Main indicators at Jordanian banks

The general survey of banks in Jordan, both individually and collectively, was published in a booklet issued regularly by the Jordan Kuwait Bank. It was prepared by the head of the risk and compliance management group of the bank. 

The survey refers to the banking activities that took place in 2014 as demonstrated by the audited financial statements of all banks until December 31, 2014.

I will refrain from dealing with the indicators of individual banks to avoid sensitive comparisons between banks. That is left to the management of each bank, which may like to see the standing of their banks in the system.

I shall dwell on the general collective indicators of the whole system, That is, of all banks that are listed on the Amman Stock Exchange. Arab and foreign branches of banks operating in Jordan are not included.

The first fact revealed by the tables is that banks’ managements are in control of funds that are seven times the shareholders’ equity, a state of affairs that gives the Central Bank the right and the responsibility of closely supervising the banks and be ready to intervene directly on behalf of the public that owns seven times what the shareholders own.

Jordanian banks extend credit facilities equal to 65 per cent of their deposits. This is a reasonable rate even though it means vast variations from one bank to another.

Banks maintain a relatively high rate of solid liquidity, 39 per cent of their deposits, an indication that they are capable to expand their credit facilities if and when qualified borrowers show up. 

As such, the government’s justification for external borrowing, which is the claim that it thus avoids competition with the public sector in obtaining credit, does not stand. 

The capitalisation rate of Jordanian banks, judged by the international standards, is more than adequate. Capital adequacy is 16 per cent, way above the standard rate of 12 per cent, another indication that the financial position of the Jordanian banking system is very strong.

Doubtful debts, dubbed as non-performing loans, amount to JD1,510 million, equal to no more than 5.7 per cent of the total credit. Throughout the years, banks accumulated provisions to cover possible losses. Such provisions amount to 91 per cent of the doubtful debts. 

Banks, thus, are able to write off such debts if necessary without hurting their profitability.

In 2014, Jordanian banks made net profits of JD831.2 million, equal to 10.2 per cent of shareholders’ equity. 

Profits per share are 63.1 fils at Arab Bank. 47.7 at Housing Bank, 46.5 at Jordan Kuwait Bank. Banks distribute to shareholders only part of their actual profits. 

Interest charged to customers in 2014 made 70 per cent of the gross income, a relatively high percentage. 

Banks should expand their services to go beyond lending money.

The collective cost of funds stood at 2.33 per cent; banks paid an average of 4.11 per cent interest on time deposits, but charged overdrafts and discounted bills with an interest rate no less than 9 per cent.

The interest margin of 5 percentage points is relatively high; it explains the high profitability of banks.