Regulatory Alerts2023-11-15
Added · Updated
Instructions on Financial Soundness Indicators and Their Limits for Exchange Companies No. (3/2023)
The Central Bank of Jordan issues Instructions No. (3/2023) establishing mandatory financial soundness limits for exchange companies, effective November 15, 2023. The regulation requires companies to maintain a liquidity ratio of at least 65%, limit fixed assets to 20% of paid-up capital, cap total assets at five times paid-up capital, and restrict single-party exposure to 40% of paid-up capital. Additionally, companies must settle annual losses within two weeks, provision debts over 60 days old at 100%, and submit monthly compliance schedules to the Bank by the tenth day of the following month.
In the Name of Allah, the Most Gracious, the Most Merciful
[Logo of the Central Bank of Jordan]
Number: 2/9/15049 Date: 15 / 5 / 1445 AH Corresponding to: 15 / 11 / 2023 AD
Instructions on Financial Soundness Indicators and Their Limits for Exchange Companies No. (3/2023) Issued pursuant to the decision of the Board of Directors of the Central Bank No. (44 / 2023) dated 2023/11/15 In accordance with the provisions of Article (17/b) of the Exchange Business Law No. (44) of 2015
Article (1): These Instructions shall be known as "Instructions on Financial Soundness Indicators and Their Limits" and shall come into effect as of 15 / 11 / 2023.
Article (2): The definitions set forth in the Exchange Business Law shall apply wherever referenced in these Instructions, unless the context indicates otherwise.
Article (3): For the purposes of these Instructions, the Company's liquidity shall be calculated using the equation shown in Schedule No. (1), and this ratio must not at any time fall below (65%). This must ensure that the Company has cash in its vault and/or banks equivalent to the total value of all pending incoming remittances. The aforementioned ratio shall be calculated according to Schedule No. (1).
Article (4): The ratio of the Company's total fixed assets to its paid-up capital must not at any time exceed (20%). This ratio shall be calculated according to Schedule No. (2).
Article (5): Subject to the provisions of Article (4), the total assets of the Company (excluding assets recognized in accordance with the provisions of International Financial Reporting Standard No. (16) / Leases) must not at any time exceed five times the amount of its paid-up capital. This ratio shall be calculated according to Schedule No. (3).
Article (6): The debtor or creditor balance resulting from the Company's dealings with a single external or internal party must not at any time exceed (40%) of its paid-up capital. This ratio shall be calculated according to Schedule No. (4). In case of exceeding this limit, the Company must provide the Bank with a comprehensive explanation including the reasons and justifications for the breach, accompanied by the aforementioned schedule.
1 Form (1/1-09/01)
CENTRAL BANK OF JORDAN البنك المركزي الأردني
Article (7): If (60) days have passed on the Company's debts owed to any internal or external parties, a provision must be made for them, such that the amount of the provision is not less than (100%) of the value of these debts.
Article (8): a. The Company must settle its annual losses within a maximum period of two weeks from the date of notification by either charging the losses against retained earnings of previous financial periods or paying them from the partners' personal funds. In all cases, the Bank must be notified in writing. b. Profits shall be distributed within a maximum period of two weeks from the date of notification by the Bank, after deducting reserves in accordance with the provisions of the prevailing legislation on this matter. The Company may carry forward its profits after its final financial statements are approved by the Bank. c. Notwithstanding the above provision (b), the Bank has the right to request the Company to carry forward all or part of its profits. d. Profits shall not be distributed unless all losses from previous financial periods (if any) have been fully settled. e. The Bank may, at any time, request any company to deduct any additional special reserves commensurate with the Company's risks and to enhance the soundness of its financial position.
Article (9): Under no circumstances shall the Company's actual cash balances differ from those recorded in its books. Taking relative materiality into account, any shortage in its actual balance compared to the recorded balance shall be treated as a shortage in paid-up capital.
Article (10): General Provisions: The Company must adhere to the following:
- Prepare a clear and duly approved policy detailing the total volume of individual and aggregate transaction limits with its correspondents abroad and/or other licensed exchange companies, and the approved controls for managing its liquidity risk. This must be implemented in practice, including settling all transactions such that any outstanding amounts are settled on a first-come, first-served basis.
- Prepare a clear and duly approved policy for granting loans to Company employees. This policy must include individual and aggregate limits for these loans based on the Company's paid-up capital, without affecting its liquidity. Additionally, the Company must maintain a schedule listing the names of employees granted such loans, their balances, the guarantees provided against them, and their repayment schedules. The Company must also retain all supporting documents and related records, and provide the Bank with the net balances of granted loans and their ratio to the Company's paid-up capital according to Schedule No. (5).
- Prepare a policy for managing the Company's transactions involving the import and export of foreign currency notes, coins, and precious metals, as well as its transactions in precious metals. This policy must ensure that the Company's financial position is not compromised and that its other exchange transactions are conducted smoothly. The Company must provide the Bank with data according to Schedule No. (6).
