Jordan Central Bank Statement

Author: | Published: 5 Sep 2017
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The Jordanian economy showed resilience amidst regional turmoil proving yet again that proper policy making can mitigate risks. Despite closure of export routes, lower tourism revenues and oil-price volatility, GDP growth in 2016 was 2% and reflected mining contraction and a slowdown in agriculture. The Central Bank of Jordan (CBJ) continues its efforts to enhance the business environment and improve competitiveness, governance and sustainability. Our focus is on reducing the cost of business startups by simplifying procedures and further strengthening investor protection. In addition, recent indicators show some improvement in remittances, tourism and exports. Thus, assuming regional conditions remain broadly unchanged, growth is expected to reach 2.3% in 2017, and in the medium-term on account of improvements in tourism and exports, it is expected to reach at least 3% by 2020. Moreover, the fiscal balance and debt-to-GDP ratio are expected to improve, while inflation is expected to reach 2.5% at the end of 2017, following two years of disinflation of around 0.8% in 2016 and 2015.

The CBJ has pegged the exchange rate of the Jordanian dinar to the US dollar since 1995, which provides an appropriate nominal anchor and remains the key pillar of both monetary and financial stability. This regime has served our economy well over the past two decades, and continues to underpin resilience in a region of uncertainty. In addition, it contributes to strengthening confidence in the Jordanian dinar as an attractive tool for domestic savings and attracting domestic and foreign investments, as well as maintaining monetary stability.

The pegging of the dinar to the dollar remains the optimal exchange rate regime. In this context, the CBJ will always maintain a suitable margin between the interest rates on the dinar and the dollar, and will monitor dollarization, foreign reserves and inflation as key factors to a well-functioning peg policy. In line with this policy, three recent increases in policy rates were appropriately priced and implemented by a cumulative 100 basis points, which contributed to mild deposit dollarization and a stable policy stance.

Taking into consideration the importance of the banking sector, which remains the main engine of growth in Jordan, the CBJ has also been working on strengthening the banking system. In this regard, in 2016 the CBJ issued a revised set of regulations for banking and new regulations for corporate governance for Islamic banks. These regulations complement earlier efforts to improve the quality of the banking sector and further streamline it with international practices. The CBJ also issued corporate governance regulations for information and related technology based on control objective for information and related technology. In addition, within the same efforts in regard of capital adequacy, the CBJ issued Basel III regulations for regulatory capital since September 2016. The CBJ is also in the process of drafting a regulation for liquidity coverage ratio (LCR) based on Basel III principles, which is an added improvement to the current regulation for liquidity requirements.

As a result, bank financial soundness indicators showed a marked improvement in 2016. The ratio of nonperforming loans (NPL) to total loans declined to 4.4%, with a coverage ratio of 78.2%. The banking system remains well-capitalized with a capital adequacy ratio (CAR) of 19%, and good performance ratios represented by a return on equity (ROE) of 8.8%, and a ROA of 1.1%. Meanwhile, the banking system has maintained a liquidity ratio of 138.1% as of 2016.




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