Amman

- Jordanian commercial banks have reversed the Central Bank of Jordan's decision to raise interest rates by 50 basis points on all its monetary policy tools, including loans and facilities provided to individuals and institutions, at varying rates ranging between 5 and 10 percent, depending on the value of the loan, its duration, and the details of the contract between the bank and the customer, according to the statement. Borrowers reported.

By the end of this May, and the start of paying the monthly installments, borrowers were surprised by the increase in the value of the loan, which constituted additional financial burdens on borrowers, especially small borrowers whose limited incomes do not bear additional costs.

According to official data, there are 1,170,000 borrowers from commercial banks "individual loans" during 2020, and the proportion of male borrowers constitute 81% of the total borrowers.

raise interest rates

Amjad Al-Yasuri - the borrower from a commercial bank - told Al Jazeera Net, "I received a message from the bank starting with 'Dear Customer' telling me to adjust the interest rate from 8.56% to 8.81%, and to adjust the value of the monthly installment from 152 dinars ($214) to 170 dinars (" $239), an increase of 18 dinars ($25), and a rate of more than 10%. When I asked about the reason for that, the official there told me that the interest rate would rise based on the Central Bank’s decision,” he said.

Al-Yasuri, who works on a stand selling sweets in Al-Baqa’a camp (north of Amman), said that the bank “added a commission to the monthly payments that were postponed due to the Corona pandemic during the past two years,” explaining that the bank “increased the value of the loan I obtained 4 years ago by 1200 dinars ( 1692 dollars), which constituted financial burdens and difficulty in repaying the value of the loan.

Al-Yasuri’s case was not the only one. The teacher, Riyad Al-Subaihi, complained about raising the value of the loan by 40 dinars (56 dollars), so he was required to pay 330 dinars (465 dollars) per month, instead of 290 dinars (409 dollars), according to what he told Al-Jazeera Net, and the bank attributed this to Raising the interest rate, and Al-Subaihi demanded the protection of borrowers from what he described as "banks preying on customers."

Thirty-year-old Amjad Al-Yasuri, a borrower from a commercial bank, was affected by high interest rates (Al-Jazeera)

Industrial sector

Borrowers from the industrial sector have also been affected. At the gates of his factory, which has been closed for two months, the investor in the carpet sector, Ali Salameh - told Al Jazeera Net - that interest rates in Jordan are very high compared to neighboring countries, and amount to 10%, in addition to the exorbitant production costs of energy, taxes and wages. Workers thus draining the investor's savings.

He added, "Because of the additionally high interest rates, I became required to pay 28,000 dinars (39.4 thousand dollars) per month in service of the debt, whether facilities, credits, or guarantees obtained from banks, after I was paying 25 thousand dinars monthly (35 thousand dollars)."

As for the investor in the food sector, head of the East Amman Investors Association, Muhammad Al-Saudi, he explained that the decision to raise interest rates is not in the interest of the industrial sector, especially with the high costs of production locally, the high prices of production requirements in global markets, and the absence of an industrial bank that provides loans to the industrial sector at low rates. While interest rates are very high for commercial banks, the borrower has become the weakest link in the banks, and there are no parties that provide him with protection.

Experts believe that the increase in the interest rate will negatively affect the ability of the Jordanian economy and will prevent job creation and increase the burden of unemployment in a country that suffers from high unemployment rates of 24%, despite the decision making profits for depositors in banks, and the flight of investors.

Profits for depositors

On the other hand, the Jordanian Banks Association says that an increase in the interest rate on deposits increases costs for commercial banks, because this increase means profits for depositors that the bank must achieve from loans, and the action that banks take on the contrary to that on borrowers is a correct, legal and sound procedure that is commensurate with the requirements of the market and the decisions of the bank central.

Regarding the rise in interest rates, the Director of the Association of Banks, Maher Al-Mahrouq, says that the interest rate in Jordan is low, and it has witnessed several decreases during the past two years by 1.5% with lower interest rates based on the decisions of the Central Bank.

The value of deposits in the Jordanian banking system amounted to about 40 billion dinars (56.4 billion dollars), of which 30.7 billion dinars (43.3 billion dollars), and about 9.3 billion dinars (13 billion dollars) in foreign currencies, and Jordan’s foreign exchange reserves amounted to 17.9 billion dollars. To cover the Kingdom's imports of goods and services for a period of 9.3 months.

The investor in the food sector, Muhammad Al-Saudi, explained that the decision to raise interest rates is not in the interest of the industrial sector (Al-Jazeera)

consumer protection

In turn, the Central Bank of Jordan has provided a financial consumer protection department that receives complaints from individual and institutional borrowers in the event of a dispute between the borrower and the bank, in order to protect both sides of the equation.

Director of the Consumer Financial Protection Department at the Central Bank, Walid Al-Qasrawi, said - to Al-Jazeera Net - that the department did not receive complaints from clients regarding the high value of the monthly installments of loans obtained from commercial banks from the beginning of the year, pointing out that the department had received complaints during the previous years.

Al-Qasrawi added that the majority of complaints revolve around the contractual terms concluded between the customer and the bank, and the customer is often unaware of the terms of the contract that he signed.

According to a statement by the Central Bank, the bank’s decision to raise interest rates came to achieve the following objectives:

  • Maintaining monetary and financial stability in the Kingdom.

  • Containing the expected domestic inflationary pressures in light of the continued rise in global inflation rates.

  • Harmony with rising interest rates in regional and international financial markets.

In order to provide soft financing for economic sectors with high added value, the bank decided to maintain the preferential interest rates for the Central Bank’s program to refinance vital economic sectors, at a value of 1.3 billion dinars unchanged at 1% for projects within the capital governorate, and 0.5% for projects in the rest of the governorates. This program includes 10 economic sectors.

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