Interivew: Nemeh Sabbagh
Would you say that the central bank’s recent cutting of key rates was more to expand the money supply or to lower the state’s borrowing costs?
NEMEH SABBAGH: The measures taken by the Central Bank of Jordan to raise interest rates on monetary policy instruments over the past few years were aimed at promoting monetary stability. They renewed confidence in the Jordanian dinar, bolstered demand for it, reduced dollarisation, improved foreign currency reserves and increased excess liquidity. As financial and monetary conditions improved, the central bank reduced interest rates in order to catalyse economic growth, provide a suitable environment for investors and reduce the cost of borrowing. These reductions, which were reflected in public bond yields, should lead to an increase in aggregate demand, help utilise excess liquidity, and enable investors to obtain the necessary medium- and long-term financing at lower interest rates.
As many consider Jordan’s banking sector saturated, what opportunities are there for domestic players abroad, particularly elsewhere in the region?
SABBAGH: The local banking sector can be considered saturated, given the number of banks operating in Jordan relative to the size of the economy. The largest three Jordanian banks account for 42.1% of total market assets. This being the case, for some Jordanian banks regional expansion is warranted.
For its part, Arab Bank – which has more than 600 branches in 30 countries and is well-entrenched in the MENA region – uses its network to capitalise on opportunities in several growing sectors. A prime example is project finance in the GCC, a segment that has been driven by population and industrial growth in the region. Such growth has required many development projects for basic infrastructure, and the bank has played an active role in providing the necessary financing. We have also seen greater demand in the region for corporate banking services, a field that is keeping pace with an increasingly complex and growing business landscape.
What is being done to incentivise banks to lend to small and medium-sized enterprises (SMEs)?
SABBAGH: The Central Bank of Jordan has taken many steps to help with this. It has loosened some of the statutory reserve requirements on Jordanian banks in return for loans being granted to SMEs. It has provided direct funding to Jordanian banks at lower interest rates so that banks can lend to SMEs at preferential rates. It has encouraged banks to sign agreements with local and international institutions – such as the Overseas Private Investment Corporation and Jordan Loan Guarantee Corporation – to guarantee the loans of SMEs. It has moved to establish a credit bureau to supply the information banks need to make sound credit decisions. It is expected that these steps will incentivise Jordanian banks to provide further services to SMEs.
As the banking sector becomes more diverse and sophisticated, in what ways is innovation affecting the retail and corporate segments?
SABBAGH: The dynamics of today’s banking environment, the advancement of technology and the expectations of the banking population have all directed the industry to focus increasingly on customers in their retail product offerings. Consumers now expect packaged products with various banking services and lifestyle benefits at competitive pricing, delivered conveniently with on-going relationship management support using a combination of innovative e-banking services and human-assisted channels. It has also become a necessity to produce new offerings that meet customers’ needs at various stages in their life.
In the corporate segment, banks have become more innovative in their product suite, driven by an increasingly exposed and sophisticated customer base. Besides focusing on service and efficiency, banks must play to new target segments – SMEs, for example – and offer custom products that meet specific needs. In sum, they must stay close to customers, stress relationship management, and keep aligning with their clients’ needs.
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