IMF Reports on the 2017 Article IV Consultation with Jordan
IMF published its staff report and selected issues report in the context of the 2017 Article IV consultation with Jordan. Directors welcomed ongoing reforms to preserve the resilience of financial sector. The notable reforms include gradual adoption of Basel III and the decision to complement it with an additional capital buffer. These steps, along with the high levels of capitalization of banks, will provide buffers to deal with a broad range of shocks.
The staff report reveals that the banking system remains well-capitalized, profitable, and robust to shocks. The capital adequacy ratio, at 19%, is well above the regulatory minimum of 12%. Banks enjoy healthy profitability and have built up provisions while non-performing loans have been gradually declining, partly reflecting write-offs and restructuring. Further progress is being made to strengthen the financial sector supervision. The Central Bank of Jordan (CBJ) issued Basel III regulations on capital requirements in November 2016. It is now finalizing the regulations on domestic systemically important banks and, as a first step toward issuing the regulations on liquidity, has conducted a quantitative impact study of liquidity coverage ratios. The CBJ is confident that the banks’ capital and liquidity buffers will allow them to smoothly meet the new requirements. The gradual move to Basel III, along with the authorities’ decision to complement it with a 1.5% capital buffer, will help bolster further the sector’s resilience. The transfer to the CBJ of the supervision of the insurance sector is now expected to be finalized in early 2018. Efforts to strengthen the AML/CFT framework are gradually shifting from improved regulations to more effective implementation. All in all, the staff encourages the authorities to consider an update to the 2008 Financial Sector Assessment Program (FSAP) within the next two years.
The selected issues report discusses several topics such as the macroeconomic impact of the Syrian refugee crisis and regional conflicts on Jordan; balance sheet analysis of the Jordanian economy to identify potential financial vulnerabilities; and potential reforms needed in the context of the strategy to accelerate financial inclusion in Jordan.
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Keywords: Middle East, Jordan, Banking, Insurance, Basel III, FSAP, Article IV, IMF
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