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French Version

Potentially spurious bank loans raise questions

"The absence of transparency and clear official statements about economic misfortunes pave the way for rumors and rumor-mongering to harm the overall local economy..."

JORDAN (Star) - Once the rumor spread regarding Jordanian businessmen deceiving some of the local banks, there has been no stemming the flood of speculation and criticism. The revelations created controversy amongst concerned businessmen over the power of the banking sector. Economists criticized the government's poor handling of the issue, saying there was a lack of transparency in reports about the latest financial problem.
New reports indicate up to five banks were affected, though names have not been released. Reports indicate the banks loaned money in absence of collateral and outside rules stipulated by Jordan's banking laws.

Much of the criticism heard in recent days has fallen on the Central Bank of Jordan (CBJ). Local economists regard its position on the issue as "indefinite and ambiguous."

A statement by the Central Bank of Jordan (CBJ) indicated the loans provided were given to well-known businessmen and arrangements regarding security of the loans were acceptable to the local banks.

Dr Umayya Touqan, CBJ governor, said the affair is fully under the bank's control. He added the CBJ was informed of the financial dealings of these businessmen early on and is working diligently to resolve the issue in the coming days.

The exact amounts extended to the businessmen remain unknown. News reports earlier suggested something in the neighborhood of JD 450 million. Economists however, say the problem started when the businessmen failed to pay the JD 150 million that is due for the month of February.

The Jordan Ahli Bank was one connected to the controversy. Its Chief Executive Officer, Wasif Azar, last week denied allegations his bank was a victim. In a statement to the press he indicated Al Ahli Bank loaned businessmen JD 100 million over a year ago and expects to be fully repaid in the coming months. "The businessmen have paid thus far JD 80 million. The remaining JD 20 million is scheduled for repayment this year," Azar said.

He explained Al Ahli Bank's management had no worries about any loans, pointing out the bank had revealed to the Central Bank the names and amounts of loans involved. Azar's remarks came at a time when the bank is due to announce increased profits for 2001, expected to be near JD10 million.

Azar's statements satisfied some economists who believe such direct comments have done much to quell speculation on the issue. "I believe Azar did the right thing in telling people the bank's part in the affair," said economist Ahmed Al Namri. "People need to know what is going on. As long as speculation and rumor continues people's trust in the local economy will lessen."

Al Namri told The Star rules and legislations are clear on such issues. "The whole issue revolves around inappropriate procedures followed by the banks involved in the affair."

Economists agree Jordan's banking sector remains strong and for all intents and purposes unaffected by such mishaps. The recent issue did highlight concerns over CBJ's responsibilities towards its financial institutions and the public. Transparency in activities is called for to lessen the impact such a story has on the fiscal affairs of the Kingdom.

Rumors of potential losses in the banking sector spurred some to withdraw their money from a number of small banks. This action resulted in trading disturbances at the Amman Stock Exchange (ASE). The market index initially took a downward trend then went up again at the weekend. Dr Touqan assured investors and businessmen of the stability of the ASE.

Lawyer Basil Bustami called on all banks to establish special sections for credit guarantees as a means to prevent any financial risks.

"Unpaid loans deepen debt. If the bank doesn't take enough collateral to secure their loans and then finds its creditor leaving the country, it will certainly find its businesses at risk."

"Credit guarantees alone will not be the savior of the banking sector. What we need is strong monitoring and clear measures to make sure sizeable loans come under closer scrutiny," said Al Namri. He went on to ask how it was possible such sizable loans were obtained so easily from local banks. "If I were in the CBJ's shoes, I would certainly question bankers who ratified these loans thoughtlessly."

Fahed Al Fanek, an economic researcher, agreed. "The absence of transparency and clear official statements about economic misfortunes pave the way for rumors and rumor-mongering to harm the overall local economy," Al Fanek said. "Details remain unknown and the repayment of loans still appears in doubt. Such examples have to give investors pause. It would be foolish of them not to pay attention to the handling of the issue."

Although CBJ regulations deny access to the names of the bank clients, economists say Jordanians should be told who is behind the problem. Such steps can only help financial institutions in Jordan.

Ghassan Joha
The Star

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