Banks exhibit resilience in the face of pandemic, contribute to stability

(Graphic: JNews)
AMMAN — Banks have become directly involved in the COVID-inspired financial crisis after they agreed to postpone April’s loan payments to set the pace on the streets and contribute to the preservation of security in society. اضافة اعلان

Postponing loan installments without charging commission or imposing fines is quite a significant gesture that pinpoints the financial strength of the Jordanian banking sector, and are clear signs that the pandemic has not weakened the performance of banks. On the contrary, banks have kept their well-balanced course.

The banking sector has played a great role in injecting additional capital into the economy, financing the Jordanian government, contributing to financial and monetary stability, and implementing Central Bank programs, as well as postponing individuals’ loans. Banks have also managed to structure and schedule the loans of struggling sectors, reduce interest rates on loans and extend grace periods.

Banks have been able to preserve total assets, amounting to over JD57 billion and total deposits, estimated at JD37 billion without recording any drops at the end of January of this year, compared with last year’s figures. Credit facilities grew to JD28.78 billion for the same period. 

A significant indicator is the ratio of total bank assets to GDP, which stood at 182.4 percent, whereas the ratio of total deposits to GDP was recorded at 118.2 percent and the ratio of total credit facilities to GDP amounted to 92 percent. 

The banking sector’s capabilities, under C-related circumstances, have managed to preserve the total of Jordanian dinar (JD) deposits at 77 percent, which reaffirms that the dinar is stable in terms of the exchange rate. There was also an element of clear stability in the rate of foreign currency deposits in January of this year when compared to the end of 2020, which means dollarization was insignificant. 

Bank credit facilities extended to the private sector comprised 91.2 percent of total credit facilities, recording growth in January of this year. Credit facilities amounted to approximately JD1.8 billion extended to the central government, JD583 million to public institutions and JD131 million to financing institutions. Credit facilities to the resident and non-resident private sectors constituted JD2.6 billion and JD631 million, respectively. 

The construction sector held the majority share of credit facilities granted by banks, at 25 percent, in January 2021, followed by 22.8 percent, 12.4 percent and 15.3 percent given to individuals, the industry sector and public-facility services, respectively. The remainder was divided among the tourism, financial services, agriculture, transport, services and mining sectors.

These indicators point to the financial soundness of banks operating in Jordan, especially since the capital adequacy ratio was recorded to be much higher than is required by the central bank, at 12 percent and was also higher than the mandatory level set by the Basel Committee, standing at 105 percent. The liquidity was also higher than required by the Central Bank of Jordan, amounting to 100 percent.

The aforementioned indicators show that despite the pandemic and its considerable impact on the national economy, and various sectors; the financial soundness of banks assures of the security and vigor of the banking sector, in addition to its resilience in dealing with the pandemic’s repercussions and keeping their positive performance indicators intact. 

The profitability of banks is acceptable in light of ongoing COVID-related circumstances and their impact on economic sectors, and the Jordanian economy as a whole. In fact, the drop in the banks’ profitability levels was the result of their move to increase allocations in an effort to counter potential cases of default, as the additional allocations boost the ability of banks to absorb an increase in non-performing loans, an action that is prone to enhance trust in the banking sector.

In addition, banks today have an advanced and secure technological infrastructure, and contribute to social responsibility in parallel with their contribution to sustaining the economy. After all, strength of the banking sector pours into that of the national economy.