Liquidity crisis, bankruptcy and bounced checks .. What awaits Jordan's merchants and industrialists?

After reaching $ 1.4 billion, bounced checks threaten Jordan’s merchants and industrialists with bankruptcy.

Does it indicate the depth of the liquidity crisis in Jordan?

As usual every year and in preparation for the back-to-school season, stationery dealer Sami YK imported various containers of stationery;

However, with the arrival of the containers, the surprise was the spread of the Corona virus, and the subsequent closure of schools, and a halt to the work of companies and shops during the period of the comprehensive ban.

According to Sami's interview with Al-Jazeera Net, these events led to the accumulation of losses and the inability to pay the checks written to cover the costs of the goods, which forced him to sell the goods at prices not equal to 20% of their value, in order to cover the returned and urgent checks, and within two months he was about to go bankrupt, awaiting imprisonment.

The case of the stationery dealer (Sami N.K) is not the only one in Jordan, for here is a story of an investor in the housing sector who stopped selling, was unable to pay off bank loans, and checks returned to him for lack of balance, and there is an investor who set up a huge wedding hall;

But he did not use it due to the lockdowns, which led him to flee outside the kingdom after accumulating checks.

One billion dinars bounced checks

There are many stories with different details.

But it is involved in the issue of bounced checks without balance, which increased to about one billion dinars (1.4 billion dollars) since the start of the Corona pandemic in March until the end of last September, recording an increase of 37%, compared to 700 million dinars (one billion dollars). During the same period in 2019, according to the Central Bank of Jordan data, which indicates the depth of the liquidity crisis.

Economist Hussam Ayesh told Al-Jazeera Net that the issue of bounced checks is a historical problem in Jordan, due to the huge volume of checks circulation, as in 2019 it amounted to more than 41 billion dinars (57 billion dollars), and during the past 9 months of this year it reached 25 billion dinars ( 35 billion dollars), a decline due to the spread of Corona and the suspension of economic activity.

Regarding checks returned by banks, their number reached 386 thousand checks during the past nine months - according to Ayesh - their financial value exceeded 1.4 billion dinars (two billion dollars), of which 306 thousand checks were returned due to insufficient balance of the check, the value of which is one billion dinars ( $ 1.4 billion).

The Jordanian business sector suffers from a great shortage of liquidity, diminishing day by day (Al-Jazeera)

No fulfillment of financial obligations

These checks indicate a liquidity problem, the danger of which is that it leads to disputes and litigation between dealers, and it indicates a real problem in fulfilling financial obligations, and a delay in the capital circulation between the parties to the business process.

According to Ayesh, the reasons for the increase in the number and value of returned checks are due to a number of reasons, the most important of which are the outbreak of Corona and the cessation of economic activity, the decrease in trade exchange, and the decline in consumer demand for various commodities and goods, which indicates that there are sectors that will go bankrupt and exit from the market, and other commercial sectors will replace them. This situation is not specific to Jordan.

Rather, in the world.

The Jordanian business sector suffers - according to analysts - from a great shortage of liquidity, diminishing day by day, which leads to faltering and the closure of commercial and industrial establishments, in addition to merchants and industrialists leaving the market as a result of bankruptcy.

Liquidation injection

The Central Bank of Jordan has provided a package of precautionary measures to contain the negative repercussions of Corona on the performance of the local economy, the most important of which is allowing banks to restructure loans for individuals and small and medium-sized companies, and pumping additional liquidity to banks in the amount of 550 million dinars (770 million dollars) through reducing the mandatory cash reserve, and reducing The cost of financing, and increasing the deadlines for existing and future facilities for the economic sectors.

Adding the postponement of the installments of credit facilities granted to customers of the economic sectors affected by the effects of the spread of the Corona virus from companies and individuals, with the increase in the ceiling of advances for all sectors to become 3 million dinars (4.2 million dollars), while keeping the ceiling for the renewable energy and transportation sectors at 4 million dinars (5.6 million dollars). ).

Merchants complain about the poor purchasing power of consumers (Al-Jazeera)

Poor purchasing power

The representative of the apparel and jewelry sector in the Jordan Chamber of Commerce, Asaad Al-Qawasmi, told Al-Jazeera Net that there is a distortion in the trade exchange process that led to the problem of bounced checks without balance, this distortion is caused by weak commercial circulation, and the decline in consumers' demand for goods, and the introduction of food and medicine priorities over other goods. Weak purchasing power of merchants and consumers.

Al-Qawasmi added that the merchants ’revenues from sales do not cover the operational costs of shop rents, workers, energy, taxes, social security and others, which prompted some of them to liquidate their trade and exit the market, and some of them emigrated from the Kingdom as a result of the accumulation of debts and the lack of financial liquidity for them.

The risk to merchants still exists - says Al-Qawasmi - and increases with the closures and the weekly curfew, expecting the issue of bounced checks to explode at the beginning of next year, stressing the need to provide the necessary government support to small enterprises that were unable to fulfill the conditions of banks in obtaining soft loans during the last period.

According to observers, there is a misuse of the check by some of its dealers, especially since the check is originally a fulfillment tool, and not a credit instrument as used by some, which requires emphasis from the central bank on banks in not cashing check books except for those who are financially fit.