Interview with Ammar Safadi, Deputy GM of Capital Bank of Jordan

What specific measures should be taken by the government – the Central Bank - to insulate the banking and financial sector against shocks resulting from the global economic downturn ?

I think the major reason SMP has cut the rating for Jordan is because of the budget deficit. The government is taking good measures now to try to decrease the deficit through the reduction in public spending. I hope that during the coming months and in the short term, the government will be able to reduce the deficit to enhance Jordan’s image in the financial markets and improve our ratings.  We are on the right rack but it might take sometime ; I think sometime next year growth will pick up and things will be better off.

Have the policies of detached regulation impacted the willingness of banks to lend to the SME’s ?

There is high liquidity now in the banking sector but I wouldn’t say that banks have stopped lending. There are tighter controls. After the crisis, most of the banks have done reviews on their credit policies. Banks now are looking for any good opportunity to lend. Some banks might not be lending to the real estate sector or to the stock market, but because of the high liquidity good lending opportunities are desired. A slowdown in sectors like the real estate sector have affected growth in sub sectors such as the furniture sector, and so on. Demand for credit is slowing down.
80% of your revenues represent corporate and SME clients.

 How do you see this issue and how do you intend to use your excess liquidity ?

We are in a better situation than other banks. Our liquidity ratio is around 130%. The excess liquidity is being utilized in government bonds and treasury bills until we find good lending opportunities, but the competition is very high in Jordan.

How are you competing in the market ?

In such a competitive market, our strategy is customer service. You have to be a niche bank with much better customer service than your competition. Sometimes it’s about pricing ; cutting costs on the loans of customers is part of it. At Capital Bank we concentrate on customer service. That is our main edge.

What are the customers like in the Jordanian market ? What is important to them in a bank ?

70% of it is about long-term relationships. Some clients are very price-sensitive, be they depositors or creditors, and if a bank gives them a better price than their current bank they would probably shift. In general though it is all about personal relationships.

One of your subsidiaries is the investment branch. What is the relationship between the bank and the investment branch ?

We own this company ; its capital is in JD’s and its main business upon establishment was brokerage in local and regional markets. Today the company’s business has expanded to corporate finance and asset management. We are giving a good part of our focus to that company.

What can be done to increase the transaction on the stock exchange ?

The problem with the stock market here in Jordan is liquidity. When the market was booming 3 or 4 years ago, everyone was able to go in and buy, but today there is difficulty to liquidate stocks. That is one of the major obstacles here. Also, it is all about perceptions and confidence ; people do not have confidence in the stock market. It’s a cycle ; there are a lot of stocks that are very cheap, but I don’t know when would be a good time for institutional investors to come in and start investing which would lead individual investors to action.

What is your long-term vision for the bank ? What are your strategic targets ?

In the next five years, we are looking at maintaining our corporate portfolio, but are looking to reduce it from 80% to around 65%. We will be concentrating on retail and SME. Sometimes it is difficult to beat the economic growth rate of the country, but we always have aggressive targets each year and we hope to double the growth rate.

What is your major strategic challenge ?

The main worry would be that Jordan is not out of the crisis yet. A lot of sectors are still suffering and our major worry is that things will continue this way for a long time. Hopefully things will pick up soon and businesses will prosper soon.

Are you prepared for long periods of slow growth ?

No, I do not think Jordan is ready for that. During the first six months we have seen some good signs. Growth is expected to be between 3.5-4% which is okay, but I think next year will be a much better year. During the crisis, NPLs rose for the banks, so that was a factor that decreased lending, but now banks are in again. I think it is not about the crisis itself, but about perception. People are afraid to use the liquidity they have. We want to overcome this problem of perception ; we want to invest in good lending opportunities. Our retail business has been doing extremely well. Our personal loan portfolio has increased by 10% from the beginning of the year. Corporate is more difficult because it’s a much bigger ticket. As Capital Bank our loan portfolio has increased by around 6%.

Would you seek opportunities abroad ?

Yes, it is in the mind of the chairman and the board because we have a big capital, either to go abroad or to merge with or acquire a bank here in Jordan. We are still working on this issue. Organic growth is very important but if we want to acquire a marketshare quickly, organic growth has to be coupled with a merger or acquisition. Hopefully by September we will have a clearer view of our strategy.

You mentioned you are active in Iraq ?

We own 77% of this bank but it is not very active. At inception it was doing very well because it invested all of its money with the Central Bank at 20%. Now interest rates, the regulations, and the legal environment in Iraq is not very clear so we are not taking any risks there, so it’s a very slow operation now. We hope things will open up in Iraq and there will be great opportunities.