TIGHT monetary policies and high interest rates are the main concerns for Jordan's bankers this year and there is widespread acceptance that they will continue to command attention in 1997. The monetary policy is a mix of credit ceilings, demanded by Jordan's IMF-supported restructuring programme, and restrictions on lending to an individual or any group of individuals.

Designed to ensure prudent lending, the tight limits have caused widespread irritation among Jordan's many smaller banks.

The clear trend in 1995 was for the larger commercial banks to show improved results while the smaller investments banks, wounded by the decline in the Amman Financial market, posted flat profits or small losses. Only the Jordan Gulf Bank which lifted profits from JD 2.4 million to JD 3.4 million from 1994 to 1995, and the Middle East Investment Bank which posted its first ever profit, went substantially against the trend.

Banks have produced differing results, but bankers are united in their discomfort at the strict regulations on the concentration of risk, and at what they consider to be their overzealous enforcement. Some bankers are also concerned that continuing high interest rates will increase the likelihood that borrowers will be unable to meet their commitments. 'The Central Bank needs transparent policies that are balanced between allowing banks to work efficiently and prudently,' says one banker, who clearly believes the current balance of policy to be wrong.

Yet, Central Bank of Jordan (CBJ) deputy governor Michel Marto is uncompromising. He rejects suggestions that the central bank is exceeding its proper role and is determined that the banks must respect the limits. 'We are very clear in what we want,' he says 'And we don't interfere so long as the banks don't try to do the wrong thing.'

The high interest rates are a weapon in the on-going battle by the authorities to convince Jordanians to keep their savings in dinars rather than dollars. Some larger borrowers are moving into dinars, but small savers seem unable to overcome doubts about the stability of the Jordanian currency. Some 40 per cent of personal savings, or $3,300 million, is held in foreign currency.

The CBJ is concerned to push its reserves up to 3-5 months import cover, from two months at present, and is unlikely to reduce interest rates until it reaches this target. Jordan Investment and Finance Bank (JIF) managing director Basil Jardaneb looks forward to a reduction in rates. 'When the government achieves the targets with regard to its net foreign exchange holdings it should consider seriously reducing interest rates because this would give an indication of strength to the public and would increase confidence in the economy and the dinar,' he says.

Along the way the policies are helping to bring to fruition the CBJ's long-held wish for mergers and are proving more effective than specific incentives offered for this purpose. It has taken time, but Jordan's big banks are getting bigger while some of its small banks are merging instead of attempting to meet a CBI requirement that they raise their capital to JD 20 million.

Jordan National Bank and Business Bank are going ahead with a merger and the Amman Investment Bank looks set to be taken over by the Arab Bank, which may relaunch it as an Islamic institution. Philadelphia Investment Bank is also looking for a merger partner.

At Arab Jordan lnvestment Bank,( AJIB) senior deputy general manager Hani AI-Qadi says he is not averse to a merger, although his enthusiasm is qualified. 'If banks want to be universal they need to be large' he says. 'But a bank that specialises can afford to stay small.

The mistake comes when small banks try to be universal.' At Arab Bank, merchant banking department manager Mifleh Akel would welcome fewer banks. 'We need five, not seventeen banks' he declares.

Marto suggests no ideal figure, but is keen to see bigger banks as the private sector is starting to outgrow the existing ones. This is apparent in the situation facing Jordan's hotel developers who are struggling to raise the JD 100-150 imllion they need for new projects.

Most bankers feel that such sums demand an over-concentration of capital in one sector, and a volatile one at that. The squeeze highlights the limitations of the banking sector at a time when both major privatisations and large regional projects are still on the table.

Marto is equally keen for the banks to develop a greater level of Sophistication and the CBJ is not averse to nudging them in the desired direction. It is now refusing new branch licences to banks which are not fully on-line, largely because of a desire to ensure swift reporting.

The CBJ is also moving steadily to add more depth to the financial sector. The Jordan Mortgage Refinancing Company has been established as a JD 5 million private company with participation from most Jordanian banks and a $20 million World bank loan. Legislation has also been sent to the cabinet for a deposi- tors protection scheme to be known as the Depositors Insurance Corporation.

Work is also underway on new banking regulations which will end the current division between commercial and investment banks and remove the privileges of Jordan's specialist financial institcitions such as the Housing Bank, the Industnal Development Bank and the Cities and Villages Development Bank. Arab Bank's Akel is confident that tbe changes w ill give commercial banks the chance to introduce new products and services while easing the less efficient providers out of the system.