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Three new banks to begin operations

AMMAN -- Three banks licensed by the Central Bank of Jordan ( CBJ ) last year will begin operating in the Kingdom soon, adding new services to the sector, a senior government official told The Jordan Times on Monday.

Jordan Dubai Islamic Bank , National Bank of Abu Dhabi and Al Rajhi Bank will increase the number of licensed financial institutions operating in the country to 26, according to the official, who preferred to remain unnamed.

The official said that the licensing of new banks is intended to meet market needs and add new services to the system.

Meanwhile, economists differed on whether the banking system in the Kingdom needs more financial service providers in light of the current number of banks.

Economist Jawad Anani said the CBJ should open the door for more banks to enter the sector in order to increase competition and add new expertise and additional capital to the market.

Anani, a former Royal Court chief who has also held several ministerial posts, said that if at least five to seven conventional and Islamic financial institutions were licensed, banks would be forced to provide more credit facilities at lower interest rates.

"Banks in Jordan are monopolising the market by extending credit facilities during economic boom periods only to stop lending in difficult financial circumstances," he explained.

Over the past few years, around eight institutions were licensed as investment banks with modest capital and limited lending capabilities, Anani said, adding that any new banks should at least enjoy a capital of JD120 million.

However, banking expert Mefleh Aqel defended the local banks' conservative lending measures, noting that they adopted cautious lending policies due to the current financial situation caused by the global financial crisis.

In regards to monopolistic practices in the banking sector, Aqel said there is no monopoly, but rather a concentration, as the largest share of the market is dominated by two or three major banks, which he noted is the case in many countries.

But Anani said that the interest rates provided by banks on deposits range from 3.5 per cent to 4 per cent, while they charge high interest rates on loans, up to 11 per cent, which he cited as "evidence of monopoly".

Based on CBJ figures, interest on loans does not exceed 9.5 per cent, Tayseer Smadi, CEO of the Islamic International Arab Bank, noted, adding that the percentage is calculated on the basis of risks of market instability, operations and capital, in addition to expenses and profitability.

He said the door should be open for conventional and Islamic banks to enter the sector, but warned against risks in case the market cannot accommodate additional institutions.

Aqel agreed, pointing out that there is high competition in the market and the sector does not need any new banks as there are already 23 financial institutions operating around 600 branches across the Kingdom.

Investment in banking requires significant capital, and should be based on proper studies of the market and a bank's feasibility, because the collapse of any financial institution will hurt the banking system and the national economy, Smadi stated.

He added that opening new banks will not force local banks to lower their interest rates and increase their credit facilities, noting that even these new banks will not extend low-interest loans because this type of lending caused the global financial crisis.

"Banks enjoy high liquidity levels and the percentage of extended loans is still low compared with liquidity, as banks only give loans to those who are eligible," he noted.

According to the CBJ , 90 per cent of those who applied for loans in 2009 were approved by banks because they were qualified.

By Omar Obeidat

© Jordan Times 2010