Bloomberg/Annie Sakkab

Central Bank of Jordan rate cuts positive for banks' asset quality

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The central bank's action marks the first rate cut since July 2015 and follows the US Federal Reserve rate cut on 31 July 2019.

Thursday 15, August 2019 BY KUDAKWASHE MUZORIWA

Moody’s said that it expects the Central Bank of Jordan (CBJ) to further lower the main interest rate in the next 12-18 months and lower policy rates will lead to lower lending rates, which will relieve some negative pressure on banks' asset quality by supporting economic activity, loan growth and borrowers’ loan repayment capacity.

The Jordanian central bank lowered the main interest rate by 25 basis points to 5.25 per cent on 4 August.

The rating agency stated that a looser monetary policy and lower lending rates will support economic growth and help Jordan's economic recovery.

The rating agency expects the asset quality benefits of rate cuts to outweigh the negative pressure on banks’ lending margins.

According to Moody’s, although net interest margins (NIMs) will be squeezed, we expect their profitability to remain solid as loan loss provisions will remain contained.

In the four-year period that ended in July 2019, the repo rate has increased two percentage points, following equivalent increases of the Fed rate, to preserve the attractiveness of the dinar.

TAGS : Central Bank of Jordan , NIMs, economic growth, US Federal Reserve

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