Top lenders: A pair of banks stand at the forefront

For many years, the Jordanian banking scene has been led by two major lenders – Arab Bank (ARBK) and the Housing Bank for Trade and Finance (HBTF). These two have been consolidating their role in the wider national and regional economy in recent times, which result-ed in 2012 being a more profitable year than 2011. This has been achieved during challenging times for both Jordan’s economy and the wider region – illus-trating the pair’s continuing fundamental strengths. ARBK was founded in 1930. It now has a presence in 30 different countries across five continents, and is Jordan’s largest lender by assets. According to its 2012 annual report, the bank had 78 branches in Jor-dan at the end of 2012, while also operating branch-es in Egypt (27), Palestine (26), Lebanon (12) and Morocco (7). In total, the group has over 600 branch-es operational worldwide, employing 6135 staff.

WIDE REACH: Arab Bank has a sister company in Switzerland, subsidiaries in Australia, Tunisia, Syria and Sudan, and owns London-based Europe Arab Bank. It owns the Islamic International Arab Bank, which operates 32 branches in Jordan, and has major-ity ownership of the Beirut-based Arab Investment Bank S.A.L. It also owns Amman-based financial serv-ices company AB Invest, the Arab National Leasing Company, Al Nisr Al Arabi Insurance and the Palestine-based Al Arabi Investment Group Company. The Arab Bank Group also has major investments in Saudi Arabia’s Arab National Bank (40%), Oman Arab Bank (49%) and Turkey’s Turkland Bank (28% ownership, with 50% of capital owned by Arab Bank by the end of 2011), and in a number of non-banking foreign entities. Arab Bank itself is owned by a variety of long-term stakeholders. The largest among these are Jordan’s social pension fund, which has a 15.5% stake, while Oger Middle East Holding owns close to 20%. In terms of market share, Arab Bank held 21.1% of the Jordanian market total in terms of assets at the end of 2012, and 22.1% in terms of deposits, accord-ing to its 2012 annual report. The bank’s share of total credit facilities stood at 15.4% at that time. This was second in size only to the bank’s Palestinian oper-ations, which stood at 31.24% of Palestine’s total assets, 34.76% of its total deposits and 31.55% of its total credit facilities at the same date. Arab Bank’s 2012 report showed total assets of $45.61bn at the end of 2011, with total liabilities at $37.96bn. Six months lat-er, the figures were largely unchanged.

As for 2012, preliminary figures released by the bank in February 2013 showed that the year had been a good one. Arab Bank’s total deposits increased from $31.7bn at the end of 2011 to $32.9bn at the end of 2012, while net profits increased 15%, year-on-year (y-o-y), to stand at $352m. The bank’s capital adequa-cy ratio stood at 15.09% at the end of 2012, up from 14.81% at mid-2012, with bank officials announcing that they intended to raise this level during 2013.

Illustrative of its philosophy, this increase of capi-tal adequacy is consistent with Arab Bank’s reputa-tion as a cautious and prudent lender – the Central Bank of Jordan’s requirement is only 12%. Maintain-ing a high level of liquidity has also long been a poli-cy to safeguard the bank against external shocks, fac-tors that Arab Bank in particular has had to deal with since its establishment. In mid-2012 the loans-to-deposits ratio stood at 69%. The bank has an enviable reputation for steering around regional political tur-bulence, despite its exposure to many challenging markets. In recent times, this has meant lending to more top-tier assets and corporate customers. At the end of 2011 bank officials told local media that Arab Bank’s non-performing loans (NPL) ratio was around 6%, while at the start of 2013, the bank announced it had a loan-loss provision ratio of over 100%.

KEY STEPS: Arab Bank also engaged in cost control in 2012 and experienced growth in net interest – fac-tors that saw net operating income rise by 8% y-o-y, according to the bank. It also continued to set aside major funds for provisioning, announcing that it had around $1bn for this purpose over the last two years.

