AMMAN —
Standard and Poor's (S&P) Global Ratings agency released a report on the Jordanian
banking sector, carried by Al-Mamlaka TV, indicating that despite rising
interest rates, loaning is expected to grow. This is driven by corporate demand
for credit to finance working capital needs.
اضافة اعلان
The
Central Bank of Jordan will gradually phase out its program to support strategic
sectors of the economy, the report found.
Bank
profits riseS&P's report states that the increase in loaning will support repricing of loan portfolios
at higher interest rates, which will be positive for banks' profitability.
However, competition among banks for deposits may increase due to pressure on
financing costs, which could negatively impact the margins of smaller banks.
The agency
expects non-performing loan ratios to increase moderately as inflation rises
and costs increase, leading to a decline in available income.
Despite
these expectations, the S&P is confident that Jordanian banks will still be
able to manage asset quality and demonstrate their flexibility.
The agency
noted that
banks are exposed to volatile sectors such as construction (25
percent of loans), trade (16 percent), and tourism (3 percent), all of which
are highly sensitive to economic fluctuations.
Approximately
10 percent of credit is allocated to SMEs, which the agency considers more
vulnerable to decline.
The
creditworthiness of Jordanian banks is supported by their strong capitalization
compared to their peers in the region, which should benefit from the positive
impact of the high-interest rate environment on profitability.
Weaker-than-expected
economic performanceThe agency
warned that weaker-than-expected economic performance and more aggressive
monetary policy tightening — which would serve to protect the
Central Bank of Jordan’s foreign exchange reserves — could pose a risk to their expectations.
Sovereign
exposure also poses a risk to Jordanian banks, with sovereign debt exposure
accounting for 22 percent of total assets at the end of 2022, rising to 24.3
percent when considering credit facilities secured by the government for
government-related companies such as the Jordan National Electric Power
Company.
However, the
agency expects transfers to continue to support deposits at Jordanian banks in
2023, supported by strong economic expectations for the
Gulf Cooperation Council (GCC) countries compared to other regions.
But, the
agency does not expect a significant increase in deposit growth in the near
term when inflationary pressures and tight financing conditions affect the
population's ability to save.
Sustaining
Jordanian dinar link to US dollarOne-quarter
of bank deposits in Jordan are denominated in US dollars, and the agency
confirmed that it is unlikely that the link between the Jordanian dinar and the
dollar will be broken due to Jordan's large foreign exchange reserves and
external support.
The report
predicts that the individual share of
GDP in Jordan will grow moderately in
2023 after several years of decline despite a global economic slowdown.
Economic expansion in Jordan is supported by
strong external demand for fertilizer products and incoming tourism flows,
especially from neighboring GCC countries.
Structural
reforms and broader efforts to attract investment are likely to support
medium-term growth.
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