(MENAFN- Jordan Times) The Central Bank of Jordan (CBJ) is currently formulating comprehensive diktats for fair treatment of clients at banks.
Speaking Monday night to an audience of bankers at a gathering organised by the association of Banks in Jordan, CBJ Governor Ziad Fariz said the diktats would be in line with best international practices in order to enhance confidence in the banking system, reduce reputation risks and to protect retail clients.
He added that the CBJ is currently revising the policies and instructions related to institutional governance noting that appropriate standards are in the making for boards of directors and management of banks.
Fariz pointed out that indicators of credit extension are not pleasing as the average growth in credit facilities to the private sector was up by only 2.5 per cent during the first four months of this year, compared to 5.7 per cent during the same period of last year, despite a 5.8 per cent overall growth in credits extended to all sectors.
The governor was also downbeat describing the growth in credit facilities to productive sectors as modest.
He indicated that the money supply went up by an average of only 1.7 per cent during the first four months of this year describing the figure as "insufficient to the requirements of financing the aspired economic activity".
Fariz stressed that the current stage requires more efforts from the banks and the CBJ to step up measures in order to stimulate the credit market and encourage investment.
"Believing in the importance of dealing efficiently with these developments, the CBJ has developed several new tools that would enable it to influence the level of liquidity in the cash market and on the inter-bank market so that banks would be able to better utilise their liquidity," he said.
The governor added that with the extra financial burdens that resulted from a delay in receiving the expected foreign aid for this year's budget, and from higher energy bills, the Kingdom could not escape an economic slowdown marked by uncertainty and an increase in non-performing loans in the banking system.
He noted that Arab Spring repercussions prompted individuals and corporations to delay their consumption and investment decisions and, consequently, that deepened the regression in business activities.
"The rise in non-performing loans could have been a reason that banks became conservative in extending credit," Fariz indicated pointing out that latest data shows that the level of these loans has stabilised and that banks were able to deal with them in terms of building an appropriate level of provisions while maintaining healthy profits.
The governor described Jordan's foreign reserves, which stand at $8.7 billion, as still at safe levels enough to cover five months of imports.
In an interview with Reuters and during the meeting with bankers he expected capital inflows from tourism and assistance from Gulf countries to boost foreign reserves.
The Kingdom's foreign reserves fell 16.5 per cent in the first quarter of 2012 from $10.9 billion at the end of last year, hit by a sharp reduction in capital inflows from foreign direct investments and a drop in remittances since last year, the governor highlighted in his interview with Reuters on Tuesday.
Last year, the bank's foreign reserves fell nearly 14 per cent as the Arab Spring elsewhere in the Middle East hit confidence, worsening a deterioration in Jordan's current account of the balance of payments, according the agency.
It reported that the CBJ governor defended the dinar-dollar peg, saying it had provided stability in recent years as the Kingdom still struggled to recover from the global downturn of 2008-2009 that was compounded by the climate of uncertainty due to the Arab Spring.
"The assessment of the central bank that corresponds totally with the evaluation of the International Monetary Fund (IMF) confirm the exchange rate of the dinar with the US dollar is still the best option and most suited to the characteristics of the Jordanian economy," Fariz said in the interview.
He noted that the monetary stability was also cushioned by a profitable banking sector and total bank deposits had risen slightly to top 24.8 billion ($35 billion) in the first quarter of 2012 of which 5.6 billion dinars were foreign currency holdings.
Fariz said that tourism revenues had witnessed a "strong" growth, noting that tourism income went up by 15.6 per cent during the first five months of year, compared with the same period of last year.
Expatriates remittances also rose for the third consecutive month, increasing by 1.9 per cent in May.
The CBJ chief said the economic growth stood between 2.5 per cent during the last two years after registering a growth of 7.6 per cent between 2004 and 2009, while the unemployment rate still higher than average, despite being slightly reduced lately.
Stressing the importance of direct foreign assistance in eliminating the gap in the balance of payment deficit, he expected the current account deficit to widen considerably to 8 per cent of the gross domestic product (GDP) this year, compared with 10 per cent reached in 2011.
He told Reuters that Jordan aimed to utilise by the end of this year part of a $5 billion financing facility set up by the Gulf Cooperation Council last year to help alleviate the impact of the wave of Arab unrest on Jordan's aid-dependant economy.
Fariz said the Kingdom should benefit from lower oil prices, reducing an energy import bill that reached $2.6 billion in the first quarter of 2012 and was blamed for worsening public finances.
"Global oil prices have fallen nearly 20 per cent recently and this drop is expected to continue in the short and medium term.. This will have a tangible impact," Fariz said.
Fariz said that reforming the fuel subsidies' system was crucial to reduce the budget deficit to around 5 per cent of GDP this year from 6 per cent in 2011.
He listed the decline in demand, lack of investment and weak legislations related to promising sectors as areas that need tackling.
"The public finance is the biggest challenge," he concluded stressing the need for financial control and discipline in the medium term besides reigning the deficit and lowering the cost as a result of high energy bills.
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