Central Bank of Jordan Circular on Stress Testing for 2025 Data

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Ref No: 2/23/ 4006
Date: 6 Ramadan, 1447 AH
Corresponding to: 24 February, 2026 AD

Circular to Banks Operating in the Kingdom

Greetings,

Based on the Instructions for Stress Testing of Banks Operating in Jordan No. (2016/1) dated (2016/12/6), attached are the sensitivity analysis tests and scenario tests that banks must perform based on data as of 31/12/2025. Sensitivity tests, including tests on the impact of geopolitical tensions in the world and climate-related risks, shall be applied at the level of the bank's branches in Jordan and at the level of consolidated financial statements. Scenario tests, however, shall be applied at the level of the bank's branches in Jordan only. The results of the required tests must be submitted to us, filled out according to the attached templates, in both paper and electronic formats no later than the end of April 2026. Please note that an electronic (Excel) version of these templates has been published on the Central Bank's website. The Central Bank will continue to provide banks with the required tests annually, taking into account risk developments at the local, regional, and international levels.

Accept our highest respect,

Governor
Dr. Adel Al-Sharkas

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Required Stress Tests for Banks
Based on End-of-Year 2025 Data

First: Sensitivity Tests
A. Credit Risk Tests:
Banks must perform the following tests concerning an increase in credit risk, calculating the impact on non-performing loans (NPLs), provisions, profits, regulatory capital adequacy ratio, and Tier 1 capital¹:

Test One: Increase in non-performing direct facilities for all economic sectors.

Hypothesis	Increase Percentage
Least Severe (Moderate)	50%
Medium Severity (Medium)	100%
Most Severe (Severe)	150%

Test Two: Default of a portion of performing direct facilities for the top five economic sectors, by classifying these facilities as non-performing.

Hypothesis	Default Percentage
Least Severe (Moderate)	5%
Medium Severity (Medium)	10%
Most Severe (Severe)	15%

Test Three: Default of a portion of performing direct facilities granted to the real estate sector, by classifying these facilities as non-performing.

Hypothesis	Default Percentage
Least Severe (Moderate)	5%
Medium Severity (Medium)	10%
Most Severe (Severe)	15%

¹ According to the regulatory capital instructions under the prevailing Basel III standard.

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Test Four: Default of a portion of performing direct facilities granted to the individuals sector, by classifying these facilities as non-performing.

Hypothesis	Default Percentage
Least Severe (Moderate)	5%
Medium Severity (Medium)	10%
Most Severe (Severe)	15%

Test Five: Default of a portion of personal facilities granted by the bank, by classifying these facilities as non-performing.

Hypothesis	Default Percentage
Least Severe (Moderate)	5%
Medium Severity (Medium)	10%
Most Severe (Severe)	15%

Test Six: Default of a portion of performing direct facilities granted to the Large Corporates sector, by classifying these facilities as non-performing.

Hypothesis	Default Percentage
Least Severe (Moderate)	5%
Medium Severity (Medium)	10%
Most Severe (Severe)	15%

Test Seven: Default of a portion of performing direct facilities granted to Micro, Small, and Medium Enterprises (MSMEs), by classifying these facilities as non-performing.

Hypothesis	Default Percentage
Least Severe (Moderate)	5%
Medium Severity (Medium)	10%
Most Severe (Severe)	15%

Note: Banks must fill out Annex No. (3), which relates to non-performing loan data by borrower entity.

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Test Eight: Default of a portion of performing direct facilities granted to the Tourism, Hotels, and Restaurants sector, by classifying these facilities as non-performing.

Hypothesis	Default Percentage
Least Severe (Moderate)	10%
Medium Severity (Medium)	15%
Most Severe (Severe)	25%

B. Credit Concentration Risk Tests:
Test One: Default of the bank's largest borrowers (excluding Jordanian Government facilities and facilities guaranteed by the Government), by classifying facilities granted to them as non-performing, as follows:

Hypothesis	Default
Least Severe (Moderate)	Default of the largest borrower
Medium Severity (Medium)	Default of the top 3 borrowers
Most Severe (Severe)	Default of the top 6 borrowers

Note: Banks must attach a statement of names and values of facilities granted to the top six borrowers (excluding Jordanian Government facilities and facilities guaranteed by the Government) used in applying the above tests.

