Jordan’s banking sector reflects resilience despite global challenges — KPMG

AMMAN — KPMG, a leading provider of audit, tax, and advisory services, has released its latest Banking Perspectives: Jordan 2023, titled “A new era of banking”. 

The new publication, the second in its annual flagship series on the financial services industry, highlights the consolidated financial performance of the Kingdom’s banking sector in 2022, and some key trends and themes that were noticed, according to a KPMG statement.

Despite global challenges, the banking sector has shown stability with increased net profits, total assets and customer deposits. KPMG details the impact of rising market interest rates on loan duration and expected credit loss coverage ratio, as well as the industry’s robust granting and collection strategies.

Notably, there has been a significant increase in net profits in FY2022 by approximately 42 per cent compared with FY2021, and total assets have grown by 5.9 per cent since December 31, 2021, demonstrating the sector’s stability. Furthermore, the increase in net income for YE2022 is far beyond the increase in the bank’s total analysed assets, which is directly linked to the rapid increase in the market interest rate.

Despite negative global economic indicators, NPLs have remained relatively the same in 2022 compared with 2021, the coverage ratio for NPLs has increased and the coverage ratio per stage percentage is also considered high which reflects the robust granting, provisioning and collection strategies implemented by the banks.

“The beginning of 2023 presented widespread challenges for the global banking industry, notably in Europe and the US, requiring some introspection and risk aversion to avoid any spill-over effect,” commented Rabih Shalabi, head of Audit at KPMG in Jordan. “That said, macroeconomic indicators are supportive of further growth, and market participants should pursue competition based on individual strengths and have a closer eye on the capital adequacy and liquidity position.”

The increase in the market interest rates has led to an increase in loan duration, resulting in an increase in expected credit losses coverage ratio for non-performing loans  from 124.67 per cent to 135.75 per cent between 2021 and 2022. Customer deposits have increased by 7 per cent aligning with the Central Bank of Jordan financial inclusion programme. 

The banking industry has continued to benefit from economic expansion, with an increase in lending and reaching an industry-wide loan-to-deposit ratio of around 73 per cent at the end of December 2022, while experiencing an increase in both loan book by 8 per cent and customer deposits by 7 per cent.

Fintech and ESG

To integrate fintech into the traditional financial system, significant investments in technology and regulatory support will be required. In Jordan, some banks have already invested in this area by establishing fintech entities, and there has been innovation in mobile applications to enhance convenience, personalisation and data-driven services.

“The next wave of fintech innovation is expected to focus on solving or supporting major global transitions such as the coming demographic impact on productivity, the low carbon economy, emerging markets integration, and automation,” commented Ovais Shahab, Head of Financial Services at KPMG in Saudi Arabia and Levant. “Disruptive or progressive — the innovative solutions developed by fintech will drive change everywhere.”

Jordan is dedicated to integrating sustainability into the banking and finance sector, showing a commitment to the future. The ESG agenda in the Middle East is gaining momentum due to government initiatives and the growing need for disclosure on sustainability reporting and implementations. The publication noted that the main challenge for sustainability reporting is the complexity of sustainability, which includes a variety of topics that make the data collection process and coordination challenging.