Although the IMF argued in a recent study that economic growth in Jordan will likely remain “subdued” over the coming year, it also made note of a few sectors supporting economic expansion. Banking in particular was highlighted, with the IMF stating that the banking system remains one of the economy’s strongest industries.
“The banking sector’s macroprudential indicators remain strong,” the IMF’s executive board said in its public information notice. “Banks remain profitable and well capitalised, deposits (largely JD-denominated) continue to be the major funding base, liquidity ratios and provisioning remain high, while non-performing loans increased slightly to 8.5% in mid-2011.” Additionally, the IMF noted that private sector credit is also on the rebound, growing by 9.5% year-on-year in December 2011.
The banking sector, therefore, will likely play a central role in any further economic expansion over the coming year, which the IMF estimates will result in a 2.75% growth in GDP. Indeed, a number of Jordanian banks have posted impressive numbers thus far in 2012, reinforcing their ability to help drive economic stability and growth.
For example, Arab Bank Group (ABG), one of the country’s largest firms, posted a 10% increase in profits in the first quarter of 2012 compared to the same period in 2011, with $205m. Abdul Hamid Shoman, the chairman of ABG, attributed the jump to growth in net interest rates and commissions, as well as increased profits from the bank’s financial assets. The bank reported other favourable indicators for the quarter as well, including assets that rose from $45.6bn at the end of December 2011 to $46.4bn as of April 2012.
The Housing Bank for Trade and Finance (HBTF) also posted strong results for the first quarter of 2012, recording pre-tax profits of JD34m ($47.78m), a 6.2% increase over the same period in the previous year. Net profits after taxes totalled JD24.5m ($34.43m), a 5% increase compared to the JD23.4m ($32.89m) in the first quarter of 2011.
Good news was not limited to the kingdom’s traditional banks. Jordan Islamic Bank (JIB), one of the country’s small number of sharia-compliant institutions, was singled out by Global Finance magazine as the world’s best retail Islamic bank, an award that JIB has now garnered for three consecutive years.
According to Musa Abdelaziz Shihadeh, the vice-chairman and managing director of JIB, “The bank’s consistent achievements through its charitable mission is the result of efforts that aim to achieve the highest Islamic banking services standards, as well as keeping high levels of growth and profitability in all sectors and efficiency in all services.”
While banks are continuing to post strong results, there are some concerns within the sector that the banking system may face increased interventions from regulators and the government.
The Central Bank of Jordan (CBJ) said in early May 2012 that it would be lowering interest rates on loans extended to banks, with interest rates becoming the rediscount rate on the day loans are extended to banks, minus a 2% margin.
The move is designed to support industrial development by facilitating financing for manufacturers, and especially small and medium-sized enterprises. Hatem Halawani, the president of the Jordan Chamber of Industry was reported in The Jordan Times to have suggested that the CBJ do more to convince commercial banks to provide more attractive terms for loans to industry.
The government has stressed that while further regulatory changes are being considered, nothing has yet been finalised (pending a full financial review of the country’s economic situation) and the industry will have ample time to make its views known before new regulations come into effect. This should ensure that any regulatory adjustments would not produce an unexpected sudden shock for the banking sector in the short to medium term.
Moreover, in its public statements, the IMF has noted that its positive assessments of the Jordanian banking sector partially reflect the vigorous regulatory actions being taken by the kingdom's government.
“The CBJ continues to exercise prudent regulation and supervision of the banking system,” the IMF said in its public information notice. “The executive directors commended the authorities’ track record of prudent and effective macroeconomic management.”
Therefore, while some in the industry remain wary of upcoming regulatory changes, overall the country’s banking sector looks set for further growth and well-positioned to help support the economy through the rest of 2012.