Test Two: Default of the bank's largest borrowers (excluding Jordanian Government facilities, facilities guaranteed by the Government, and facilities of the Jordanian Oil Refinery Company and Electricity Companies), by classifying facilities granted to them as non-performing, as follows:

Hypothesis	Default
Least Severe (Moderate)	Default of the largest borrower
Medium Severity (Medium)	Default of the top 3 borrowers
Most Severe (Severe)	Default of the top 6 borrowers

Note: Banks must attach a statement of names and values of facilities granted to the top six borrowers (excluding Jordanian Government facilities, facilities guaranteed by the Government, and facilities of the Jordanian Oil Refinery Company and Electricity Companies) used in applying the above tests.

C. Market Risk Tests:
The primary objective of conducting sensitivity analysis for market risks is to determine the impact of potential changes in market prices on profits and losses, and subsequently on the bank's regulatory capital adequacy ratio and Tier 1 capital. Banks must perform the following tests:

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Shock One: Exchange Rate Risk:

Decrease in the exchange rate of the Dinar:

Hypothesis	Decrease
Least Severe (Moderate)	Decrease in the Jordanian Dinar exchange rate by 15% against other currencies
Medium Severity (Medium)	Decrease in the Jordanian Dinar exchange rate by 20% against other currencies
Most Severe (Severe)	Decrease in the Jordanian Dinar exchange rate by 25% against other currencies

Increase in the exchange rate of the Dinar:

Hypothesis	Increase
Least Severe (Moderate)	Increase in the Jordanian Dinar exchange rate by 15% against other currencies
Medium Severity (Medium)	Increase in the Jordanian Dinar exchange rate by 20% against other currencies
Most Severe (Severe)	Increase in the Jordanian Dinar exchange rate by 25% against other currencies

Shock Two: Interest Rate Risk:
Changes in market interest rates can negatively affect the bank's financial position through their direct impact on the bank's revenues (net interest income) as well as their medium to long-term impact on the market value of the bank's assets and liabilities, which are affected by the interest rate. Sensitivity tests regarding interest rates are applied to both floating and fixed-rate instruments, whether classified in the banking book or trading book. Gap analysis tests are performed as follows:

Gap Analysis Tests²: These tests aim to determine the bank's position regarding the balance of assets and liabilities sensitive to interest rate risks. Within these tests, the following are performed:
Increase in interest rates:

² Repricing risk is one of the most prominent interest rate risks, resulting from the mismatch in maturity dates (for fixed-rate assets) and repricing dates (for floating-rate assets) of banks' assets, liabilities, and off-balance sheet items. For example: If a bank finances a long-term loan with a fixed interest rate using a short-term deposit with a floating interest rate, the bank will face a decrease in future income if interest rates rise. The cause of this decrease is that cash flows from the loan are fixed throughout the loan term, while the interest paid on the deposit is variable. The test begins by determining a schedule to distribute assets, liabilities, and off-balance sheet items sensitive to interest rates within time periods according to maturity dates (for fixed rates) and repricing dates (for floating rates), then determining the impact of interest rate changes on the bank's profits and asset values.

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Hypothesis	Increase in Interest Rates
Least Severe (Moderate)	Increase in interest rates by 100 basis points
Medium Severity (Medium)	Increase in interest rates by 150 basis points
Most Severe (Severe)	Increase in interest rates by 200 basis points

Decrease in interest rates:

Hypothesis	Decrease in Interest Rates
Least Severe (Moderate)	Decrease in interest rates by 100 basis points
Medium Severity (Medium)	Decrease in interest rates by 150 basis points
Most Severe (Severe)	Decrease in interest rates by 200 basis points

Shock Three: Equity Price Decline Risk, where the following tests must be performed:

Hypothesis	Decrease
Least Severe (Moderate)	Decrease in stock prices invested in by the bank by 10%
Medium Severity (Medium)	Decrease in stock prices invested in by the bank by 20%
Most Severe (Severe)	Decrease in stock prices invested in by the bank by 30%

D. Liquidity Risk Tests:
Adequate liquidity availability at the bank depends largely on its ability to meet obligations during financial crises. In addition to the necessity of performing cash flow forecasts to determine cash requirements under normal operating conditions, the bank must perform stress tests by forecasting cash flows based on "What if" scenarios and measuring their impact on the bank's liquidity (legal liquidity ratio and liquidity coverage ratio). In this regard, the bank must perform the following tests:
Outflow Tests³:

Withdrawal of a portion of stable individual deposits:

Hypothesis	Decrease
Least Severe (Moderate)	Withdrawal of a portion of stable individual deposits by 5%
Medium Severity (Medium)	Withdrawal of a portion of stable individual deposits by 10%
Most Severe (Severe)	Withdrawal of a portion of stable individual deposits by 20%

³ The deposit withdrawal percentages required in these tests are applied after applying cash flow rates according to the Liquidity Coverage Ratio (LCR) Instructions No. (2020/5) dated 22/6/2020. Stable deposits are also defined according to these instructions.

