Investment Policies of the Jordanian Banking Apparatus

Its Past Performance and the Horizon of the Future

Professor Muflih Muhammad Awad Akel

Introduction:

During the past four decades, Jordan witnessed an economic revival in all its economic sectors.  Its result was to create a social awakening, and to generate general economic prosperity.  However, it was the Jordanian banking apparatus that witnessed the most  comprehensive advancements during this period, when compared to other sectors.  This apparatus, after a series of structural and legislative changes, was transformed from one limited in the number of its institutions, variety and resources, into an advanced system consisting of a number of financial institutions, varied in their activities, and under their disposal relatively large financial resources.  It has worked competently to service the different economic sectors by using its relevant instruments, after successfully having filled the national reserves of the country with local and foreign currency.

Until the writing of this paper, the Jordanian banking apparatus was known to consist of the Central Bank, commercial banks, investment banks, real-estate saving institutions, specialised lending institutions, insurance companies, the Amman financial market, intermediary financial institutions combined and the Jordanian financial market.  The financial system is known to consist of a group of markets, institutions, legislation, organisations and technical methods, through which stocks, bills, bonds, and other securities are traded and through which interest rates and commissions are set.

In the introduction of this paper, I shall address what is understood by investments, and I will take a brief look at the role of the banking apparatus in the national economy.  I will then take a historical look at the banking apparatus in Jordan, and at the advanced financial markets.  Then I will look at the investment philosophy of Jordanian banks, and will end my discussion with a look at the challenges facing this apparatus and its future role.

II. The Understanding of Investment

A distinction must be made between two types of investment.  They are:  financial investments, and real investments.

1.  Financial investments are investments in contracts and securities such as future contracts, option contracts, stocks and bonds.

2.  Real investments involves the acquisition of acquiring tangible assets such as equipment, raw material, buildings, and factories.

Investments of primitive societies are concentrated in real investments, while the economic investments of modern societies are concentrated in financial investments.  Both real and financial investments are considered to be compatible investments.  If an institution needs financing to invest in a project, it can increase its capital by placing its stocks in the principal market.  Its buyers can trade it in the secondary market, if they should need to regain its liquidity.

Despite the fact that trading in the secondary market does not generate money for the institution issuing the stock, its mere presence in the market raises the attractiveness of the stock, and facilitates investment.

The existence of securities in its different forms, and the existence of an active securities market  favouring the intermediary financial institutions, are considered prerequisites for facilitating investment.

III.  The Role of the Banking Apparatus in the National Economy

The banking system consists of mechanisms that transfer the general public's reserves into investments in equipment, raw material, buildings, infrastructure, goods and services.  These mechanisms provide an opportunity for the growth of the national economy, thus improving the population's standard of living.  The banking system is considered to be one of the greatest modern social inventions, because of the central role it plays, particularly in the following areas:

1.  A mediatory role between areas where there is a  monetary surplus and a deficit  in the national economy.

2. Transforming short-term deposits into long-term loans.

3. Providing payment facilities to the national economy to facilitate an exchange of goods and services.

4. Providing credit facilities to maintain the level of national spending.

5. Maintaining the future purchasing power of money in the form of deposits, bonds, stocks, and other securities.

6. Providing protection against the dangers to institutions and individuals by using future protection means such as options and forward deals.

7. Working to ensure that government policies that aim at strengthening economic growth, reducing idleness, and combating inflation, are successful.

The banking system is considered an integral part of the national economy, and cannot be viewed in isolation.

IV. A Look at the Jordanian Banking Apparatus

A.  Historic Background

The  first Jordanian banking institution can be traced to 1925, when the Ottoman Bank began working in the country as the first commercial bank.  In 1934, the Arab Bank followed suit by opening its first branch in Amman, and after that the British Middle East Bank did the same.  The banking apparatus was limited to these three banks until 1955, when three new commercial banks were established between 1955-1960.  They are: the Jordan National Bank, the Bank of Jordan and the Cairo Amman Bank.  In addition, the Rafidain Bank opened its first branch in Jordan.

