Amended Circular on Instructions No. (13-2018) and Instructions No. (6-2020)

[Central Bank of Jordan Logo]

No.: 1/10/1407
Date: 25/8/1445 AH
Corresponding to: 1/2/2024 AD

Circular to Licensed Banks

Greetings,

In the context of the Central Bank's endeavor to continue keeping pace with best international practices and issuing Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024, it has been decided to amend a number of clauses of the Instructions for Applying International Financial Reporting Standard (9) No. (2018/13), the details of which are shown in the attached Appendix (1), as well as to amend a number of clauses of the Instructions for Applying Financial Accounting Standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) No. (2020/6), the details of which are shown in the attached Appendix (2). These amendments shall be effective from 1/1/2025.

Please accept our highest regards,

Governor
Dr. Adel Al-Sharkas

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Appendix No. (1)
Instructions for Applying International Financial Reporting Standard (9) No. (2018/13) dated 6/6/2018

Clause/Article	Text of Instructions Before Amendment	Text of Instructions After Amendment
Item (Secondly/4) of our letter No. (7702/1/10) dated 6/6/2018	"Work continues with Central Bank Instructions (2009/47) dated 10/12/2009 and its amendments, taking the stricter results into consideration [provided that the results for provisions calculated for both Stage Two and Stage Three are compared separately (total of each stage)] by performing a mapping (Mapping) between Stage Two and Stage Three according to the requirements of Standard (9) with credit claims under monitoring and non-performing credit claims respectively according to Instructions No. (2009/47)."	"Compliance with the provisions of Article (6/k) of the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024."
Within page No. (4), Clause (2) of Governance Requirements.	"As explained in the text of these instructions, the calculation of expected credit loss according to the requirements of Standard (9) requires the application of automated systems. Therefore, the systems must be of high quality in terms of inputs, processing operations, and extracted results. Consequently, the bank's management must commit not to make any adjustments to the results and outputs of the systems regarding the calculation and measurement of expected credit loss and the variables that are calculated by the Board of Directors. The Board of Directors shall define exceptional and justified cases in which adjustments are made to the system outputs and shall designate an independent body with the authority to make decisions on exceptions or adjustments, and these cases shall be presented to the Board of Directors or its sub-committees at their first meeting to obtain their approval."	"As explained in the text of these instructions, the calculation of expected credit loss according to the requirements of Standard (9) requires the application of automated systems. Therefore, the systems must be of high quality in terms of inputs, processing operations, and extracted results."