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Withdrawal of a portion of unstable individual deposits:

Hypothesis	Decrease
Least Severe (Moderate)	Withdrawal of a portion of unstable individual deposits by 10%
Medium Severity (Medium)	Withdrawal of a portion of unstable individual deposits by 20%
Most Severe (Severe)	Withdrawal of a portion of unstable individual deposits by 30%

Withdrawal of a portion of stable corporate deposits:

Hypothesis	Decrease
Least Severe (Moderate)	Withdrawal of a portion of stable corporate deposits by 5%
Medium Severity (Medium)	Withdrawal of a portion of stable corporate deposits by 10%
Most Severe (Severe)	Withdrawal of a portion of stable corporate deposits by 20%

Withdrawal of a portion of unstable corporate deposits:

Hypothesis	Decrease
Least Severe (Moderate)	Withdrawal of a portion of unstable corporate deposits by 10%
Medium Severity (Medium)	Withdrawal of a portion of unstable corporate deposits by 20%
Most Severe (Severe)	Withdrawal of a portion of unstable corporate deposits by 30%

Withdrawal of a portion of unused limits from individual and small business facilities:

Hypothesis	Decrease
Least Severe (Moderate)	Withdrawal of a portion of unused limits from individual and small business facilities by 5%
Medium Severity (Medium)	Withdrawal of a portion of unused limits from individual and small business facilities by 10%
Most Severe (Severe)	Withdrawal of a portion of unused limits from individual and small business facilities by 20%

Withdrawal of a portion of unused limits from non-financial corporate facilities:

Hypothesis	Decrease
Least Severe (Moderate)	Withdrawal of a portion of unused limits from non-financial corporate facilities by 10%
Medium Severity (Medium)	Withdrawal of a portion of unused limits from non-financial corporate facilities by 20%
Most Severe (Severe)	Withdrawal of a portion of unused limits from non-financial corporate facilities by 40%

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Withdrawal of a portion of unused limits from financial corporate facilities:

Hypothesis	Decrease
Least Severe (Moderate)	Withdrawal of a portion of unused limits from financial corporate facilities by 40%
Medium Severity (Medium)	Withdrawal of a portion of unused limits from financial corporate facilities by 80%
Most Severe (Severe)	Withdrawal of a portion of unused limits from financial corporate facilities by 100%

Withdrawal of the largest customer deposits:

Hypothesis	Decrease
Least Severe (Moderate)	Withdrawal of the largest deposit
Medium Severity (Medium)	Withdrawal of the top three deposits
Most Severe (Severe)	Withdrawal of the top five deposits

Note: Banks must attach a statement of names and values of the top five customer deposits at the bank along with the results of applying the "Withdrawal of Largest Customer Deposits" test.

Decrease in liquid assets:

Hypothesis	Decrease
Least Severe (Moderate)	Decrease in the bank's liquid assets by 5%
Medium Severity (Medium)	Decrease in the bank's liquid assets by 10%
Most Severe (Severe)	Decrease in the bank's liquid assets by 20%

The following liquidity risk tests are applied to the Net Stable Funding Ratio (NSFR)⁴:

Reduction of the weighting factor for liabilities related to stable funding sources (95%):

Hypothesis	Decrease
Least Severe (Moderate)	Reduction of the weighting factor by 5 percentage points to become 90%
Medium Severity (Medium)	Reduction of the weighting factor by 10 percentage points to become 85%

Increase of the weighting factor for assets given a required stable funding factor (85%):

Hypothesis	Increase
Least Severe (Moderate)	Increase of the weighting factor by 5 percentage points to become 90%
Medium Severity (Medium)	Increase of the weighting factor by 10 percentage points to become 95%

⁴ According to the Net Stable Funding Ratio (NSFR) Instructions No. (2024/10).

