Twenty years of credit: unveiling stories through numbers

(File photo: Ameer Khalifeh/Jordan News)

Yusuf Mansur

The writer is CEO of the Envision Consulting Group and former minister of state for economic affairs.

There is a certain elegance in numbers that tell a story, especially if some economic wisdom may emerge from them. This is why when the Jordan Strategy Forum published a compendium of data related to lending venues of the private banks in Jordan from 2002-2022, several stories were told in these twenty years in numbers. اضافة اعلان

Individuals and consumer culture
The highest average level of lending as a percentage of the total credit provided by banks in Jordan during 2002-2022, was to individuals as consumption loans (car purchases, etc.) at 24 percent of all credit. This shows that bank lending to the private sector favored individuals.

Furthermore, if one is to look at the period of high economic growth (2004-2009), the average credit provided to individuals was 28.3 percent of all lending, which also shows that with high economic growth, people in Jordan overspend as optimism dominates the psyche of both banks and consumers. 

To further underscore this observation, individual borrowing fell to 21.3 percent during 2010-2022, a period of dismal economic growth rates.  So, two short novellas emerge from the numbers: Positive and negative expectations are reflected in the borrowing patterns in Jordan, and negative or low per capita economic growth affects the demand and supply of credit to individuals. 

Amman stock exchange
How about the purchase of shares in the Amman Stock Exchange? During 2004-2009, annual credit for the purchase of shares grew by 59 percent per year. Such a high rate came from credit growth in two years, 2004 when credit for purchasing shares jumped by 217 percent, and 2005, where it grew by 110 percent.

The credit for purchasing shares decreased dramatically during 2006-2009 such that in 2008 and 2009 the credit decreased by 2 percent and 1 percent, respectively. Bad, myopic, and sudden decrees played a major role in destroying the sanguinity of the previous two years.

After that, from 2010 to 2022, the average growth in credit for the purchase of shares was -5 percent, and no new company registered in the stock exchange since. The story here is that some bureaucrats work so hard to bring economic activity down.

In spite of this, during 2019-2022, lending for the purchase of shares grew at an average of 32 percent per year as mining companies did extremely well, and 2023 will see some adjustments in this regard.

Industrial sector
Of course, there are many other stories, especially related to lending to the industrial sector. Loans to industry equated to 12.5 percent of all credit extended by banks during 2004-2009. Note that it was 15.3 percent in the previous two years. So, the good years worsened the availability of credit for industry.

The most plausible story here is that since the economic expansion favored the construction sector, the industry was crowded out from the credit market since lending to construction is less risky, easier to evaluate, and requires no specific or specialized talents and expertise like the credit to industry.

Construction and industry
During 2011-2022, the industrial sector's access to credit, whether due to decreased demand by industry, or the increased prudence by banks, was a mere 12.3 percent. This was markedly below the credit to the construction sector (24.1 percent during 2010-2022). The construction sector was the clear winner in the boom years as its share in credit increased from 15.1 percent during 2002-2003 to 16.8 percent in 2004-2009.

Hence, one may say that construction pushed away industry in the good years and was the banks’ favorite in the slow years due to its safety relative to other sectors.

Foresight and solutions
Those were some of the stories that the numbers tell. Trade also suffered during 2010-2022, and so did agriculture among others. To keep this article short, their stories will not be delineated here. Clearly, there is room for interventions by policymakers, should there be a desire to improve the welfare of industry and other productive sectors. Jordan need not wait; the solutions are clear and within reach.

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