(MENAFN- Jordan Times) Business leaders on Monday accused banks of holding back economic growth in the Kingdom.
In separate interviews with The Jordan Times, they said that over the past few years, lenders' overly strict policies and "high" interest rates have prevented key economic sectors in Jordan from progressing, a charge that was rejected by a top representative of commercial banks.
Fathi Jaghbir, chairman of the Small- and Medium-sized Enterprises (SMEs) Association, said that credit stagnation and high interest rates have been the major problems facing the industrial sector, particularly SMEs.
"We have a real problem with banks. We have been raising this issue for years but we have lost hope," he added, noting that high interest rates that reach over 10 per cent sometimes and the credit crunch have curbed the industrial sector's ability to compete with regional manufacturers.
Jaghbir, also a board member of the Jordan Chamber of Industry, charged that policy makers are not intervening to push banks to ease their lending measures, because the government is their largest borrower.
Indicating that 98 per cent of the industrial sector's companies are SMEs, he said the majority of credit facilities extended to the private sector go to large firms, pointing out that 30 per cent of overall loans are extended to 10 to 15 large companies.
In Lebanon, Jaghbir said, interest rates on loans to industrial companies are around 3 per cent. He described commercial banks in Jordan as "killers of industry".
According to the industrialist, several factories in the country have laid off some of their employees due to difficulties in securing finance.
President of the Housing Investors Society Zuhair Omari also complained of banks' strict lending measures.
Over the past years, local banks have been too cautious in extending mortgage loans, he said, calling on lenders to reduce interest rates for housing, which he said range between 7 and 8 per cent.
Another leader, President of the Jordan Chamber of Commerce Nael Kabariti, said banks should return to acceptable interest rates and collateral conditions in order to stimulate the economy.
"The way out of the current economic slowdown in the country is through supporting SMEs and having banks and policy makers work together," he said, indicating that the vast majority of businesses in Jordan are currently unable to meet strict financing conditions imposed by banks.
Economist Yusuf Mansur also criticised local banks for failing to boost investments and stimulate growth in the Kingdom, charging that financial institutions have played a negative economic role in the past four years.
"The problem is not only the high interest rates, but it also has to do with the banks' unwillingness to lend," he explained, saying that instead of extending loans for investments, banks in Jordan prefer to give personal loans to employees for consumption purposes.
The largest share of credit facilities are provided to the government in the form of bonds, Mansur added, criticising the public sector for competing with private companies over finance.
According to Central Bank of Jordan (CBJ) figures, the overall credit facilities extended by local banks reached around JD15.6 billion in 2011.
The government owes local banks around JD7.9 billion, according to a CBJ report.
"The economy is struggling because there is no money as banks only lend to employees, the government and large firms," Mansur said.
However, Nadia Al Saeed, vice chairman of the Association of Banks in Jordan, rejected the charges against lenders, stressing that Jordanian banks can never turn down financing a feasible project.
Banks are very keen to extend loans to SMEs, which are the engine of economic growth in the Kingdom, she said, pointing out that local banks have entered partnerships with the government to support certain programmes that seek to offer loans to small- and medium-sized businesses, such as the $250 million programme supported by the US Overseas Private Investment Corporation.
Regarding interest rates, Saeed explained that rates usually depend on demand and supply as well as risk factors.
Data show that demand on loans is increasing, with interest rates on government bonds going up recently because of rising demand, said Saeed, who is also the general manager of Bank al Etihad, indicating that lenders charge higher interest rates on loans extended to sectors or businesses with higher risks, such as the real estate sector.
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