Thursday, Jul 02, 2009

By Natasha Brereton

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Jordan's central bankcentral bank governor said Wednesday the country's economic growth is likely to pick up to closer to 4% in the second half of this year, and he is satisfied with the current level of interest rates.

In an interview with Dow Jones Newswires in London, Umayya Salah Toukan also said that Jordan's banks are generally in good shape, and that he is confident about the outlook for the sector.

In April, the central bankcentral bank cut its benchmark lending rate by 50 basis points to 5.25%, marking the third such move in a five-month period, but Toukan indicated that no further such move should be expected soon.

"With inflation at 1% and with real GDP [gross domestic product] growth at 3.2%, why would I do anything with interest rates?" he asked.

Traditionally, the central bankcentral bank has preferred to keep interest rates relatively high to make dinar-denominated assets more attractive and to avoid excessive outflows.

Toukan said he had been "stunned" by recent low levels of inflation, which was 1.7% in the first four months of the year, versus 10.9% in the same period a year earlier, pulled down by sharp falls in food and commodities prices and a slowdown in demand.

But the central bankcentral bank's estimate that inflation in 2009 would average between 2% and 3% is still "sensible," he said, stressing that global economic volatility made it hard to give an accurate forecast.

Economic growth - which was 5.6% in 2008 overall - should rebound to "closer to 4% in real terms" in the third and fourth quarters, and improve further next year as a global recovery kicks in, he said.

Toukan dismissed the suggestion that declines in remittance flows from Jordanians abroad, if they lose their jobs and return home, could have implications for the banking sector.

"Up until now, we don't see any major movement. It seems to be stable and steady," Toukan said.

Saad GroupSaad Group and Ahmad Hamad Al Gosaibi & Brothers Co., or AHABAhmad Hamad Al Gosaibi & Brothers Co., or AHAB, two of Saudi Arabia's best-known and longest established family-run conglomerates, have come under increased scrutiny from banks and regulators after facing difficulties meeting some of their debt obligations.

Jordan's Arab BankArab Bank said Monday it had exposure to Saad GroupSaad Group and Al GosaibiAl Gosaibi through credit facilities and long-term loans, but it didn't disclose the size of its exposure.

"It's unfortunate what happened but they are a highly credible group," Toukan said.

He added that only one Jordanian bank extended loans to the two affected groups, but that it was hard to quantify exposure for the region as a whole.

"Many banks, I think, are involved - international as well as regional," he said.

Still, the problem shouldn't be exaggerated, he said, adding that he was optimistic about prospects for Jordanian banks in the second quarter.

"We don't see any evidence of any aspect that may cause concern to us, so I expect we'll continue to do well," he said. "In general, Jordanian banks are in good shape; we were not exposed to any of the toxic assets," he said, noting that capital adequacy is around 18%, much higher than Basel requirements of 8%, and non-performing loans constitute only a little over 4% of total loans.

Toukan said the best way for the central bankcentral bank to combat the problem was to make sure that banks don't violate sound banking practices.

"We have standard instructions to banks to follow the Basel I and Basel II guidelines, which means they would take provisions against any non-performing loans if it exceeded 90 days and then 180 days and so on," he said.

"So we don't see any special treatment for any one company if they defaulted; they have to do what the central bankcentral bank regulations, which are based on international guidelines, tell them to do."

The bank governor was cautious about predicting the outlook for non-performing loans.

"Clearly it all depends on the performance of the economy as a whole, and on the regional and international [economy] which constitutes part of the demand for Jordanian goods and services," he said.

He added that it was important to allow recommendations from leading bodies like the Group of 20 leading nations and Financial Services Board sufficient time to be implemented and to have effect.

"People forget easily that six months ago we almost had a global meltdown," Toukan said. "Now, six months later things are normalizing slowly, perhaps not equally in all countries, but compared to a global meltdown I think we're in good shape."

-By Natasha Brereton, Dow Jones Newswires, +44-20-7842-9254, natasha.brereton@dowjones.com

(Maria Abi-Habib in Dubai contributed to this report.)

(END) Dow Jones Newswires

02-07-09 0426GMT