Ziad Fariz, Governor, Central Bank of Jordan (CBJ): Interview

Interview: Ziad Fariz

How will the new banking law currently being reviewed by Parliament impact the banking sector?

ZIAD FARIZ: The amendment to the Banking Law provides more room for the industry’s development, rather than changes to its structure. The new framework will be clear and transparent, and we are hoping that it will reinforce the banks’ resilience to external shocks. We are attempting to improve areas in the sector which need further strengthening, or which have not been addressed before. The content will target good governance and include adequate criteria for board members and top executives. The year 2015 witnessed the introduction of corporate governance principles for the banking industry, but now these rules and regulations will be clearly stated in the law.

The new version of the Banking Law presents a clearer framework for bank ownership, while becoming more flexible in attending to bank resolutions. Changes were also incorporated regarding Islamic banking, which has ample room for development in Jordan’s financial services platform. Overall, I would say the new law promotes banking control and governance. We can all look forward to a stronger financial system that is better equipped to meet international standards.

What effect has the credit bureau had on the confidence of banks with regard to small and medium-sized enterprises (SMEs)?

FARIZ: Broadly speaking, a financial system with sound infrastructure expands access to finance and enhances the financial ecosystem. The credit bureau is an integral part of this infrastructure. Therefore, with an efficient and reliable credit bureau in place, the cost of financial intermediation is expected to fall, while financial services will become more accessible to beneficiaries and investors will become more efficient in their evaluation and mitigation of credit risk.

Having said that, financial institutions would also gain greater ground by rationalising their credit decisions, which, in turn, would improve the chances of their clients – including SMEs – in accessing potential financing, as reputational collateral would compensate for collateral needs, whereas pricing could be tailored more to individual risk profiles.

It is worth mentioning that the CBJ has also undertaken a number of other key measures to improve access to finance for SMEs by making it possible for banks to extend credit to them at a lower cost. We are also looking into helping start-up companies by creating funds that will work as collateral to give guarantees to banking entities. We are doing this together with the Ministry of Planning and the World Bank.

How is the economic climate affecting the kingdom’s ability to meet the IMF’s fiscal targets?

FARIZ: The uncertainty in the region, the border closures with Iraq and Syria, and the decrease in oil prices – which negatively impacts GCC members’ sovereign revenues – in addition to the fragile global economic recovery, have resulted in a new set of challenges for Jordan’s economy since 2015.

However, the economy has been able to face these new shocks with less vulnerability than before: the level of the budget deficit and the current account deficit are significantly less, and our foreign reserves are at comfortable levels. Moreover, our banking system is in a better position to neutralise external shocks. Our policies and regulatory approach are conservatively managed to protect the sector. We enjoy high capital adequacy and the liquidity levels are good.

Dealing with the IMF helps us consolidate our views against other arguments on economic and fiscal policies. We have engaged in a new national economic programme with the IMF, which is largely designed to support our fiscal stance, spur growth and enhance structural reforms. In this upcoming programme, we will focus on two things: fiscal discipline and improving the business environment for the private sector.