In terms of international ratings, as of early 2013 ARBK had an A-/Stable/F1 rating from Fitch, in terms of long-term/outlook/short-term, according to the bank’s website, while Standard & Poor’s gives its Jor-danian operations a BB-/Negative/B grade and Moody’s gives it a Ba3/negative/NP grade.

HBTF: Meanwhile, the HBTF continues to take a healthy share of the remaining Jordanian market. Established in 1973, HBTF started operations in 1974 with JD500,000 ($703,000) in paid-up capital. It also began as a limited public shareholding company, targeting its activities, as the name suggests, at the housing finance market. In this, it operated according to a special charter. The bank then gradually introduced more commercial banking activities, before becom-ing a fully commercial bank in 1997.

The bank also has operations in Palestine and a branch in Bahrain, while it maintains representative offices in Libya, Iraq and Abu Dhabi. Three subsidiary banks form part of the HBTF family – the Internation-al Bank for Trade and Finance Syria, the Housing Bank for Trade and Finance Algeria, and the London-based Jordan International Bank UK.

The bank itself had four major stakeholders at the end of 2012 – the Qatar National Bank, with 34.48%, the Kuwait Real Estate Investment Consortium, with18.61%, the Libyan Foreign Bank, with 16.07%, and the Jordanian Social Security Corporation, with 15.39%. As of September 2012 the bank had 117 branches in Jordan, along with 12 in Palestine and one in Bahrain.

ON THE UP & UP: In terms of performance, figures for the first nine months of 2012 show total assets standing at $10.25bn, up from $9.78bn at the end of 2011 and $9.42bn at the end of 2010. Customer deposits, meanwhile, rose from $6.78bn at the end of 2010 to $6.82bn at the end of 2011 and further still to $7.02bn at the third quarter of 2012.

According to the HBTF’s September 2012 report, these numbers gave it a market share of 16% in terms of total assets and 16% in terms of total deposits. The bank also had 15% of all the bank branches in the coun-try, while issuing 23% of the nation’s credit cards and 39% of its debit cards. With a 1m-strong customer base, the HBTF figures showed that it had around 20% of all Jordanian banking customers.

The bank’s pre-tax net income for the third-quar-ter of 2012 was $151.1m, compared to $191.4m for the whole of 2011. According to the bank, fourth-quar-ter 2012 results had shown around JD100m ($141m) in pre-tax revenue, suggesting that the final tally for 2012 would show healthy annual growth. Post-tax net income in the third quarter of 2012 was $110.9m, compared to $141m for the whole of 2011.

“I would say our progress has been due to more focus on the credit portfolio and a more conservative out-look generally – not just for the sake of being con-servative, but to improve credit quality,” Zein Malhas, the corporate finance officer at HBTF, told OBG.

RATINGS: In common with ARBK, HBTF has been focusing on its NPLs in recent years, with 2012 being no exception. The NPL ratio has grown since the glob-al financial crisis hit –although it struck Jordan later than in many other countries. The ratio for HBTF, according to its September 2012 presentation, rose from 6.3% in 2009 to 8.7% in 2010, fell slightly to 8.2% in 2011 and then rose again in the third-quarter of 2012 to 9.5%. In terms of ratings, in September 2012, HBTF reported Moody’s giving it a Ba3/Negative/NP rating, in terms of long-term/outlook/short-term, while Capital Intelligence ranked it BB/Stable/B.

ROAD AHEAD: Both ARBK and the HBTF have also been participating in government-backed schemes to boost financing for small and medium-sized enterpris-es. Indeed, this is an area that all of Jordan’s banks are keen to get involved in, given the general sentiment that they are still largely under-banked (see analysis). With ARBK and the HBTF holding some 40% of sec-tor assets between them, these two lenders are like-ly to be key players in efforts to boost this segment – and in the government’s and central bank’s overall strategy for economic growth in 2013 and beyond.