Regulatory Alerts2020-04-27
Added · Updated
Central Bank of Jordan Circular on Interest Rate Adjustments and Transparency
The Central Bank of Jordan mandates that all banks operating in the Kingdom adjust variable interest rates on credit facilities quarterly, allowing banks to define the specific quarterly period. Banks are prohibited from raising interest rates for customers following the April 2020 reduction until the end of 2020, unless the Central Bank itself changes rates, and must reflect actual overnight interbank lending market changes instead of JODIBOR values for existing loans. Additionally, banks must notify all customers via SMS of new interest rates, monthly installments, and adjustment periods, with these provisions taking effect immediately and repealing conflicting prior instructions.
Central Bank of Jordan
Reference No.: 4/1/27/ 4874 Date: 4 / 9 / 1441 AH Corresponding to: 27 / 4 / 2020 AD
Circular to all banks operating in the Kingdom
Greetings,
In line with the Central Bank's commitment to dealing with all customers in the banking sector with fairness and transparency, while respecting the rights of all parties, particularly regarding the impact of interest rate movements on granted facilities, and to ensure the smooth transmission of the effects of interest rate changes in monetary policy tools on the cost of credit in the economy, and following the statement issued by the Banks Association which included a reduction in interest rates on individual and retail customer facilities by a total of (1.5%) at the end of April 2020, regardless of the repricing date of those facilities, and based on the provisions of Article (4/b/13) and Article (65/b) of the Central Bank Law No. (23) of 1971 and its amendments, and the provisions of Article (99/b) of the Banks Law No. (28) of 2000 and its amendments, the following has been decided:
First: The interest rate adjustment period shall be quarterly for all existing credit facilities that include a variable interest rate (whether granted before or after the instructions on dealing with customers with fairness and transparency) and those to be granted in the future, allowing banks the freedom to determine the quarterly period starting from the contract signing date with the customer or on specific dates based on the bank's own policy.
Second: Regarding banks' response to reducing interest rates for customers based on the aforementioned statement issued by the Banks Association, banks must not raise interest rates for customers upon the due dates of subsequent adjustment periods following the interest rate reduction date and until the end of the current year 2020, unless the Central Bank changes interest rates, in which case banks must reflect these changes in accordance with the prevailing instructions.
Third: Regarding existing loans that were priced based on JODIBOR, banks must, when performing the periodic interest rate adjustment, reflect the change in the monthly rate of the actual interest rate in the overnight interbank lending market (Interbank) instead of the change in the JODIBOR value.
Fourth: Banks must notify all customers (whether facilities were granted before or after the instructions on dealing with customers with fairness and transparency) via SMS message of the new interest rate, the new monthly installment, and the new interest rate adjustment period.
Fifth: The provisions of the above paragraphs shall apply from the date hereof, and all provisions of previous instructions and/or circulars that conflict with them are hereby repealed.
Please accept our highest regards,
Governor Dr. Ziad Frieze