BANKING AND FINANCE: Reforms excite investors

30 May 1997

JORDAN'S bankers say conditions are tough, but the banking and finance sectors are about to see more activity in 1997 than they have in years. Changes in legislation and a greater openness to the international market are creating heightened interest from investors both at home and from abroad.

Banks themselves are having to work harder for their profits, but are also becoming more alert to the need to take advantage of new opportunities. Jordan National Bank (JNB) was the first to make a move. In late 1996, it swallowed the Business Bank and emerged as Jordan's second largest bank in terms of capital. Then, in May, it went to London as part of a Union Bank of Switzerland (UBS) roadshow promoting six leading public companies. JNB managing director Wasef Azar says the bank is not actively looking for foreign investment in its capital, but would not object to it.

Jordan's dominant banking force, Arab Bank, is also expanding steadily. It has taken a 10 per cent stake in an investment company that will target Egyptian securities and has plans for similar companies for Jordan and Lebanon. It is negotiating for a new licence to establish an Islamic bank in Jordan, possibly taking over the licence of the now-defunct Amman Bank for Investments, and is taking a leading role in the establishment of a new public shareholding company to spearhead investment in Jerusalem. Arab Bank is also expected to boost its capital with a bonus share issue as soon as the new companies law, which removes a 15 per cent tax on capitalised reserves, comes into force.

Another bank poised to take advantage of changes in the law is Housing Bank. It has now lost some privileges in the area of taxation and government guarantees, but has also been freed of the constraints on the range of its activities. It now has the right to carry out all commercial banking activities, and an extraordinary general meeting on 2 May gave it the go-ahead to double its capital to JD 50 million. Housing Bank sources say they already have investors from Saudi Arabia and the Gulf who are keen to take a share. They are also looking at the possibility of a global depositary receipt (GDR) issue.

Smaller banks are also showing new life. The Philadelphia Investment Bank, long tipped to disappear in a merger, has succeeded in attracting the interest of Saudi Arabia's Prince Alwaleed Bin Talal Bin Abdulaziz and other Arab investors. It now looks certain to meet the Central Bank of Jordan (CBJ) requirement for all banks to raise their capital to JD 20 million by the end of 1997. The Middle East Investment Bank has also been in negotiations with the Lebanese subsidiary of Societe Generale, although progress there has been slow.

New securities law

Change is also in the air at the Amman Financial Market (AFM) with the enactment of the new securities law. This provides for the establishment of an independent regulatory body, the Jordan Securities & Exchange Commission (SEC), a private sector-owned company to run the market, and a mixed private/public sector clearing and settlement depository. The new law also strengthens requirements on reporting, introduces stricter penalties for insider trading and leaves the SEC the freedom to use by-laws for the introduction of new instruments, eliminating the need to pass laws through parliament.

Not everyone believes the securities law alone will be enough to revive a market that peaked in 1992-93 when cash-rich Jordanians returning from Kuwait pumped in millions of dollars, but which has been in decline ever since. Ziad al-Basha, securities manager at the British Bank, is one of those who argue that more needs to be done. 'My top recommendations would be to get rid of the 50 per cent limit on foreign ownership in existing public shareholding companies, liquidate the Jordan Investment Corporation (JIC), and allow the private sector to manage pension funds.'

There are now suggestions that the 50 per cent rule will be eased and private pension funds are also under consideration, but the demise of the JIC, the state-owned holding company, is unlikely in the near future.

JIC director-general Mohammad Batayneh defends the cautious approach, and the role of the JIC, which owns shares in about 80 of the 135 companies listed on the AFM. 'Some people want everyone to sell like a lottery,' he says. 'This would just bring losses, we have to study the local and international markets and sell on a case-by-case basis.' Batayneh says that the JIC has been divesting, but sometimes even profitable shares do not find a buyer. JIC is also sticking rigidly to its policy of only selling shares in companies in which its stake is

10 per cent or less.


Some Jordanians may be critical of the slow pace of new developments, but foreign financial institutions say they can certainly detect a change. They have been encouraged by the prospect of a share in some of Jordan's blue-chip companies. The Jordan Phosphate Mines Company (JPMC) is going to the international market for a $100 million bond to finance an expansion project.

Other companies aiming to tap international financial markets include Arab Potash Company, Jordan Cement Factories Company and Jordan Telecommunications Company. Investment banks are falling over each other to offer their services. In May alone, Nomura Securities, Bankers Trust and the local Atlas Investment Group held Jordan's first seminar on GDRs, UBS held its London investment seminar,

ING Barings was showing a dozen

London bankers the sights in Jordan, and Citibank was preparing for its own roadshow in several US cities. Citibank Jordan manager Suhaie al-Ali commented: 'This is a reaffirmation of the bank's commitment to Jordan and is intended to sell the whole country.'

As they all enthuse about Jordan's new prospects, the foreign financial institutions have just one reservation. Most of them came to Jordan during the good times of 1992-93, but faced insurmountable bureaucratic obstacles. They are now saying that Jordan just cannot afford to let this happen again.

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