Jordanian banks acquire the share of Arab and regional banks.. What is the impact of this on the country's economy?

Amman

- While the Central Bank of Jordan confirms the strength of the banking sector operating in the Kingdom and the strength of the banking sector and its role in maintaining financial stability and providing liquidity, economists and activists on social media platforms - during the past two days - raised the issue of Jordanian banks acquiring banking business and branches of Arab and regional banks, most notably the Bank of Jordan. Lebanon's Audi, Societe Generale, National Bank of Kuwait, Britain's HSBC and others.

The state of controversy on the social media platforms has created fears about the reality and future of banks, the banking sector, and the financial reserves of banks, especially with the continuing repercussions of the Corona pandemic.

positive sign

In the face of these fears, the Central Bank of Jordan confirms that acquisitions and mergers between local, Arab and foreign banks have existed for decades and are in force, not a new heresy.

According to a statement by an official source in the bank to Al-Jazeera Net, any such operations are carried out with "the approval and supervision of the Central Bank and the general bodies of the acquired bank."

The source added that the acquisitions by local banks is a "positive indicator", and indicates the strength of monetary policy in the Kingdom and the ability of Jordanian banks to expand and develop and provide banking and financing services more, which enhances the national economy, and the financial sector is the largest tax stream for the treasury, at a rate of 38%.

And the Central Bank’s reserves of Jordanian currencies recorded an increase at the end of last year 2021 by 6.8% over the year 2020, and the value of the reserve is 17 billion dinars (23.9 billion dollars). An increase of 3 times the internationally recognized standard of 3 months.

As for the total assets of banks operating in Jordan, according to Central Bank statistics, during the past year, it grew by 5.5% compared to 2020, recording more than 60 billion dinars (84.6 billion dollars), while the total deposits amounted to 39 billion dinars (55 billion dollars), a high By 6.1%, the total credit facilities recorded 30 billion dinars (42 billion dollars), an increase of 4.9% last year compared to 2020.

The Central Bank of Jordan’s currency reserves increased by 6.8% by the end of 2021 (Reuters)

Sector recovery begins

During the past year and early this year, the financial sector witnessed the Jordanian Money Bank's acquisition of banking operations and branches of Societe Generale and the Lebanese Bank Audi, according to the Jordan Banks Association.

The director of the Jordanian Banks Association, Maher Al-Mahrouq, confirms that local banks’ acquisitions of the shares of Arab or regional banks have taken place in Jordan since the nineties of the last century, and this is a positive sign, and the Central Bank encourages the merger process among small banks.

Al-Mahrooq continued to Al-Jazeera Net that the Jordanian banking sector witnessed during the recent period two acquisitions by the Arab Jordan Investment Bank of the British Bank "HSBC", and the Arab Jordan Investment Bank on the National Bank of Kuwait.

He pointed to a positive indication that the banking sector has begun to recover from the effects of the Corona pandemic, which represents that the percentage of non-performing (non-performing) debt is one of the lowest in the world and ranges around 5%, meaning that 95% of loans and facilities provided to borrowers are repaid properly without any delay, Note that the volume of loans amounts to 30 billion dinars (42 billion dollars).

The acquisitions preserve the rights of employees, investors and borrowers without any prejudice to them, and no employees of the acquired bank are laid off, according to the association.

According to experts, some of the acquired banks suffer from problems in their head office, such as the Lebanese Bank Audi, as a result of what is happening in the Lebanese market, in addition to the market competition between local, Arab and foreign banks.

attract investment

The banking and banking sector is considered attractive to investments, whether investments by individuals, funds or governments, according to the economist and banker Adly Kandah, and 60% of the ownership of local banks is attributed to non-Jordanian investors, which indicates the great confidence in this sector.

In his speech to Al-Jazeera Net, Qandah mentioned a number of advantages for acquisitions and mergers between banks, the most important of which are:

• Strengthening the competitive position of banks, expanding their presence locally and regionally, and increasing their market share, which will raise the volume of their profits and give them a greater ability to face any sudden external crises.

• Strengthening the bank’s financial indicators, increasing the rights of shareholders and investors, achieving financial solvency, and raising capital, which supports the bank’s financial position.

• The acquiring bank achieves an increase in the confidence in its efficiency, an improvement in its credit rating, and the advantage of economies of scale, which leads to a reduction in the average operating cost of the bank.

• Enabling the acquiring bank to increase its size and presence in the market instead of opening new branches and acquiring new customers, thus achieving a growth leap in all operations, and benefiting from the banking expertise of the acquired bank.

The language of numbers

In terms of numbers, the Central Bank has recorded indications that the banking sector has begun to recover from the Corona pandemic, most notably:

• The value of banks’ total assets to GDP reached 194%, while total deposits to GDP scored 125%, and the ratio of total credit facilities granted by banks to GDP reached 96%, and this shows the relatively large size of the banking sector compared to the Jordanian economy, which is what It reflects the depth and importance of this sector.

• The most important indicators of the financial strength of banks operating in Jordan are that the capital adequacy ratio is 18.30% until the end of 2021, which is a high percentage and much higher than the minimum required by the Central Bank of 12%.

• The legal liquidity ratio was 136%, which is 100% higher than the minimum required.

• The operating Jordanian banks achieved a remarkable increase in their profits for the year 2021, which amounted to 867 million dinars (1.2 billion dollars) before tax, recording an increase of 112% from 2020, while profits during the year 2020 amounted to 493 million dinars (693 million dollars) before tax. Tax.

• In conjunction with the decrease in provisions for expected credit losses at Jordanian banks, there is a clear improvement in the profitability indicators of banks, which reflects the improvement in the performance of the Jordanian economy and the start of the recovery of most economic sectors from the results and repercussions of the Corona pandemic crisis.

• As a result of the increase in the net profits of banks during the past nine months of 2021, the profitability indicators, represented by the rate of return on assets and the rate of return on shareholders' equity, have improved.

Communication platforms

Economist Mufleh Akl wrote on his Facebook page, "Why are foreign banks leaving Jordan? The National Bank of Abu Dhabi, the National Bank of Kuwait, the British Bank and Audi Bank have sold their operations in Jordan to local banks and on the road to Societe Generale, why is that? I personally do not like this approach, which I find it driven by factors not related to the environment, but rather related to the need of Lebanese banks for liquidity and related to the volume of business of other foreign banks.”

And through the activist on Facebook, Sahem Al-Abadi, he wrote on his page, saying, "For your information, the National Bank of Kuwait still has its branch in Jordan."

Twitter activist Yara Al-Ghazzawi tweeted on her account, saying, "Foreign banks are leaving Jordan. These banks have sold their operations in Jordan to local banks, including the National Bank of Abu Dhabi, the National Bank of Kuwait, the British Bank, and Bank Audi, and Societe Generale Bank will follow suit.

Foreign banks leave Jordan.

These banks have sold their operations in Jordan to local banks, including: the National Bank of Abu Dhabi;

the National Bank of Kuwait;

the British Bank;

Bank Audi;

Will Societe Generale Bank follow suit?

What is going wrong from my point of view, do not convince you of illogical reasons.

#Point

— Yara Alghzawi Yara Al-Ghazawi (@yara1976) February 19, 2022