During the 60s, no new developments to the banking apparatus took place as no new banks were established, and no branches of foreign banks were opened.  As of the 70s, the Jordanian banking apparatus began to see significant developments in number and variety.  Several new Jordanian commercial banks were established - Jordan Kuwaiti Bank, Jordan Gulf Bank, Petra Bank, Syrian Jordanian Bank.  In addition, several foreign banks also opened branches in Jordan - Citibank NA, Chase Manhattan and the Bank of Credit and Commerce-BCCI).  Numerous financial institutions, specialised banks and investment banks were established.  This development completed the evolution of the Jordanian financial market in terms of its specialisation and the variety of its institutions.  Financial instruments increased and the reserves of the banking apparatus grew.  The size of their operations also grew (see Annex 1).

The situation confirmed that what had occurred in terms of expansion in the numbers of banks and their variety during the 70s and early part of the 80s was great, as is apparent from the following table:

The evolution of the number of working banks in Jordan:

       Year                                   65       70         75         80         85         90         91         92

       Number of Banks                 8         8        12         18         18         22         20         20

       Number of Branches           25       41         79      142      272      307      333      344

B. The Institutions of the Jordanian Banking Apparatus

In the Jordanian financial market there are numerous financial institutions.  They are the following:

            1. The Central Bank of Jordan which handles the administration of monetary           policy, and directs and encourages the evolution of the banking apparatus, and    monitors it.

            2. Seventeen commercial banks, including the Housing Bank and the           Jordan Islamic Bank.  They have a network of some 325 branches distributed    throughout the cities of the country.

            3. Six investment banks with 18 branches.

            4. One financial institution with 6 branches.

            5. Specialised lending institutions.  They are:

                 a. Agricultural lending institutions - the Agriculture Lending Institute, and                     the Co-operative Organisation.

                 b. The Industrial Development Bank which specialises in industrial loans.

                 c. Real-estate lending institutions - the Housing Bank and the Housing                         Institute.

                 d. Cities and Villages Development Bank which specialises in financing                

                     municipalities.

            6.  Governmental and government-like investment institutes.  They include:

                  a. The Institute of Social Guarantees.

                  b. Pension Fund.

                  c. The Post Office Fund.

            7.  Thirty-one insurance companies.

            8. The Amman Financial Market.

            9. Twenty-seven intermediary financial institutions.

This quick glance at the institutes that comprise the Jordanian banking apparatus indicates that it has reached an advanced stage, when compared to other developing countries of similar circumstances.  It is also apparent that it consists of all the different types of financial institutions that are needed in a modern national economy capable of providing a variety of affordable services in advanced markets.

C. Monetary Instruments in the Jordanian Financial Market:

The availability of a good number of financial institutes and their variation has resulted in the introduction of a number of monetary instruments that facilitate real investment.  There are active markets for these instruments, and markets that are still in their preliminary stages in comparison to others.  Amongst the instruments of the Jordanian financial market are the following:

1. Deposits:

These deposits represent the banks' and the financial institutions' obligations towards their depositors, whether it is an obligation in local or foreign currency.  The deposits in Jordanian banks, in all currencies, had reached by 31/12/92 JD 4749 million.

These deposits are not represented by securities, and therefore there is no direct secondary market for them.  The inter-bank market provides the opportunity to transfer surplus deposits among the institutions of the banking apparatus.  However, this market remains limited.  The deposits of the inter-commercial bank market had reached by the end of 1986 JD 131 million, approximately 6.7% of the deposits of the banking apparatus.  By 31/12/19192 it had reached JD 220 million, representing 4.6% of total deposits.

2. Banker Acceptances:

Banker acceptances are temporal withdrawals accepted or guaranteed by a banking institute, originating from either internal or external trade.  Banker acceptances are treated as one of the instruments of the monetary market.  They are often handled by subtracting a specific portion of its written value.  It must be noted that a secondary market for these banker acceptances is not available in Jordan.  It is limited only to the primary market.

3. Overdrafts:

The instrument of granting advances enjoys wide acceptance amongst institutions and individuals because of its low cost, its flexibility, and its administrative ease.  It is used to a large extent to finance working capital.

4. Commercial Bonds:

This is one of the instruments widely used in some of the commercial sectors.  These bonds represents buyers' debts.  They are sold (discounted) at commercial banks.  A portion of them are accepted for rediscount at the Central Bank of Jordan.  Otherwise, these bonds are not handled within the financial institutions, but are traded, on a limited basis, by appearing in the commercial sector.

5.  Commercial Papers:

These consist of bills of bonds issued by large companies with strong credit facilities, to gain access to short-term financing. They are sold to investors directly, without an intermediary.

