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French Version

Scandal continues to make headlines but economy remains stable

Jordanians are in deep shock about the current financial scandal in the Kingdom.

JORDAN (Star) - Jordanians are in deep shock about the current financial scandal in the Kingdom. It appears to have evolved around the process some local banks went through in granting loans outside the rules stipulated by Jordanian banking laws.
For economist Yousef Mansour, those who are involved in the case should be brought to court, regardless of their social standing.

Other economists fear the issue has set alarm bells ringing amongst lenders regarding the warranties and guarantees they require from those who obtain credit.

The names of persons taking part in the affair have been revealed and investigations are now expanding to include former ministers, officials and businessmen.

The most striking fact is Jordan's financial stability remains as praise comes for His Majesty King Abdallah's initiative last week in calling for more transparency in dealing with the case.

Economists and financial observers believe the King's step was prudent and practical and provided government and security authorities with assistance that should resolve the crisis quickly.

"The way the government is dealing with the issue fortifies the public's trust in the local economy," Mansour told The Star. "It is better for the government to move fast to contain the issue soon. We need to be careful and efficient in our investigations to punish all those were behind the whole affair."

Among points highlighted was the way in which some businessmen obtained loans in a seemingly easy manner. Economists warned the government not to overlook anybody, regardless of their position and social rank.

The government and the Central Bank of Jordan (CBJ) assured businessmen and investors the situation is under control. The rapid developments of the issue drew much controversy over the nature of credit granting by local banks. About 95 people are so far implicated in investigations and considered prime suspects.

The whole issue revolves around Jordanian businessman Majd Al Shamayleh, who left the country suddenly last month leaving his creditors-the banks-to pick up the pieces.

Figures show the amount of credit granted Al Shamayleh was in the region of $1 billion (about JD 750 million) over the last four years. With the benefit of hindsight it seems, Al Shamayleh was preparing for this moment a long time ago. These loans were granted through his company, "Global Business," which he formed with a group of businessmen three years ago.

Four banks are being investigated over the affair. The Jordan Al Ahli Bank, Jordan-Gulf Bank and the Exports and Finance Bank have all announced their businesses remain unaffected by the financial scandal. Only the Jordan Investment and Finance Bank remained silent.

Economists dispute statements made by the banks, indicating their debts remain uncovered and loans granted for the implicated businessmen have yet to be settled.

The Amman General Prosecutor ordered the freezing of all properties and assets owned by all persons implicated, extending such orders to include immediate members of their families also now put under house arrest and denied permission to have outside contact.

The repercussions of the case were seen on Amman Stock Exchange (ASE) trading. Share prices lost about half a percent in trading, while overall volume witnessed a 35 percent decline since the issue was revealed on 5 February.

This has now resulted in a market trading loss of about JD 7.5 million. Brokers do suggest that the situation is now stable. Jalil Tarrif, ASE's chief executive officer, said the stock market absorbed the crisis, thanks to its transparent procedures and its requirements for companies trading on the exchange to fully reveal their financial circumstances. This week share prices increased by a percentage point and the share index rose around 175. According to Tarrif, overall trading volume at the stock market saw major increases this year, some JD 152 million. He added the market will resume its upward trend soon after the issue is resolved.

Mansour underplayed the consequences of the losses so far revealed, noting the banking structure in the Kingdom enjoys sizable assets capable of handling the difficulties of this case.

Bank sources note this week 21 banks working in the Kingdom hold more than JD 14 billion in assets and JD 8.7 billion in deposits. This is in addition to JD 5 billion paid in loans by different economic sectors in 2001.

The Central Bank of Jordan (CBJ) holds $2.55 billion in reserves that will cover the Kingdom's imports for more than seven months.

Concerns mounted amongst stockholders in the wake of the last few week's revelations as many were worried about whether banks may lose credibility over time. Other concerns arose over the withdrawal of some deposits from the affected banks-most indicating it was a precautionary step to protect individual savings.

Economists suggest the government act in a precise and direct manner. "It should be clear that efficient banking facilities require a proficient mandate in risk management programs," said Fuad Mohammed Bseiso, an Arab banker.

Bseiso highlighted the need for an efficient and transparent financial security system to lessen future risks. Such a program is essential for banks working in the Kingdom to make sure investors and businessmen do not experience potentially negative results from such crises. As Jordan moves forward and opens its markets globally such mismanagement will certainly affect investors.

"What really matters is the country's reputation in world markets. If the issue continues to make headlines then doubts will remain about the government's ability to conclude the case permanently," Mansour pointed out.

Ghassan Joha
The Star

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