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Clause/Article	Text of Instructions Before Amendment	Text of Instructions After Amendment
Within page No. (16) of the General Framework for Applying the Standard.	"In addition to the above, Central Bank Instructions (2009/47) dated 10/12/2009 included a set of indicators (Clause Secondly/C) as an indicator of a significant increase in credit risk that must also be adhered to [provided that a period of (60) days of overdue amounts is used as a clear indicator for inclusion in this stage, noting that this period will decrease by (10) days annually to become (30) days within (3) years from the date of application]."	"In addition to the above, the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024 included a set of indicators of a significant increase in credit risk that must also be adhered to, provided that a period of (30) days of overdue amounts is used as a clear indicator for inclusion in this stage."
Within page No. (16) of the General Framework for Applying the Standard.	"If there is evidence of a significant increase in credit risk from the above conditions, the debt instrument/credit exposure shall be included in Stage Two. If there is an overlap between the available indicators (Clauses 1-19) and the clauses contained in Central Bank Instructions No. (2009/47) dated 10/12/2009 (Clause Secondly/C), the stricter of the two shall be applied."	"If there is evidence of a significant increase in credit risk from the above conditions, the debt instrument/credit exposure shall be included in Stage Two."
Page No. (17) of the General Framework for Applying the Standard.	"In addition to the above, Central Bank Instructions (2009/47) dated 10/12/2009 (Clause Secondly/D) included a number of indicators of default that must also be adhered to."	"In addition to the above, the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024 included a number of indicators of default that must also be adhered to."
Page No. (17) of the General Framework for Applying the Standard.	"If one or more of the above conditions indicate a significant increase in credit risk (default), the debt instrument/credit exposure shall be included in Stage Three. If there is an overlap between the available indicators [Clauses 1-6] and the clauses contained in Central Bank Instructions No. (2009/47) dated 10/12/2009 (Clause Secondly/D), the stricter of the two shall be applied."	"If one or more of the above conditions indicate a significant increase in credit risk (default), the debt instrument/credit exposure shall be included in Stage Three."
Page No. (18) of the General Framework for Applying the Standard, Paragraph No. (7).	"It is permissible to increase / grant new credit exposures by no more than (25%) of the outstanding credit exposures of a customer whose exposures or any of them have been classified in Stage Two (Stage 2), provided that this is only done after an in-depth study of the exposure / customer risks and that the bank has a conviction based on an in-depth study of expected cash flows supported by documented evidence of the possibility of improving the customer's financial position, and that this increase is not used to settle existing credit exposures of the customer or related parties at the bank, but rather is used exclusively for financing the customer's activities and enabling them to rectify the status of their existing exposures."	"It is permissible to grant new credit exposures by no more than (25%) of the outstanding credit exposures of a customer whose exposures or any of them have been classified in Stage Two (Stage 2) if the bank has a conviction based on an in-depth study of expected cash flows supported by documented evidence of the possibility of improving the customer's financial position, provided that this increase is not used to settle existing credit exposures of the customer or related parties at the bank, but rather is used exclusively for financing the customer's activities and enabling them to rectify the status of their existing exposures."

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Clause/Article	Text of Instructions Before Amendment	Text of Instructions After Amendment
Page No. (18) of the General Framework for Applying the Standard, Paragraph No. (9).	"When credit quality improves and sufficient and documented reasons are available that make it possible to transfer credit exposures from Stage Three to Stage Two or from Stage Two to Stage One, the transfer process must only take place after verifying the improvement of the credit status of the exposure and committing to repaying at least (3) monthly installments or two quarterly installments or one semi-annual installment on their due dates, i.e., early repayment of installments is not considered for the purpose of transferring the debt to a better stage, and this applies to the rescheduling provisions contained in Instructions No. (2009/47) and its amendments, after which the transfer process takes place."	"The bank must align the classification of the three stages outlined in these instructions with the classification of the three categories contained in the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024, and credit exposures, according to the definition in Article (2/c) of those instructions, shall be subject to the provisions and conditions for transfers between credit exposure classifications and the testing periods contained in Article (5) of the aforementioned instructions for the purpose of transferring the credit exposure classification to a better category. The bank is left to determine the necessary criteria for improving the classification of credit exposures not covered by the provisions of Article (5) above within its credit policy."
Page No. (21) of Measuring Credit Risk and Expected Credit Losses.	"The principle of measuring credit risk and expected credit loss may be applied on an aggregated basis for one or more groups of credit exposures, provided that the size of a single credit exposure for any component of the portfolio does not exceed (250) thousand Jordanian Dinars (or its equivalent) at the bank. [In special cases, if the bank has specific products/credit exposures for which expected credit loss is calculated on a portfolio basis and the amount exceeds (250) thousand Jordanian Dinars for any component of the portfolio, the bank must submit a request to the Central Bank to obtain its approval]."	"The principle of measuring credit risk and expected credit loss may be applied on an aggregated basis for one or more groups of credit exposures, provided that the size of a single credit exposure for any component of the portfolio does not exceed (150) thousand Jordanian Dinars (or its equivalent) at the bank."
Page No. (24) of Measuring Credit Risk and Expected Credit Losses.	"The deduction ratios specified in Debt Classification Instructions No. (2009/47) dated 10/12/2009 shall be applied as a minimum, and the time period and time value of money shall be taken into account for the purpose of calculating expected credit loss by adding additional deduction ratios representing the time period during which the collateral will be converted into cash, provided that the bank has sufficient information to document and support the calculation process."	"The deduction ratios for eligible collateral specified in the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024 shall be applied as a minimum, and the time period and time value of money shall be taken into account for the purpose of calculating expected credit loss during the time period during which the collateral will be converted into cash, provided that the bank has sufficient information to document and support the calculation process."