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

E. Climate-Related Risk Tests:
Climate change is one of the most important risks and challenges facing various countries in the world currently, due to its wide-ranging impacts on various economic sectors borrowing from banks, which increases the likelihood of rising credit risks. Banks must perform the following tests related to two main types of financial climate risks:

1. Physical Risks
These are economic and financial losses resulting from the direct impact of climate-related events, such as unusual weather conditions and their impact on assets, operations, and supply chains. The bank must perform the following tests concerning the occurrence of unusual climate phenomena on the following economic sectors:

Test One: Default of a portion of facilities granted to the Industry sector due to an increase in physical climate-related risk events, by classifying facilities granted to the sector as non-performing, as follows:

Hypothesis	Default Percentage
Medium Severity (Medium)	10%
Most Severe (Severe)	20%

Test Two: Default of a portion of facilities granted to the Agriculture sector due to an increase in physical climate-related risk events, by classifying facilities granted to the sector as non-performing, as follows:

Hypothesis	Default Percentage
Medium Severity (Medium)	10%
Most Severe (Severe)	20%

Test Three: Default of a portion of facilities granted to the Real Estate sector due to an increase in physical climate-related risk events, by classifying facilities granted to the sector as non-performing, as follows:

Hypothesis	Default Percentage
Medium Severity (Medium)	10%
Most Severe (Severe)	20%

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Test Four: Default of a portion of facilities granted to the Tourism, Hotels, and Restaurants sector due to an increase in physical climate-related risk events, by classifying facilities granted to the sector as non-performing, as follows:

Hypothesis	Default Percentage
Medium Severity (Medium)	10%
Most Severe (Severe)	20%

Test Five: Default of a portion of facilities granted to the four sectors mentioned above (Industry, Agriculture, Real Estate, and Tourism, Hotels, and Restaurants) due to an increase in physical climate-related risk events, by classifying facilities granted to these sectors as non-performing, as follows:

Hypothesis	Default Percentage
Medium Severity (Medium)	5%
Most Severe (Severe)	10%

2. Transition Risks
These are financial risks resulting from the transition to a low-carbon economy and their impact on high-carbon-emission economic sectors, including policy changes, technological progress, and market shifts. The bank must perform the following test:
Default of a portion of facilities granted to companies with high carbon emissions, such as mining companies and petrochemical companies, by classifying facilities granted to these companies as non-performing, as follows:

Hypothesis	Default Percentage
Medium Severity (Medium)	5%
Most Severe (Severe)	10%

F. Global Geopolitical Tensions Tests
Banks must perform the following tests concerning the impact of global geopolitical tensions on banks, calculating the impact of the following two scenarios (Multi-Factor Shock) on non-performing loans, provisions, profits, and capital adequacy ratios:

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Medium Severity Scenario:
1. Default of 15% of facilities granted to Tourism, Transport, and Wholesale Importers of Basic Goods sectors, by classifying facilities granted to them as non-performing.
2. Default of 5% of facilities granted to Individuals, by classifying facilities granted to them as non-performing.
3. Decrease in stock prices invested in by the bank by 20%.
4. Decrease in profits of the bank's branches and subsidiaries abroad by 20%, for banks that have foreign branches or subsidiaries.
Most Severe Scenario:
1. Default of 30% of facilities granted to Tourism, Transport, and Wholesale Importers of Basic Goods sectors, by classifying facilities granted to them as non-performing.
2. Default of 10% of facilities granted to Individuals, by classifying facilities granted to them as non-performing.
3. Decrease in stock prices invested in by the bank by 40%.
4. Decrease in profits of the bank's branches and subsidiaries abroad by 40%, for banks that have foreign branches or subsidiaries.

G. Operational Risk Tests
Regarding operational risk tests, the bank must formulate at least three hypotheses for potential operational events and measure their impact on the bank's profitability, regulatory capital adequacy ratio, and Tier 1 capital. These tests must include the following:
Hypothesis One: A test on the likelihood of increased cyberattacks due to the growing cyber risks resulting from increased reliance on financial technology and the increased use of electronic payment methods. Hypotheses Two and Three: Select two tests from the following hypotheses:

An armed robbery at one of the bank's branches.
Internal fraud.
Fire at the bank's buildings.
The bank losing some of the lawsuits filed against it.

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Imposition of a penalty on the bank by the supervisory authority in the home country or host country due to the bank's fundamental violation of any laws, regulations, or instructions, or engaging in unsafe or unsound banking practices, etc.
Occurrence of one of the climate risks (e.g., storms, floods,...) which may result in material losses and cause the disruption of one of the bank's branches.

H. Additional Stress Tests
In addition to the tests specified above, the bank must perform additional tests commensurate with the size and nature of the risks it faces, with no less than one additional test for each type of risk mentioned above.