There is nothing like this instrument in the Jordanian market.  There is something similar to it which is bonds which organise matters for banks for particular amounts, and for short periods of time, until a bank buys it at a particular discounted price.  The absence of such an instrument in the financial market is regarded as one of the major deficiencies of the market.

6. Certificates of Deposits

This is one of the instruments that attracted premature attention from the authorities.  As a result, in March 1983 the authorities issued organised instructions for these certificates.  They issued the certificates of deposits either by way of publicly announcing them, or by ordering them through an agent.

The certificates of deposits did not face success in neither the primary nor the secondary markets, despite the fact that their interest rates on offer were attractive.   Perhaps their failure was a result of the population's lack of education about them when they were first proposed.  This instrument faded away, until now it no longer exists.    The Central Bank recently issued instructions that the certificates of deposits should be issued in dollars to the commercial banks.  This experiment is still in its early days.

7. Stocks:

Setting up the Amman Financial Market in 1978 had the largest impact on the development of the number of stocks proposed for general subscription,  and the number of companies whose stocks are handled in the Financial Market.  The number of listed companies in  1978 was 57, with the total  rights of the investors standing at JD 242 million.  It went up by the end of  1992 to 103 companies, the total  rights of its investors having reached JD 1189.  The market value of the handled stocks had reached JD 2.27 billion.  The handling size in the Organisational Market had reached in 1992 JD 879 million - a daily average of JD 1.4 million.  The Amman Financial Market is considered to be amongst the most active of the Jordanian financial markets and the most capable.

8. Government Bonds:

Government bonds are issued according to the general lending law that was first enacted in 1966. Its aim was to create a nucleus for the capital market, and to serve as a  weapon of monetary policy.  This legislation called for two ways in which governmental loans were to be granted:  by issuing treasury bills, and issuing general debt bonds or to its holders.  In the Jordanian market there are four types of government bonds.  They are:

a. Treasury Bills:

The first treasury bill was issued in January 1969, thus forming the first nucleus for the financial market in Jordan.  These bills are issued on a monthly bases for a period of three months, and are sold at a discount through general subscription, with an interest rate of 4.5%.  50% of the income generated is tax-exempt.

The general lending law has set the maximum limit for these bills issued by the treasury  to lie at 25% of the average of local revenue of the last three financial years  of people whose accounts had been closed or the sum of the handled money, or whichever is greater.

The balance of the treasury bills had reached by 31/12/1992 a total of JD 256 million.

B. Treasury Bonds:

These bonds were first proposed in 1986.  They are issued for a period of two years, and are sold at a particular discount.  The balance of these bonds reached by 31/12/1986 a total of JD 32 million.  Most of them were acquired by commercial banks.  The balance of these bonds, in relationship to their size, remained stable during the past seven years.

C. Public Corporation Bonds:

These are governmental bonds issued to finance projects of independent governmental institutions.  Their interest rate is close to the interest rate on growth bonds.  The balance of these bonds had reached by 31/12/1992 a total of JD 37 million.  Some were acquired by commercial banks.

D. Government Bonds:

These are growth bonds which were first issued in 1971.  The balance up until 31/12/1992 had reached a total of JD 573 million.  The acquisition by commercial banks amounted to JD 108 of the balance.  As for the acquisitions of the Central Bank, they were totalled at JD 390 million, which included bonds and securities of government and public institutions.

Government bonds were first handled in the financial market in 1979.  Their handling was limited because of their distinction for good revenue, tax exemptions, and the liquidity which they enjoy. These factors made them attractive to banks and financial institutions.  This is the reason behind its lack of activity, and its handling in the secondary market.

Despite the fact that the size of the government bonds by the end of 1992 had reached a total of JD 573 million, the size of those bonds handled in the secondary market did not exceed JD 4.3 million, most of which were growth bonds.

9. Loan Bonds:

Loan bonds are among the modern financial instruments in the Jordanian financial market.  Public share-holding companies began issuing them.  The first  were issued in 1978, and by  31/12/1986, 23 had been issued valued at JD 109 million.  The balance from these issues had reached JD 96 million.  As of that date, the level of activity of this market has receded until the balance of the commercial bonds by the end of 1992 had reached a total of only JD 33 million.

