Jordan Times
Monday, November 22, 1999
Jordan Central Bank prods banks to expand role
By Suleiman Al Khalidi
Reuters
AMMAN — Central Bank of Jordan Governor Ziyad Fariz has urged private banks to play a bigger role to ensure success of IMF-guided reforms aimed at liberalising the economy.
Fariz criticised the country's 22 private banks for doing little to respond to reforms introduced by the bank in recent years such as the removal of foreign exchange controls, the strengthening of banking supervision and the deepening of the domestic capital market.
“The financial and banking sector has to attain qualitative progress by focusing on activating their role and responding more efficiently to the flexible monetary policy pursued by us,” Fariz told senior bankers gathering over the weekend.
Fariz said local banks had to meet globalisation challenges by adopting innovative financial tools to boost competitiveness and decried their hesitancy to activate a secondary bond market in both corporate and public debt instruments.
The country's financial sector's role was critical if Jordan was to get on its feet after years of sluggish growth under IMF-guided accelerated free market reforms launched in April.
Jordan has recently stepped up a privatisation drive, overhauled worn out legislation and dismantled trade barriers to qualify for World Trade Organisation membership soon.
Fariz cited local banks complacency by a narrow focus on interest margins on deposits as their main source of income.
He asked banks to respond more adequately to a nearly three percentage points fall in certificates of deposits (CDs) yields, a key interest rate indicator, since February by lowering lending costs, critical to spur investments.
“Banks have to respond more speedily, they are reducing rates on deposits not lending. Some banks feel secure by widening the margin and achieving secure profits,” he said.
Fariz said a main plank of monetary policy remained preserving a stable exchange rate for the local currency dinar, that has kept inflation in a narrow 2-4 per cent range.
CBJ is cushioned by a nearly doubling of foreign reserves to a record $1.9 billion since a crisis triggered earlier this year in the run up to the death of King Hussein.
Monetary policy shoulders burden of economic distortions
Fariz said it was vital to consolidate ongoing fiscal reforms to ease the burden now shouldered mainly by the CBJ in protecting the country's financial stability.
“The coming phase requires that the reform effort on the side of the budget be continued by focusing in a main way that reduces public expenditure and rationalising it,” he said.
Jordan is targeting a zero per cent deficit of gross domestic product (GDP) after grants, that usually cover shortfalls, by the end of the three-year reform plan in 2002.
CBJ has traditionally incurred the cost of absorbing excess liquidity to preserve monetary stability through its bi-monthly CD auctions, which have come to play in the absence of an active government securities market a critical quasi-fiscal role.
Fariz said government plans for regular auctions of government securities will not only deepen the capital market but reduce the role of CDs as main tool to manage money supply.
An outstanding JD1 billion ($1.4 billion) in CDs would be transferred as public debt over the course of three years in the form of Treasury bills and bonds, the governor said.