Second: Scenario Tests
The medium and most severe macro scenarios represent hypothetical cases designed to evaluate banks' ability to withstand shocks. Assuming an increase in the intensity of geopolitical tensions in the world and the Middle East region, and the challenges they pose to the national economy, along with the continued negative repercussions of the Russian-Ukrainian crisis and the resulting rise in basic commodity prices, which may lead to a decline in economic growth rates, an increase in inflation rates compared to expectations, a rise in unemployment levels, and a downturn in the financial market. To measure the impact of these hypotheses on banks, the Gross Domestic Product (GDP) growth rate (economic growth rate) is typically used as one of the key economic variables affecting non-performing loans, and the impact on the bank's regulatory capital adequacy ratio and Tier 1 capital is measured. Economic research indicates that a decline in the economic growth rate leads to an increase in non-performing loans due to the decline in economic activity and consequently the decline in customers' ability to repay their debts. Other variables such as unemployment, inflation rate, and interest rates can also be used to predict non-performing loan ratios.

To predict the non-performing loan ratio for the coming year, a Multiple Regression Analysis methodology is used according to the following model:
NPL(t) = β0 + β1NPL(t-1) + β2X1 + β3X2 + ... + βnXn + e

Where:
NPL(t): Expected non-performing loan ratio as of the end of 2026.
β0: Constant.

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

NPL(t-1): Non-performing loan ratio for the previous year (as of the end of 2025).
X1-Xn: Macroeconomic variables used to predict the non-performing loan ratio (e.g., economic growth rate, unemployment rate, inflation rate, etc.).
β1-βn: Regression Coefficients.

In this regard, banks must perform the following scenarios, noting that the Central Bank will provide banks with the required scenarios annually, which may vary from year to year. A. Baseline Scenario: In this scenario, to determine the values of macroeconomic variables, the forecasts of the Central Bank of Jordan and the International Monetary Fund were relied upon, as shown in Annex No. (4). B. Medium Macro Stress Scenario: A decline in the economic growth rate in the Kingdom in 2026 to 0.6%, an increase in the unemployment rate to 25.1%, and an increase in the inflation rate to 5.0%. C. Severe Macro Stress Scenario: A decline in the economic growth rate in the Kingdom in 2026 to -1.8%, an increase in the unemployment rate to 28.8%, and an increase in the inflation rate to 7.8%.

Please note that the following methodology was used to arrive at the above percentages:
Medium Macro Stress Scenario: The expected economic growth rate for 2026 minus one standard deviation of the economic growth rate data during the period (1994-2025), the unemployment rate for 2025 plus one standard deviation of the unemployment rate data during the period (1994-2025), and the expected inflation rate for 2026 plus one standard deviation during the period (1994-2025). Severe Macro Stress Scenario: The expected economic growth rate for 2026 minus two standard deviations of the economic growth rate data during the period (1994-2025), the unemployment rate for 2025 plus two standard deviations of the unemployment rate data during the period (1994-2025), and the expected inflation rate for 2026 plus two standard deviations of the inflation data during the period (1994-2025).

Annexes

CENTRAL BANK OF JORDAN
البنك المركزي الأردني

Annex No. (1): Sensitivity Test Templates

Template No. 1: Credit Risk Tests
(In Thousands of Jordanian Dinars)

Shock Severity	Profits / Losses	Regulatory Capital	Tier 1 Capital	Risk-Weighted Assets	NPL Provisions	Non-Performing Loans	Post-Shock	Profits / Losses	Regulatory Capital	Tier 1 Capital	Risk-Weighted Assets	Non-Performing Loans	Additional Provisions Resulting from Shock	Impact on Profits / Losses	Capital Adequacy Ratio	Pre-Shock	Tier 1 Capital Adequacy Ratio	Pre-Shock	Post-Shock	Post-Shock
Test One: Increase in non-performing direct facilities for all economic sectors.
Moderate 50
Medium 100
Severe 150
Test Two: Default of a portion of performing direct facilities for the top five economic sectors, by classifying these facilities as non-performing.
Moderate 5
Medium 10
Severe 15
Test Three: Default of a portion of performing direct facilities granted to the real estate sector, by classifying these facilities as non-performing.
Moderate 5
Medium 10
Severe 15
Test Four: Default of a portion of performing direct facilities granted to the individuals sector, by classifying these facilities as non-performing.
Moderate 5
Medium 10
Severe 15
Test Five: Default of a portion of personal facilities granted by the bank, by classifying these facilities as non-performing.
Moderate 5
Medium 10
Severe 15
Test Six: Default of a portion of performing direct facilities granted to the Large Corporates sector, by classifying these facilities as non-performing.
Moderate 5
Medium 10
Severe 15

Lineage: No known changes

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