Jordan — Financial Sector Assessment Program and Financial System Stability Assessment
IMF News, April 20, 2023
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Bibliographic details
- Published: April 20, 2023
Executive summary and context
- Press Release No. PR23/124; IMF Press center; April 20, 2023.
- The Executive Board of the International Monetary Fund (IMF) concluded the Financial Sector Assessment Program (FSAP) with Jordan on March 17, 2023 without convening formal discussions.
- The Financial System Stability Assessment (FSSA) report was completed on February 23, 2023.
- The report is based on the work of joint IMF/World Bank FSAP missions to Jordan during June and October 2022.
- Jordan’s financial sector is dominated by banks and has withstood several large external shocks since the latest FSAP in 2008-09, including:
- Global Financial Crisis
- Arab Spring
- war in Syria and influx of refugees
- COVID-19
- Current external pressures highlighted: global growth headwinds, high energy and food prices, and higher interest rates, which put pressure on corporate and household sector balance sheets.
Systemic risk analysis: key findings
- The FSAP’s systemic risk analysis found that Jordan’s banking sector appeared broadly resilient.
- Specific findings:
- Banks would be able to withstand a large global stagflationary shock, if it were to occur, given high levels of systemwide regulatory capital and robust earnings.
- Contagion risk among banks is limited.
- Credit concentration risk is substantial.
- Banks’ exposures to the sovereign are large.
- Nonfinancial corporations’ debt at risk could increase significantly in an adverse scenario.
- Banks have ample liquidity and can manage significant liquidity pressures.
Regulatory and supervisory strengths and shortfalls
- Authorities have introduced key elements of:
- Basel III
- IFRS 9
- domestic systemically important bank (D-SIB) frameworks
- Financial integrity framework has been upgraded.
- Recommended supervisory enhancements:
- Make the banking supervision approach more risk-based and forward-looking.
- Develop Pillar 2 supervisory assessments for more risk-sensitive capital requirements.
- Improve Risk-based Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) supervision.
Macroprudential framework and data needs
- The macroprudential framework needs:
- Stronger decision-making
- A more refined strategy
- Data gaps to be filled to enable:
- Implementation of stress tests on a globally consolidated basis
- Systemic foreign currency liquidity analyses
- More granular analyses of household and corporate sector vulnerabilities to guide calibration of borrower-based macroprudential tools
Sovereign-bank nexus and resolution framework
- The sovereign-bank nexus needs further analysis.
- Consideration should be given to related prudential policies for enhancing system resilience.
- Resolution framework improvements recommended, including:
- Creating a multi-agency crisis management committee
Background on FSAP
- The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country’s financial sector.
- FSAPs provide input for Article IV consultations and thus enhance Fund surveillance.
- FSAPs are mandatory for the 47 jurisdictions with systemically important financial sectors and otherwise conducted upon request from member countries.
- The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA).
- The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
Source: Jordan — Financial Sector Assessment Program and Financial System Stability Assessment; Press Release No. PR23/124; April 20, 2023.