May 03,2012 | 23:09
AMMAN -- Industrialists are sceptic that local banks would respond positively to lower interest rates announced this week by the Central Bank of Jordan (CBJ) on medium-term lending to industries.
On Monday, the CBJ reduced its interest rate on loans extended to banks under its medium-term loan programme for the industrial sector and prolonged the period by an additional term of one year to end by March 31, 2013.
As such, the interest rate will become the rediscount rate on the day a loan is extended minus a 2 per cent margin, which means that banks reduce their interest rates by 2 per cent when lending to industries.
The central bank said the decision reflects its commitment to provide medium-term financing for the industrial sector through licensed banks in the Kingdom, adding that the decision is also in pursuance of the measures that the CBJ has taken to support the industrial sector.
Under CBJ instructions to commercial banks in March last year, the central bank provided financial institutions with loans at the rediscount rate to re-lend to industrial firms at a fixed interest rate with a maturity period of five years.
The rediscount rate, which is currently 5 per cent, is the interest charged to member banks when they borrow from the central bank.
Describing the CBJ decision as positive move to facilitate financing to the industrial sector, particularly small-and medium-sized enterprises (SMEs), Jordan Chamber of Industry (JCI) President Hatem Halawani told The Jordan Times that the central bank should follow up on the decision to convince commercial banks to ease their lending measures and lower interest rates on the loans extended to factories.
"Any decision to lower interest rates is a positive move," he said, adding that the current economic conditions in Jordan require a comprehensive review to stimulate the economy.
Noting that the industrial sector's contribution to the gross domestic product was over 22 per cent last year, Halawani pointed out that the industries' share of overall credit facilities extended by local banks in 2011 was less than 15 per cent. Credit facilities last year were over JD15 billion.
"Banks in Jordan prefer short-term lending, while the industrial sector needs medium-term loans," he indicated.
According to Halawani, average interest rates on loans to SMEs is over 10 per cent, a figure he considered as "extremely high".
JCI board member Musa Saket agreed with Halawani that the sector is encountering credit stagnation and described the CBJ incentive as a step that may have "little" impact to boost the performance and competitiveness of local industrial establishments.
As interest rates may go down by 2 per cent, it will remain unfeasible to borrow at 8 per cent, he said, adding that the current economic conditions in the Kingdom require "out of the box" solutions.
Saket stressed that the sector needs a specialised financial institution, whose interest rates should be less than 5 per cent, in line with best international practices.
He indicated that 50 per cent of loans extended to the industrial sector go to large companies, which he said also borrow at lower interest rates due to less risk factors.
© Jordan Times 2012
