KPMG Jordan, the audit, tax, and advisory service provider, has released the second publication in its annual series: ‘Banking Perspectives: Jordan 2023’, titled ‘A new era of banking’. The multinational accounting organisation highlights the consolidated financial performance of the region’s banking sector in 2022.
KPMG Jordan has detailed the impact of rising market interest rates on loan duration, as well as the industry’s robust granting and collection strategies. It explained that, despite global challenges, the banking sector has shown stability with increased net profits, total assets, and customer deposits.
It found a significant increase in net profits in FY2022 by approximately 42 per cent compared to FY2021, while total assets grew by 5.9 per cent since 31 December 2021, demonstrating the stability of the sector. Furthermore, the increase in net income for YE2022 is much beyond the increase in the analysed bank’s total assets, which is directly linked to the rapid increase in the market interest rate.
Despite negative global economic indicators, NPLs have remained relatively the same in 2022 compared to 2021, the coverage ratio for NPLs has increased and the coverage ratio per stage percentage is also considered high which reflects the robust granting, provisioning, and collection strategies implemented by the banks.
Indicators are supportive of further growth
Rabih Shalabi, head of audit at KPMG in Jordan, said: “The beginning of 2023 presented widespread challenges for the global banking industry, notably in Europe and the US, requiring some introspection and risk aversion to avoid any spill-over effect.
“That said, macroeconomic indicators are supportive of further growth, and market participants should pursue competition based on individual strengths and have a closer eye on the capital adequacy and liquidity position.”
The increase in the market interest rates has led to an increase in loan duration, increasing expected credit losses (ECL) coverage ratio for non-performing loans (NPLs) from 124.67 per cent to 135.75 per cent between 2021 and 2022.
Customer deposits also increased by seven per cent aligning with the CBJ financial inclusion program. The banking industry has continued to benefit from economic expansion, with an increase in lending and reaching an industry-wide loan-to-deposit ratio of around 73 per cent at the end of December 2022, while experiencing an increase in both loan books by eight per cent and customer deposits by seven per cent.
Fintech and ESG in Jordan
To integrate fintech into the traditional financial system, significant investments in technology and regulatory support will be required. In Jordan, some banks have already invested in this area by establishing fintech entities, and there has been innovation in mobile applications to enhance convenience, personalisation, and data-driven services.
Ovais Shahab, head of financial services at KPMG in Saudi Arabia and Levant, also commented: “The next wave of fintech innovation is expected to focus on solving or supporting major global transitions such as the coming demographic impact on productivity, the low carbon economy, emerging markets integration, and automation. Disruptive or progressive – the innovative solutions developed by fintech will drive change everywhere.”
Jordan is dedicated to integrating sustainability into the banking and finance sector, showing a commitment to the future. The ESG agenda in the Middle East is gaining momentum due to government initiatives and the growing need for disclosure on sustainability reporting and implementations.