2012-09-04 08:45:56 - Recently published research from Business Monitor International, "Jordan Commercial Banking Report Q3 2012", is now available at Fast Market Research
BMI View: We expect asset growth in Jordan's commercial banking sector to remain weak throughout 2012 on the back of a slowing domestic economy, and forecast both deposit and credit growth to fall significantly through the year. However, with banks' aggregate balance sheet in a broadly robust shape, we see few risks relating to underlying stability. We reiterate our view that asset expansion in the Jordanian commercial banking sector will remain sluggish throughout 2012. Although both deposit and credit growth have remained relatively strong in recent months - coming in at 9.5% and 11.6% y-o-y in February, respectively - overall asset growth slipped to a 30-month low of 5.5% (against inflation of 3.6%), pointing to a broader slowdown within the
sector. With the macroeconomic picture still looking grim (see our online service, March 9, 'Economy Still In A Rut we expect deposit and credit growth to trend lower throughout the year. However, in spite of the slowdown, we see minimal risks relating to banking sector stability. Banks' leverage ratios are low, deposits are by far the predominant source of financing, and foreign currencydenominated loans make up only a small part of banks' asset portfolios, leaving the industry in a strong position to cope with a sharper-than-anticipated slowdown in asset growth. Jordan Commercial Banking Report Q2 2012 © Business Monitor International Ltd Page 36 Deposit Growth Still Strong, But Unlikely To Last Growth in the sector's stock of client deposits held up well in 2011, averaging 9.9% y-o-y, and this trend has persisted in recent months, coming in at 9.5% in February. Deposits were boosted by rising public sector wages and increased state subsidies of food and other staple goods, with public spending having been ramped up as a means of shoring up support in the midst of the Arab Spring. The impact of these measures is likely to fade in the months ahead, however, while increasingly strained public finances are likely to rule out the potential for any more major government spending hikes this year (see our online service, January 27, 'Worsening Fiscal Dynamics Moreover, with the economy still in the grip of a broad-based economic slowdown - we are forecasting real GDP growth to fall to 2.3% in 2012, down from an estimated 2.8% last year - we expect the deposit intake to slow throughout the remainder of the year, forecasting growth to fall to 6.0% y-o-y by end-2012. Although the sector is by no means over-leveraged - the loans-to-deposits ratio stood at 0.69 in February (and has remained in a band between 0.67 and 0.71 since the beginning of 2009), while 'other liabilities' declined by 6.5% y-o-y in February - we do not anticipate that banks will look to significantly expand their balance sheets through borrowing. Ongoing economic weakness is likely to weigh on demand for new credit, while the central bank's decision in February to raise its benchmark interest rate by 50 basis points to 5.00% will further discourage borrowing. As a result, we are forecasting credit growth to fall to 7.0% in 2012. Balance Sheet Position Still Strong Despite our downbeat outlook on the industry's prospects this year, we stress that we see few risks relating to banking sector stability in the near term. Deposits remain the predominant source of financing, accounting for 63.7% of total liabilities in February, as reflected in the conservative loans-to-deposits ratio (which is the lowest of the ten MENA banking sectors that BMI covers). In addition, foreign currency-denominated liabilities account for just 15.0% of the total. While there are some concerns over asset quality - particularly as economic momentum continues to weaken - non-performing loans ticked down to 8.5% in mid-2011, from 9.0% in 2010, though we see some potential for this ratio to head higher in the months ahead. Our relatively positive outlook on the state of the sector's aggregate balance sheet is further reinforced by 2011 financial results, which saw the net profits of the country's two largest commercial banks - Arab Bank and the Housing Bank for Trade and Finance - growing by 13.0% and 13.1%, respectively, bolstering our view that the industry is wellplaced to cope with a slowdown in asset expansion.
Full Report Details at
- www.fastmr.com/prod/451302_jordan_commercial_banking_report_q3_2 ..
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