and enable banks to provide them with funding at preferential interest rates. These initiatives have used financing from the Arab Fund, the European Bank for Reconstruction and Development, and the US Overseas Private Investment Corporation. The central bank has also tripled the capital of the Jordan Loan Guarantee Corporation (JLGC), in which Arab Bank is a major shareholder, and which extends loan guarantees to SMEs, enabling the company to expand its support of SMEs. This is in addition to the newly established fund launched by the JLGC to support start-ups.
In light of regional conflicts and continuing global economic uncertainty, how is Jordanian consumer and business confidence impacting banks?
SABBAGH: Despite numerous challenges stemming from the ongoing events in the region, the banking sector in Jordan remains resilient. However, the impact of the regional economic uncertainty on banks’ growth prospects cannot be discounted. The impact is largely reflected in low demand for credit. The loans growth rate – excluding credits to semi-government companies or entities – is relatively low and is affecting the banks’ ability to achieve better growth rates. Low demand from the private sector is also creating pressure on margins. As for consumers, banks are reacting to the low demand on loans by launching various campaigns to promote consumer lending, mainly mortgage lending but at tighter margins. This situation is expected to continue until such time as investment flows, regionally and locally, start to pick up.
What impact has the recently established credit bureau had on banks and financing houses?
SABBAGH: The impact will need some time before it can be properly evaluated, but having a credit bureau is expected to bring about substantial enhancements. to the current credit assessment process, by providing a 360-degree view of an applicant’s credit history.
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