Financial Crime World

Risk Assessment in Financial Institutions in Jordan Highlighted by IMF Report

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Washington, DC - February 23, 2023

The International Monetary Fund (IMF) has concluded its Financial Sector Assessment Program (FSAP) with Jordan, highlighting concerns over the country’s financial stability framework in light of current global economic headwinds.

Jordan’s Banking Sector: Resilient but Facing Significant Risks

According to the report, released on February 23, 2023, Jordan’s banking sector appears broadly resilient, but faces significant risks, including:

  • Credit concentration risk
  • Large exposures to the sovereign

The report also noted that non-financial corporations’ debt is at risk of increasing significantly in an adverse scenario.

Comprehensive Assessment

The FSAP team, comprising IMF and World Bank experts, conducted a comprehensive assessment of Jordan’s financial sector between June and October 2022. The assessment aimed to evaluate the country’s financial stability framework and provide input for Article IV consultations and enhance IMF surveillance.

Recommendations

Strengthening Financial Stability Framework

The report highlighted the need for further strengthening of the country’s financial stability framework, particularly in light of recent global economic shocks. To achieve this, Jordan is recommended to:

  • Enhance banking supervision approach by adopting a more risk-based and forward-looking approach
  • Develop Pillar 2 supervisory assessments for more risk-sensitive capital requirements
  • Establish a stronger macroprudential framework
  • Improve risk-based Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) supervision
  • Enhance resolution framework, including the creation of a multi-agency crisis management committee

Systemic Risk Analysis

The report’s findings are based on a systemic risk analysis that found Jordan’s banking sector would be able to withstand a large global stagflationary shock, but noted that non-financial corporations’ debt at risk could increase significantly in an adverse scenario.

Conclusion

The authorities have been urged to address these risks and improve the financial stability framework. The FSAP report is available on the IMF website.