Building on the previous year's 3.2% GDP growth, the Jordanian economy expanded by an estimated 4.1% in 2010, supported by a reduction in the Central Bank of Jordan's rediscount rate to 4.25%. However, inflationary trends reasserted themselves as consumer prices rose on average by some 5.0% compared with the -0.7% year-on-year enjoyed in 2009 as a result of the drop in international commodity prices. The current account deficit, although improved over 2009, remained stubbornly high.
The results of the November elections to Jordan's lower house represented a vote of confidence in the government, with progovernment loyalists capturing a large proportion of the seats. Despite some local demonstrations following recent events in Tunisia and Egypt, Jordan continues to enjoy relative peace and stability, which in turn should ensure the continuation of international donorsâ€™ support.
Meanwhile, a new tax law enacted in 2010 reduced the rate of taxation on banksâ€™ profits by 5% to 30%, which will have done much to encourage credit expansion by Jordan's established banks, as well as the three new foreign banks â€“ one of them a major Islamic banking competitor â€“ which opened for business in 2010.
Total assets at Jordan Islamic Bank (Al Baraka Jordan) expanded over the year by 19% to $3.67 billion as its outstanding financings and investments rose in aggregate by 16% to $2.06 billion, of which the main contributors were the murabaha sales receivables and the Ijara Muntahia Bittamleek portfolios. This expansion was in turn funded by a 21% increase in its total customer deposits and unrestricted investment accounts which ended the year at $3.30 billion in aggregate, as the URIAs ended the year at $2.30 billion or 21% up on the previous year while customersâ€™ current and other accounts rose in total to $943 million, an increase of 12%.
The bank's total income from jointly financed contracts and investments rose slightly to $142 million. After accounting to the URIA investors for their share, which amounted to $66 million, the balance earned by the bank including its share as Mudarib was 11% higher than in 2009 at $76 million. The income earned from its own sales and investments, Mudarib share from the restricted investment accounts, revenue from banking services and other operating income contributed a further $25 million, bringing the total operating income for the year to $101 million, 6% higher than 2009's $96 million. Operating expenses at $44 million were nearly identical to those for 2009, leaving the bank with a net operating income of $57 million which, after provisions and taxation charge, produced a net profit for the year of $41 million, 4% higher than the profit recorded for 2009.
During 2010 Al Baraka Jordan opened four new branches and three new cash offices, expanding its network to 60 branches and 12 cash offices. It also added 9 machines to its ATM network, bringing the total to 84, all linked to the Jordanian national payment network and to Visa International worldwide. It intends to further expand these networks over the next 5 years, opening 3 more branches in 2011 followed by a further 8 by 2015.
Adding to Al Baraka Jordan's already successful product range, the bank set up a brokerage subsidiary which was well received in the market. It also extended its SMS and e-banking services, in addition to expanding its Ijara Muntahia Bittamleek and Murabaha portfolios. Meeting its Basel II implementation deadlines, it completed the integration of Pillar 2 and the internal capital adequacy assessment process (ICAAP), while also strengthening its Know Your Customer (KYC) and Anti- Money Laundering (AML) processes. In accordance with the Groupwide Unified Corporate Identity programme, the bank successfully completed its transition to the Group's unified identity in June 2010 and unveiled its new Al Baraka logo. This move will undoubtedly help to reinforce the already strong brand equity enjoyed by Jordan Islamic Bank in the Jordanian market.
In August Al Baraka Jordan was rated by Standard & Poor's for the first time. S&P assigned it a long term counterparty credit rating of BB/B (Short Term) with Stable Outlook. However, in view of the political developments in the country in February 2011 S&P lowered Jordan's sovereign long term and short term local currency ratings to BB+/B and the outlook to Negative from Stable. Due to these changes in the sovereign ratings for Jordan, the outlook for Al Baraka Jordan was lowered in tandem from Stable to Negative. However, in view of Al Baraka Jordan's strong financial position, S&P nevertheless affirmed its original ratings, in doing so remarking on the bank's overall resilience, good track record in terms of asset quality, satisfactory funding and liquidity profile supported by a strong retail franchise and its leading position in the Islamic banking market in Jordan. S&P also hailed the bank's strategy, with its emphasis on sustained growth, the further enhancement of its systems and integration within the Group.
Mr. Musa Shihadeh
Vice Chairman & Chief Executive Officer
P.O Box 926225,
Tele: + 9626 567 7377
Fax: + 9626 566 6326