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Capital Markets

Improving bank capitalization

The Central Bank of Jordan has advanced deregulation of the country's banking sector considerably in recent years. According to Adel Satel, analyst at Moody's Investors Service: "Continued reforms in the financial sector have strengthened the banking system's capital base, and introduced additional prudential requirements and more transparency into the system." Roger Smithyes, general manager of Jordan International Bank London, says: "Overall, the sector is very well managed and very well controlled. It goes in line with the general view of Jordan."

The IMF's financial system stability assessment concluded in 2004 that the country had no substantial fiscal vulnerabilities, and the banking system generally showed high capital ratios, liquidity and profitability.

The central bank has taken an active approach to its management of poorly performing banks, and is now able to authorize capital injections, management changes, and mergers with stronger banks.  Last year, it doubled the capital requirement of commercial banks to JD40 million ($56 million), a reform that is to be phased in over four years.

A demanding regulator

The CBJ also now insists on tighter reporting requirements, and has stipulated penalties to be imposed should banks fail to comply. In addition, it has gradually reduced the classification period of non-performing loans to 90 days.

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