Why is Jordan increasing the Central Bank’s capital?

The Central Bank of Jordan has been experiencing notable growth. By the end of 2024, its assets reached JD19.3 billion, with JD16.8 billion in foreign assets. The country’s foreign currency reserves also surpassed $21 billion, enough to cover more than 8 months of imports, well above the global standard of three months. Banking indicators have also shown positive trends, with customer deposits rising by 2.8 per cent and bank loans growing by 2.4 per cent, totaling JD34 billion.

In light of this growth, the government has decided to increase the Central Bank’s capital from JD48 million to JD100 million. This move is aimed at strengthening the bank’s financial position, enabling it to manage its expanding assets more effectively. A higher capital base will also help the bank tackle economic challenges and continue to support the national economy.

The strong financial indicators point to the health of Jordan’s economy. For instance, the bank’s capital adequacy ratio stands at 17.6 per cent, indicating it has sufficient funds to handle risks. Additionally, the non-performing loans to total loans ratio is just 5.6 per cent, and the coverage ratio for bad loans is 73 per cent. The bank’s liquidity ratio, at 138 per cent, shows its ability to meet short-term liabilities, further reflecting a stable banking system and a strong economy.

Historically, the Central Bank of Jordan has seen significant growth. In 1993, its assets were just JD2.8 billion, with a capital of JD18 million. By 2013, assets had risen to JD13.2 billion, and the capital had increased to JD48 million. By 2024, assets reached JD19.3 billion, prompting another capital increase to JD100 million. This move is essential for the bank to keep pace with the country’s financial system growth and maintain stability.

The decision to increase the Central Bank’s capital reflects a strong banking system. Higher foreign reserves signal economic growth, boosting confidence in the country’s financial stability. These reserves are sourced from exports, tourism, foreign investments, and remittances from Jordanians abroad. A more robust Central Bank allows for better management of the economy, ensuring stability and resilience in the face of financial challenges.

As Jordan anticipates potential shifts in the global economy, such as changes in major economies’ policies or a decrease in foreign aid, the country remains prepared. The government is also preparing for a financial review by the International Monetary Fund (IMF). A stable and growing financial system is crucial for Jordan to maintain its reputation and stability in the global market.

Raad Mahmoud Al Tal is head of the Economics Department – The University of Jordan