Jordan
- Population – 5.35m (2004)
- Average lending interest rate – 7.0% (2005)
- % change in consumer prices – 4.5% (2005)
- GDP at constant 1994 prices – JD6,551m (2004)
- Agriculture, forestry and fishery sector as % of total GDP – 2.3% (2004)
In Middle Eastern terms, Jordan’s financial services sector is relatively well developed. It is now served by nine local commercial banks, two Islamic banks, five investment banks and eight foreign banks. The most recent arrivals are two Lebanese banks—Banque Audi (which was he first bank in Jordan to obtain a licence for bancassurance services) and Banque du Liban et d’Outre Mer—and National Bank of Kuwait, all of whom entered the market in 2004. The sector saw a further change when new investors came into the troubled Jordan Gulf Bank, and it was relaunched as the National Commercial Bank.
Despite the increasing importance of foreign banks, Arab Bank, with about 60% of all assets, continues to dominate the sector. The CBJ has offered incentives to encourage smaller institutions to merge but Jordanian banks have a strong tradition of family ownership and owners are reluctant to cede control to larger institutions. The banks have tended to prefer the short-term risks of trade finance and property development to longer-term industrial ventures. However, since the mid-1990s, banks have moved aggressively into retail services, mortgages and electronic services.
The impact of increased competition has also forced down lending rates, even in the face of several rate rises by the CBJ. Average monthly lending rates had eased to 8.3% at the end of 2004, from 9.3% at the beginning of the year, despite the CBJ’s rediscount rate increasing from 2.5% to 3.75% over the same period. By end-2005 the average lending rate was down to 7%. As a result, commercial bank lending to the private sector increased by JD1.78bn (US$2.5bn) in 2005, compared with JD870m (US$1.3bn) in 2004 and just JD168m in 2003.
There are five long-established specialised credit institutions dealing with agricultural credit, housing, rural and urban development and industry. These have been joined by the Jordan Loan Guarantee Corporation, which provides guarantees to cover bank loans in support of small and medium-sized local industries, and the Jordan Secondary Mortgage Refinance Company, which was established in 1996 to refinance medium- and long-term housing loans extended by the banks. Jordan also has 76 authorised money-changers, who play an important role in private transfers from expatriate Jordanian workers and foreign workers in Jordan. The National Microfinance Bank was officially inaugurated in March 2006. The bank was established by the Arab Gulf Programme for United Nations Development, the King Abdullah Fund for Development and the private sector. The bank plans to open at least 13 branches throughout Jordan. It supplements four established non-bank microfinance institutions in Jordan.
The banking system is regulated by the CBJ. Its supervision has generally been adequate, with attention focused on bank lending policies and provisioning. A new banking law passed in 2000 strengthened supervision and clarified procedures for the licensing of new banks. An associated law cleared the way for the establishment of a depositors’ insurance company. Flaws in supervision were exposed when a major banking fraud came to light in January 2002. In the wake of the scandal, the CBJ ordered the three banks involved—Jordan Gulf Bank, Jordan Investment and Finance Bank, and Jordan National Bank—to raise their capital.
In 2004 the CBJ began implementing a new strategy to further strengthen banking supervision. It includes an enhanced “early warning” system that will improve the Bank’s ability to predict any deterioration in the position of a bank and take appropriate action; a prompt corrective action framework; and a new corporate governance handbook for the banks. The CBJ is also in the process of developing a wide-area-network (WAN), designed to improve its cheque-clearing systems, credit-reporting database and anti-money-laundering database, and to facilitate the electronic transmission of financial data for the early warning system.
Source: The Economist Intelligence Unit
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