To make the primary bond market in Jordan a success, all issues were accompanied by a government guarantee.  Financial institutions were granted the right to return a percentage of the financing from these bonds at low interest rates through the Central Bank, even though the interest rates on these bonds were rewarding to begin with.  Income generated from these bonds were tax-exempt.  After this idea had entered the market and been implemented for several years, all these distinguishing factors were eliminated, except for the income tax-exemption.  The distinctness of liquidity, government guarantees, fixed interest rates, and tax exemption were amongst the reasons which led to a concentration of the holdings of these bonds in the hands of banking institutions.  Because of the high tax imposed, (alongside other distinguishing factors), it led to the weakness of these bonds in the secondary market.  But in the wake of the new adjustments to the income tax law which affected some 90% of the income of banks generated from bonds, banks will look again at the value of these bonds.

10.  Medium and Long Term Loans:

This is a relatively new market, not in existence for longer than 10 years.  This market grew with the increasing needs of the Jordanian industry for advanced and guaranteed capital equipment.

11.  Lease:

Leasing is considered a modern way of introducing financing.  The use of it in Jordan is still in its preliminary stages because of legal, accounting and tax reasons.

12.  Financing Projects:

This is one of the new methods of financing. It relies on the feasibility of the project and its income as a major source for debts, instead of relying on the financial ability of the person in charge of the project.  This idea has begun to gain acceptance by the banks because of the rewards it enjoys through the preparation of feasibility studies.

13.  Syndicated Loans:

This is amongst the most important developments that had taken place in the Jordanian financial market by the end of the 70s in the area of financing large medium-term projects.

This financial instrument was capable, since its first use in 1978, in providing suitable financing resources, and meeting the excessive financial needs of large companies and public institutions.  Its practical implementation proved how rewarding this could be in achieving the goals set out.

The syndicated loans had reached by the end of 1986 a total of JD 144 million, most belonging to companies and public institutions.  Despite the fact that this financial source represents only about 9% of the banking facilities provided, its importance lies in its nature and in what it achieves which is insuring huge financing that a single bank would not want, or cannot , undertake alone.  The importance of this market has receded.  Since 1987 it has been on a steady decline in terms of the amount of these loans, and its balance.

It becomes apparent that the Jordanian financial market, despite its relative newness, is a market varied in its institutions, and has numerous financial and monetary instruments.  Available to it are financial resources appropriate for the size of the Jordanian economy.  The only disadvantage of this market is that it is primarily a primary market, and excluding the active secondary market for shares, there is practically no secondary market for other financial instruments.  This is a factor that reduces the capability of the market, and reduces its role in amassing savings and expanding investments.

IV.  The Crisis of the 1980's and the Revival in the Aftermath

During the 80s, Jordan witnessed a long period of economic recession which coincided with the decrease in the price of oil.  This had come after a long period of prosperity that began with the improvement in the price of oil.  Many looked at the banking apparatus to play a noticeable role in reducing the effects of this crisis, and providing financing for investments.  But the banking apparatus was also subjected to clear pressures as a result of the changes that affected the working structure of the local, regional and international banking system.  These pressures mostly led to a weakness in the banking apparatus (with a few limited exceptions).  As a result, it could not fulfil the role expected of it.  Amongst the most important factors responsible for the weakness of the banking structure are the following:

1. The economic decline that affected the Jordanian economy, as a result of the collapse in the oil prices in 1982.  The price of oil continued on a steady decline until it reached its lowest point in 1989.

2. The explosion of the debt crises and its consequences, one of which resulted in  limited foreign resources for investment financing.

3.  The inflation of the number of banking units in an economy incapable of absorbing them.  This problem created intense competition which imposed pressures on the profit margins, and led to transgressing sound, effective banking principles.

4. Limited liquidity of some banking institutions, and exposure to continuous  pressures.

5. The increase in the cost of production, low profit, and the decrease in returns on assets and capital.

6. The increase in the tax burden, the drying up of special exemptions, particularly those linked to doubtful loans and written off debts.  This reflected negatively on the size of the reserves that is made up of inactive debts, which resulted in greater leniency in categorising the different types of loans.

7.  The collapse of some of the institutions of the banking apparatus.  This exposed technical shortages and inadequacies.  Sound banking principles were abandoned, and their were clear cases of administrative mismanagement.

8. The inadequacy of banking legislation to deal with some of the problems confronting them.

9. The lack of distinct banking rewards/capabilities.

10. The weakness of the ratio reflecting sufficient capital, in particular the ratio of capital to assets.

11. The lack of particular policies defining loans and their use.  This is what led to the increase of the problem of inactive debts.  This affected the real profit of banks.

