Financial Crime World

Jordan’s Financial Sector withstood Global Shocks, IMF Reports

The International Monetary Fund (IMF) has concluded its Financial Sector Assessment Program (FSAP) with Jordan without convening formal discussions. The report highlights the resilience of Jordan’s financial sector, dominated by banks.

Resilience in the Face of Adversity

Despite facing several large external shocks since the last FSAP conducted in 2008-09, including:

  • Global Financial Crisis
  • Arab Spring
  • War in Syria
  • Influx of refugees
  • COVID-19

Jordan’s financial system has withstood these pressures due to measures implemented by authorities to enhance its resilience and oversight.

Systemic Risk Analysis

The FSAP’s systemic risk analysis found that Jordan’s banking sector appears broadly resilient, with banks able to withstand a large global stagflationary shock given their high levels of system-wide regulatory capital and robust earnings. However:

  • Contagion risk among banks is limited
  • Credit concentration risk is substantial
  • Banks’ exposures to the sovereign are large

Non-financial corporations’ debt at risk could increase significantly in an adverse scenario.

Recommendations for Strengthening Financial Stability

The report highlights the need for further strengthening of Jordan’s financial stability framework, particularly given the challenging external risk environment. The authorities have introduced key elements of:

  • Basel III
  • IFRS 9
  • Domestic systemically important bank (D-SIB) frameworks
  • Upgrading the financial integrity framework

The FSAP recommends that the banking supervision approach be more risk-based and forward-looking, with Pillar 2 supervisory assessments developed for more risk-sensitive capital requirements. Additionally:

  • The macroprudential framework needs stronger decision-making and a more refined strategy
  • Several data gaps need to be filled to implement stress tests on a globally consolidated basis

Future Directions

The report also emphasizes the importance of analyzing the sovereign-bank nexus further and related prudential policies for enhancing system resilience. Risk-based Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) supervision should also be improved, while the resolution framework should be further enhanced.

Conclusion

The IMF’s Financial Sector Assessment Program is a comprehensive and in-depth assessment of a country’s financial sector, providing input for Article IV consultations and enhancing Fund surveillance. The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA).