Jordanian Banks Face Stricter Regulations to Ensure Financial Stability

The Central Bank of Jordan has issued a series of circulars, instructions, and guidelines governing the operations of banks operating in the country. The move aims to enhance financial stability, protect depositors’ interests, and promote economic growth.

Key Regulations

• Minimum Capital Adequacy Ratio: Licensed banks must maintain a minimum capital adequacy ratio of 10% by January 2024.
  • This regulation aims to enhance the resilience of the banking sector and protect depositors’ funds.
• Corporate Governance: Banks must establish effective risk management systems and ensure their boards of directors are composed of qualified and experienced individuals.
  • The goal is to promote good governance practices and minimize risks.
• Loan and Credit Requirements: Banks must obtain a loan from shareholders or credit from licensed banks in the Kingdom to reduce reliance on foreign funding.
  • This regulation aims to improve the sector’s ability to absorb shocks and ensure financial stability.
• Bank Licensing: The Central Bank has set out criteria for granting licenses to new banks and requirements for maintaining a license.

Additional Regulations

• Financial Accounting Standards: Banks must implement International Financial Reporting Standards (IFRS) in their financial reporting to enhance transparency and comparability of financial statements.
  • This regulation aims to promote better disclosure practices and investor confidence.
• Open Finance Services: The Central Bank has regulated open finance services, setting out procedures for the provision of such services by licensed banks.
  • The goal is to promote competition and innovation in the sector while ensuring that risks are properly managed.
• Managing Assets and Liabilities in Foreign Currencies: Banks must maintain adequate liquidity and manage their foreign exchange exposures effectively.

Impact on the Sector

The new regulations are expected to have a significant impact on the Jordanian banking sector. They will require banks to adapt to changing market conditions, improve risk management practices, and enhance transparency and accountability.

Conclusion

The Central Bank of Jordan’s efforts to strengthen regulations in the banking sector are a positive step towards promoting financial stability and protecting depositors’ interests. The new regulations aim to enhance the resilience of the sector, promote competition and innovation, and ensure that banks operate in a safe and sound manner.