Regulatory Alerts2017-12-21
Added · Updated
Central Bank of Jordan Circular No. 10/1/205: Amendments to Credit Classification Instructions and Provisions for Seized Real Estate
The Central Bank of Jordan amends Instruction No. (2009/47) to redefine non-performing loan classification upon full payment and to permit initial restructuring cash installments of at least 3% in exceptional cases, down from the standard 5%. Licensed banks are required to maintain seized real estate allowances at a minimum of 10% annually until reaching 50% for properties violating Banking Law No. (28) of 2000. These amendments apply to licensed banks and were effective until December 31, 2017, with subsequent extensions noted.
In the Name of Allah, the Most Gracious, the Most Merciful
[Logo of the Central Bank of Jordan]
No.: 10/1/205 Date: 17/5/1438 AH Corresponding to: 14/2/2017 AD
Circular to Licensed Banks
Greetings,
In light of inquiries and proposals received from several banks regarding the application of certain provisions of Instruction No. (2009/47) dated 2009/12/10 on the classification of credit facilities, calculation of impairment allowances, and general banking risk reserves, and based on our observations and discussions with banks on this matter, I hereby decide the following:
First: Amendment of certain provisions of the aforementioned instructions as follows:
- Clause (Second/C/5) is amended to read: "Credit facilities that have been classified as non-performing loans and where the client has paid the full value of dues (principal, interest, and commissions)."
- Clause (Fourth/A/1) is amended to read: "An initial restructuring is conducted by the client paying a cash installment from their own resources not less than (5%) of the credit facility balance. The Central Bank will positively consider, in exceptional cases and according to justifications related to cash flow imbalances of some clients, accepting a cash installment not less than (3%) of the credit facility balance."
Emphasizing in this regard the necessity for banks to give utmost importance to studying clients' financial conditions and the extent to which their defined repayment schedules align with the expected cash flows of their businesses, especially for clients whose facilities are to be restructured or rescheduled, without imposing additional burdens on them regarding interest rates on their facilities, to help sustain their repayment capacity.
- These amendments shall be effective until 2017/12/31*.
- The validity of these amendments was extended until 2018/12/31 pursuant to our Circular No. (16617/1/10) dated 2017/12/18.
P.O. Box 37, Amman 11118, Jordan • Tel: 4630301 • Fax: 4638889, 4639730, 4639731 • E-mail: info@cbj.gov.jo • Website: www.cbj.gov.jo
CENTRAL BANK OF JORDAN البنك المركزي الأردني
Second: The required allowances for seized real estate shall be deducted pursuant to our Circulars No. (4076/1/10) dated 2014/3/27, No. (7096/1/10) dated 2014/6/8, and No. (6841/1/10) dated 2015/6/3, such that the allowance balance built against these properties violating the provisions of Article (48) of Banking Law No. (28) of 2000 and its amendments shall be at least (10%) of them by the end of 2016, and the recording of an allowance at a rate of (10%) annually shall continue until reaching (50%) of such properties.
Please accept our highest regards,
The Governor Dr. Ziad Fariz
2 (Extension - 2019/01/01)