Credit facilities landscape in Jordan: Evolution, insights

The analysis in the previous article in this page clarified the distribution of credit facilities provided by banks in Jordan according to governorates and economic sector. It revealed that the Capital governorate, Amman, accounts for 80.9 per cent of the total credit facilities; a very high percentage but expected. Also, the concentration of credit facilities (66.4 per cent) in four key sectors (construction, services and public utilities, general trade, industry) is understandable, as these sectors are interconnected with dozens of other sectors, reflecting positively on the overall economy. It is worth noting that according to data from 2022, 60.5 per cent of total credit facilities were provided by the top 6 banks out of 20 operating in the kingdom, compared to 58.3 per cent in 2018. The top three banks provided about 38.7 per cent of total credit facilities in 2022 compared to 41.8 per cent in 2018, indicating an improvement in credit concentration in the sector. Let’s take the analysis to another perspective.

During the COVID-19 pandemic, the Jordanian economy suffered significantly, registering a negative growth rate of about 1.6 per cent; the tourism sector alone declined by 76 per cent in 2020, although recovered in the following years, it stagnated after the first week of October 2023. Despite suffering less than other Middle Eastern countries, the economic difficulties clearly reflected in unemployment rates, which reached 25 per cent in 2021, the highest level in over 25 years, up by 6 percentage points from 2019 and doubling the rate in 2011. Despite the unemployment rate decreasing to 21.4 per cent in the fourth quarter of 2023, it still poses a significant challenge, especially for youth, women, and university graduates. To address this dilemma, the Economic Modernisation Vision 2022-2033 was adopted, aiming to create a million job opportunities over the next decade.

The question arises: “How many job opportunities did the credit facilities provided by banks to various economic sectors create during the years 2022 and 2023 and the first quarter of 2024?”

Regarding the performance of the banking sector, it remained strong and avoided a credit crisis due to the pandemic’s repercussions, attributed to a combination of monetary policy support by the central bank. Firstly, liquidity injection by reducing the mandatory required reserve ratio from 7 per cent to 5 per cent, providing banks with immediate liquidity of JD 550 million. Secondly, the central bank provided two lending programmes with favorable terms totaling over JD 2.3 billion, utilised by the top ten growth-driving sectors in Jordan and small and medium-sized enterprises in recent years. Thirdly, loan rescheduling due to business interruption and cash flow shortages. Fourthly, providing additional guarantees to small and medium-sized enterprises through the loan guarantee company. Consequently, bank credit continued to grow steadily, positively impacting the profitability of the banking sector, primarily driven by strong credit demand for loan rescheduling and working capital support.

These policies prevented a significant deterioration in credit quality, as the non-performing loan ratio in the Jordanian banking sector did not exceed 5.5 per cent, far below the experts’ estimated threshold of around 10 per cent. Thus, credit quality remained under control and reassuring among large and small and medium-sized enterprises. Generally, the credit quality of small and medium-sized enterprises’ portfolios is lower than that of large enterprises, with slight variation among banks favouring larger banks.

Furthermore, the years following the COVID-19 pandemic witnessed a radical change in the banking sector’s structure, with several mergers and acquisitions among banks, reducing the number of operating banks in the kingdom from 25 in 2018 to 20 banks in 2024 after recent consolidation operations, distributed as follows: 15 Jordanian banks and 5 non-Jordanian banks, including four Islamic banks and 16 commercial banks. Consequently, four Jordanian banks entered the list of the world’s top 1000 banks. There was also a transformation in many areas of banking services, including operational activities, with a strong push towards further noticeable digital transformation across all levels, especially with the widespread adoption of fully digital bank branches.