12. The limitations on the profits of the banking institution, and their inability to accumulate sufficient reserves to counter doubtful debts, and to distribute profits to shareholders.

13.  The crisis of foreign exchange, and the resulting difficulties in acquiring capital and consumer commodities.

The existence of these conditions simultaneously, have had a negative impact on the role of the banking system, in particular on its investment role.  It also affected the variety of its assets, and resulted in an explosion of problems in areas of weakness.  This required a set of comprehensive reforms to correct the path of the banking system.  It needed reorganisation to insure its soundness, and to reactivate its role in the national economy by meeting its financial needs, which includes investment financing, and supporting a fixed currency.

Policies for reform appeared to be defined by the middle of 1989, after taking stock of the relics of the former problems.  A comprehensive look was taken at the banking system, and the standard of the institutions and its instruments were evaluated.  The most important areas on which these new reforms concentrated were the following:

1. Re-evaluating banking and financial legislations to take stock of the new developments in the field of modern banking.  This included the right to isolate corrupt administrations, to oppose appointments to top administrative levels, and to grant wider responsibilities to the monitoring apparatus.  It also included the right to define punitive measures for those not abiding by the new regulations and for issuing false statements.  These reforms defined specialised banking legislation, with a direction towards universal banking.

2. Encouraging the policy of mergers, and providing technical and financial assistance to deal with the problems of some of the institutions.  It included forming banking units with a greater ability to realise their aims.  Policies of encouragement as well as some mandatory policies were adopted.

3. Developing a system of monitoring banking institutions, and meeting legislative demands, technical aid, and defining the responsibilities of each.

4.  Adopting a national programme to encourage the staff of the banking apparatus, and to train it with the necessary skills to be able to confront the next stage, and the needs of global banking.

With the return of many immigrants to Jordan, the Jordanian economy and the banking apparatus benefited greatly from their fortunes.  Deposits in the banking apparatus were doubled during the short period after their return, thus providing it with a level of liquidity it had never before enjoyed in its history.  As a result, liquidity was available in abundance, after a period of shortage.

The policies of investment banks in Jordan became very conservative, and were limited to working capital.  It slowly was transferred with the beginning of the 70s to medium-term financing until by the mid 80s, the policy had shifted to long-term financing and direct investments.  This important development couldn't have taken place, had the banks not understood the effects of investment on economic growth, and if it weren't for their experience in investment financing.

V. The Current Situation of the Banking Apparatus

The banking apparatus witnessed during the last four years numerous important developments in the area of policies and organisation:

A. Policies:

1.  Expansion in long-term loans as many banks began establishing investment departments with high technical standards, and distinguished marketing capabilities aiming at identifying investment opportunities and studying their feasibility.  Banks began entering the arena of long-term investments with greater vehemence than in the past. But this time they entered with greater knowledge, and sounder reading of the opportunities available.

2. The banking institutions began to accept the idea of social responsibility.  They became aware that profit must not always be their primary objective.  Issues of economic growth and employment became the determining factors in banks deciding to finance particular projects. 

3. Actively introducing the market of direct investments.  In addition to the funding role of banks, one begins to notice that banks headed the founders lists of almost all new companies. Banks were in the forefront of researching for direct investment opportunities.  In the past they had been content to play the role of lending to companies only after they had successfully confronted the dangers associated with setting up a new business, approached production level, and the risks had become more limited.

This role is considered an evolution in the philosophy of investment banks in Jordan.  It represents abandoning their traditional role of merely lending working capital, and moving towards the German philosophy in banking.  It had previously  given the German industry a great push and strength enabling it to embark on the Industrial Revolution, in which Britain had preceded it.  Production relied on its high profits which then financed its growth and development.

B. Organisation:

1. The success of banking reforms in rectifying some of the problems that the banking apparatus had confronted.

2. Resolving the profit problem as a result of floating interest rates and the economic revival.

3. Resolving the problem of insufficient capital by improving profits, increasing reserves, raising capital, and applying international standards for increasing capital.

4. Tremendous growth in local and foreign currency reserves.

Most of these developments resulted in banks adopting advancing policies that were more courageous. Banking facilities had grown during the period 1989-1992 by JD 489 million (from JD 1729 million to JD 2218 million). This growth did not enable banks to take advantage of the surplus liquidity because the increase in credit was only 23% of excess deposits available during this period.  This originated from the inability of banks to utilise their deposits in dollars. The facilities in foreign currency did not exceed 14.2% from the total of deposits in foreign reserves, which had reached by 31/12/1993 a sum of JD 1964 million.

