Mergers among commercial banks in Jordan has become a necessity to enable financial institutions to deal with the upcoming challenges and the expansion of banking operations, bankers said on Saturday, January 20. The issue came back into the spotlight following comments made by Prime Minister Ali Abul Ragheb during his visit last week to the Central Bank of Jordan where he urged commercial banks, especially small banks to merge.
During his meeting with the CBJ's Governor Omayya Touqan, Abul Ragheb said the government encourages banks to merge to form more efficient institutions that can more effectively play a leading role in the national economy.
The premier said that larger and stronger financial entities are needed to enhance the bank's investment portfolios and also win public confidence and investors.
During the Lower House's last week debate on the 2001 Budget Law, lawmakers also recommended that banks merge. But bankers said that such a step among commercial banks would only be viable when necessary incentives are given to institutions to encourage them to merge.
“The commercial banks cannot expand activities and launch new services without mergers,” said Abdul Qadir Dweik, director general of the Housing Bank for Trade and Finance (HBTF). “Such goals can not be achieved without increasing capital, improving administrative skills and restructuring the type of work,” Dweik told the Jordan Times. Such goals could be attained either by merger or acquisition, he added.
Among the services merged banks can more effectively introduce are home and mobile banking, long-term financing, the banker said. “Small entities will not be able to compete and record good profits as long as they remain unchanged,” said Mifleh Aqil, a banker.
“If they do not merge, they will not be able to achieve good financial results which will push the shareholders to force the management to merge to safeguard their rights,” Aqil added.
He predicted that mergers among small banks will see the light in the next three years.
At least 18 commercial and specialized banks are operating in Jordan, in addition to four foreign banks. Many banks have recorded a decline in their profits in the past three years. In 1998, the CBJ demanded commercial banks increase their capital to JD20 million to enable them to enhance their performance and expand their work.
Talks between HBTF and the Union Bank for Saving and Investment have not yet succeeded to merge as anticipated by officials from the two banks. No reason was given by these officials for the delay for their proposed merger despite speculation that the two banks would merge by the end of last year.
According to Aqil and Dweik, the control of the board of directors of some small banks is among the reasons that prevent mergers. “Some people on the board of directors of these banks are willing to keep their grip on the banks in order to continue the control their families have on the banks,” Aqil said.
“Mergers among banks is a national necessity,” Dweik said. “But some people are putting their own interests ahead of the interests of the nation. This trend should stop,” Dweik added. — ( Jordan Times )
By Tareq Ayyoub
© 2001 Mena Report (www.menareport.com)