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Appendix No. (2)
Instructions for Applying Financial Accounting Standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) No. (2020/6) dated 5/7/2020

Clause/Article	Text of Instructions Before Amendment	Text of Instructions After Amendment
Item (Fifthly/3) of our letter No. (7859/1/10) dated 5/7/2020	"Work continues with Central Bank Instructions (2009/47) dated 10/12/2009 and its amendments and our Instructions No. (2014/60) dated 17/11/2014, taking the stricter results into consideration [provided that the results for provisions calculated for both Stage Two and Stage Three are compared separately (total of each stage)] by performing a mapping (Mapping) between Stage Two and Stage Three according to the requirements of Standard (30) with credit claims under monitoring and non-performing credit claims respectively according to Instructions No. (2009/47)."	"Compliance with the provisions of Article (6/k) of the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024."
Within page No. (5), Clause (2) of Governance Requirements.	"As explained in the text of these instructions, the calculation of expected credit loss according to the requirements of Standard (30) requires the application of automated systems. Therefore, the systems must be of high quality in terms of inputs, processing operations, and extracted results. Consequently, the bank's management must commit not to make any adjustments to the results and outputs of the systems regarding the calculation and measurement of expected credit loss and the variables that are calculated by the Board of Directors. The Board of Directors shall define exceptional and justified cases in which adjustments are made to the system outputs and shall designate an independent body with the authority to make decisions on exceptions or adjustments, and these cases shall be presented to the Board of Directors or its sub-committees at their first meeting to obtain their approval."	"As explained in the text of these instructions, the calculation of expected credit loss according to the requirements of Standard (30) requires the application of automated systems. Therefore, the systems must be of high quality in terms of inputs, processing operations, and extracted results."

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Clause/Article	Text of Instructions Before Amendment	Text of Instructions After Amendment
Within page No. (14) of the General Framework for Applying the Standard.	"In addition to the above, Central Bank Instructions (2009/47) dated 10/12/2009 included a set of indicators (Clause Secondly/C) as an indicator of a significant increase in credit risk that must also be adhered to [provided that a period of (60) days of overdue amounts is used as a clear indicator for inclusion in this stage, noting that this period will decrease by (15) days annually to become (30) days within two years from the date of application], and if the bank has started reducing the period according to our Instructions No. (2018/13) dated 6/6/2018, it shall continue according to the aforementioned instructions."	"In addition to the above, the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024 included a set of indicators of a significant increase in credit risk that must also be adhered to, provided that a period of (30) days of overdue amounts is used as a clear indicator for inclusion in this stage."
Within page No. (14) of the General Framework for Applying the Standard.	"If there is evidence of a significant increase in credit risk from the above conditions, the debt instrument/credit exposure shall be included in Stage Two. If there is an overlap between the available indicators (Clauses 1-17) and the clauses contained in Central Bank Instructions No. (2009/47) dated 10/12/2009 (Clause Secondly/C), the stricter of the two shall be applied."	"If there is evidence of a significant increase in credit risk from the above conditions, the debt instrument/credit exposure shall be included in Stage Two."
Page No. (15) of the General Framework for Applying the Standard.	"In addition to the above, Central Bank Instructions (2009/47) dated 10/12/2009 (Clause Secondly/D) included a number of indicators of default that must also be adhered to."	"In addition to the above, the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024 included a number of indicators of default that must also be adhered to."
Page No. (15) of the General Framework for Applying the Standard.	"If one or more of the above conditions indicate a significant increase in credit risk (default), the debt instrument/credit exposure shall be included in Stage Three. If there is an overlap between the available indicators [Clauses 1-6] and the clauses contained in Central Bank Instructions No. (2009/47) dated 10/12/2009 (Clause Secondly/D), the stricter of the two shall be applied."	"If one or more of the above conditions indicate a significant increase in credit risk (default), the debt instrument/credit exposure shall be included in Stage Three."
Page No. (16) of the General Framework for Applying the Standard, Paragraph No. (7).	"It is permissible to increase / grant new credit exposures by no more than (25%) of the outstanding credit exposures of a customer whose exposures or any of them have been classified in Stage Two (Stage 2), provided that this is only done after an in-depth study of the exposure / customer risks and that the bank has a conviction based on an in-depth study of expected cash flows supported by documented evidence of the possibility of improving the customer's financial position, and that this increase is not used to settle existing credit exposures of the customer or related parties at the bank, but rather is used exclusively for financing the customer's activities and enabling them to rectify the status of their existing exposures."	"It is permissible to grant new credit exposures by no more than (25%) of the outstanding credit exposures of a customer whose exposures or any of them have been classified in Stage Two (Stage 2) if the bank has a conviction based on an in-depth study of expected cash flows supported by documented evidence of the possibility of improving the customer's financial position, provided that this increase is not used to settle existing credit exposures of the customer or related parties at the bank, but rather is used exclusively for financing the customer's activities and enabling them to rectify the status of their existing exposures."