5.  Documenting the existing capital of the different institutions in the banking apparatus by using a new framework of measures for sufficient capital that complies with the new international standards.  In addition, it must take measures to support reserves, and to encourage the increase of capital from JD 5 million to JD 10 million.

6. Introducing greater liberties to the instructions on monitoring foreign currency, making them compatible with economic openess and liberalisation.

7. Establishing an institution to guarantee deposits, and to develop appropriate means to finance exports and to insure them.

VI. The Investment Philosophy of Jordanian Banks

The investment philosophy of Jordanian banks passed through four phases, and it is currently experiencing the birth of the fifth phase.  They are:

1. Phase One (1925 - 1967):

This period began with the early activities of banking in Jordan and ended in 1967.  It is distinguished by the limitations of the banking apparatus in terms of its number, its reserves and its role.  It was also marked by the absence of the Central Bank which was only established in 1964.

The policies of lending banks during this period was limited to short-term financing, which is represented either by a discount in commercial short-term bonds, or overdrafts.  Credit facilities during this period did not exceed JD 39 million, and the size of local investments did not exceed JD 912,000.

2. Phase Two (1968 - 1973):

This period did not witness any great developments in the Jordanian banking apparatus.  This sector concentrated its activities on maintaining its position and its credibility because of economic and security conditions that imposed themselves in this period, exerting pressure on its liquidity.

3. Phase Three (1974 - 1981):

This period was distinguished by great accomplishments achieved in the Jordanian economy, and the banking sector in particular.  It witnessed tremendous growth in its assets, and in the number of its institutions and its instruments.  The number of banks increased to 17 with 174 branches.  Its assets reached JD 1330 million and its facilities JD 721 million. This period was also distinguished for the appearance of the nucleus of a capital market, where the first loan bonds and the first syndicated loans were issued.  Also in this period, the Amman Financial Market was established.

4. Phase Four (1982 - 1990):

This period is considered to have been the toughest and longest through which the banking apparatus passed.  It left many negative impacts which required a concerted effort to overcome.  Amongst the most important of these were the recession in the performance of the Jordanian economy. This affected the profits of the banking apparatus, its reserves, and resulted in the explosion of the debt and foreign currency problem, and the devaluation of the Dinar.  These issues will be discussed in more detail shortly.

Despite the fact that the bulk of the efforts of banks was addressed at internal administration and reorganisation, the banking apparatus continued its amassing of savings.  The deposits of commercial banks had reached by 1988 JD 1811 million, and JD 535 million in foreign currency.  Facilities reached JD 1630 million.

The end of this period was characterised by comprehensive revaluation conducted by the monetary authority to reorganise the banking apparatus to insure its continuity and its soundness.

5. Phase Five (1990 - 1992):

This period was over shadowed by the Gulf crisis and its results.  One of the major repercussions was the return of large numbers of Jordanians residing in Kuwait.  This exerted tremendous  pressures on the resources of the region and its infrastructure.  In addition, it deprived Jordan of its market in Iraq and the Gulf Arab states, and from assistance from the oil producing countries.  This resulted in a severe relapse in the industrial, agricultural, transportation and tourism sectors. The positive aspect to this crises was the return of many qualified administrators, along with their resources in local currency which were invested locally.  The problems arose not because of any inadequacies in the banking apparatus, but because of the situation that was imposed on them such as:

1. A rise in the danger of lending foreign currency, in comparison to lending local currency.  There is also the danger linked to the availability of foreign currency at the end of the lending period.

2.  The constraints on lending foreign currency, and retaining it.  Current legislation does not permit institutions to retain more than 10% of the value of their resources in foreign currency resulting from exports.

3.  The growth in the bank's resources in foreign currency coincided with the currency crises which Jordan faced in the last years of the 80s.  Any use of these currencies created concerns for the depositors which could prompt them to withdraw their deposits.

4.  Employing foreign currencies for local loans might result in the dolarisation of the economy, a matter that might limit the role of the monetary policy in influencing credit and regulating it.

5. Some have proposed the conversion of these currencies into Dinar and then loaning them.  However, banks have rejected this proposal, as it could lead to further disasters.  This kind of behaviour exposes banks not only to the dangers of credit, but also to the dangers associated with the availability of foreign currencies and the rate of conversion.  These dangers can create disasters for the banking system, and