2 Form (1/1-09/01)
CENTRAL BANK OF JORDAN البنك المركزي الأردني
- Prepare a clear and duly approved policy related to pending remittances at the Company. This policy must include, at a minimum, the Company's obligation to retain the value of incoming remittances for old dates until the beneficiaries receive them, or until the Company receives any specific instructions regarding them. The Company must establish all controls to monitor these accounts and transactions, while ensuring compliance with prevailing legislation, including those related to statutes of limitations on funds.
- Segregate contractual guarantees with external parties dealing with the Company in separate accounts from the existing debtor/creditor accounts for those parties.
- Establish a policy for managing cash available at the Company's branches. This policy must include, at a minimum, aligning the volume of cash available at the branch with the volume of its transactions to provide the necessary liquidity for its operations, and determining the amount of cash allowed to be kept in the branch's safes.
- Possess automated systems that enable the implementation of these Instructions, the calculation of the ratios and limits contained therein, and the maintenance of organized records documenting continuous compliance monitoring at all times.
Article (11): If the Bank determines that the Company has violated any of the provisions of these Instructions in a manner that affects the soundness of its financial position, the strength of its financial center, and the protection of counterparties' rights, and with the aim of ensuring the continuity of the Company's business, the Bank shall take the necessary measures in accordance with the provisions of Article (26) of the prevailing Exchange Business Law.
Article (12): The Company must provide the Bank with the schedules attached to these Instructions, as well as all ratios and limits contained herein, on a monthly basis no later than the tenth day of the month following the end of the period for which the schedule is prepared.
Article (13): All provisions conflicting with these Instructions are hereby repealed.
[Signature] Governor Dr. Adel Al-Sharkas
3 Form (1/1-09/01)
CENTRAL BANK OF JORDAN البنك المركزي الأردني
"Appendix" Calculation Mechanism for the Indicators Stated in the Instructions
Schedule No. (1): Liquidity Ratio
| Numerator of the Ratio | ||
|---|---|---|
| Item | Amount | |
| Add | Cash in Vault in JOD and its equivalent in foreign currencies | |
| Cash in Banks in JOD and foreign currencies * | ||
| Precious Metals | ||
| Debtor balances of Correspondents | ||
| Deduct | Creditor balances of Correspondents | |
| Pending Unsettled Remittances | ||
| A. Net Numerator |
| Denominator of the Ratio | ||
|---|---|---|
| Add | Paid-up Capital or Shareholders' Equity, whichever is higher | |
| Loan from Partners in the Company / Credit from Licensed Banks in the Kingdom ** | ||
| Deduct | Existing Cash Guarantees against the Financial Guarantee provided to the Central Bank | |
| B. Net Denominator | ||
| Ratio | Net Numerator (A) / Net Denominator (B) |
- For the purpose of calculating this ratio, any restricted amounts shall be deducted, including existing cash guarantees against the financial guarantee provided to the Central Bank. ** Excluded if the purpose of obtaining the loan/credit is to finance the purchase of fixed assets.
4 Form (1/1-09/01)
CENTRAL BANK OF JORDAN البنك المركزي الأردني
Schedule No. (2): Fixed Assets Ratio*
| (A) | (B) |
|---|---|
| Fixed Assets | Cost at Net Book Value (after deducting impairment and depreciation provisions) |
| 1 | |
| 2 | |
| 3 | |
| 4 | |
| 5 | |
| Total | |
| Ratio (Total / Paid-up Capital) |
- Fixed Assets: Tangible assets held by the Company solely for the purpose of conducting exchange business, expected to be used for more than one financial period. It is required that fixed assets be registered in the Company's name.
Schedule No. (3): Total Assets Ratio of the Company
| (A) |
|---|
| Total Assets of the Company (excluding assets recognized in accordance with the provisions of International Financial Reporting Standard No. (16) / Leases) |
| Ratio (A / Paid-up Capital) |
5 Form (1/1-09/01)
CENTRAL BANK OF JORDAN البنك المركزي الأردني
Schedule No. (4): Debtor or Creditor Balance Ratio*
| Counterparty | Ratio (Debtor Balance / Paid-up Capital) | Ratio (Creditor Balance / Paid-up Capital) |
|---|---|---|
| 1 | ||
| 2 | ||
| 3 | ||
| 4 | ||
| 5 | ||
| 6 | ||
| 7 | ||
| 8 | ||
| Total Debts | ||
| Ratio (Total / Paid-up Capital) |
- Deduct provisions for doubtful debts (if any).
6 Form (1/1-09/01)
CENTRAL BANK OF JORDAN البنك المركزي الأردني
Schedule No. (5): Loans Granted to Company Employees as of ............
| (A) | ||
|---|---|---|
| Net Loan Balances | Ratio (A / Paid-up Capital) | Total Limit according to Company Policy |
Schedule No. (6):
A. Precious Metals:
| Precious Metal | Quantity in "Grams" | Value in JOD | Ratio (Value in JOD / Paid-up Capital) |
|---|---|---|---|
| Total |
B. Import and Export of Foreign Currency Notes, Coins, and Precious Metals:
| Total Value of Import and Export Transactions of Foreign Currency Notes, Coins, and Precious Metals in JOD | Daily Average of Shipping Operations during the Period (Total / Number of Days in Period) | Daily Average of Shipping Operations to Paid-up Capital |
|---|---|---|
| Import | Export | Import |