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Clause/Article	Text of Instructions Before Amendment	Text of Instructions After Amendment
Page No. (16) of the General Framework for Applying the Standard, Paragraph No. (9).	"When credit quality improves and sufficient and documented reasons are available that make it possible to transfer credit exposures from Stage Three to Stage Two or from Stage Two to Stage One, the transfer process must only take place after verifying the improvement of the credit status of the exposure and committing to repaying at least (3) monthly installments or two quarterly installments or one semi-annual installment on their due dates, i.e., early repayment of installments is not considered for the purpose of transferring the debt to a better stage, and this applies to the rescheduling provisions contained in Instructions No. (2009/47) and its amendments, after which the transfer process takes place."	"The bank must align the classification of the three stages outlined in these instructions with the classification of the three categories contained in the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024, and credit exposures, according to the definition in Article (2/c) of those instructions, shall be subject to the provisions and conditions for transfers between credit exposure classifications and the testing periods contained in Article (5) of the aforementioned instructions for the purpose of transferring the credit exposure classification to a better category. The bank is left to determine the necessary criteria for improving the classification of credit exposures not covered by the provisions of Article (5) above within its credit policy."
Pages No. (17 and 18) of Measuring Credit Risk and Expected Credit Losses.	"The principle of measuring credit risk and expected credit loss may be applied on an aggregated basis for one or more groups of credit exposures, provided that the size of a single credit exposure for any component of the portfolio does not exceed (250) thousand Jordanian Dinars (or its equivalent) at the bank. [In special cases, if the bank has specific products/credit exposures for which expected credit loss is calculated on a portfolio basis and the amount exceeds (250) thousand Jordanian Dinars for any component of the portfolio, the bank must submit a request to the Central Bank to obtain its approval]."	"The principle of measuring credit risk and expected credit loss may be applied on an aggregated basis for one or more groups of credit exposures, provided that the size of a single credit exposure for any component of the portfolio does not exceed (150) thousand Jordanian Dinars (or its equivalent) at the bank."
Page No. (20) of Measuring Credit Risk and Expected Credit Losses.	"The deduction ratios specified in Debt Classification Instructions No. (2009/47) dated 10/12/2009 shall be applied as a minimum, and the time period and time value of money shall be taken into account for the purpose of calculating expected credit loss by adding additional deduction ratios representing the time period during which the collateral will be converted into cash, provided that the bank has sufficient information to document and support the calculation process."	"The deduction ratios for eligible collateral specified in the Instructions for Classifying Credit Exposures and Calculating Impairment Provisions No. (2024/8) dated 30/6/2024 shall be applied as a minimum, and the time period and time value of money shall be taken into account for the purpose of calculating expected credit loss during the time period during which the collateral will be converted into cash, provided that the bank has sufficient information to document and support the calculation process."