In the pleasant city of Amman, the restaurants are full, the streets are clean and the people are calm. But many of the tourists who bring in much of the country’s much-needed foreign exchange have been scared away by George W Bush’s war on terror; who wants to visit Petra when you might get hit by a missile from a passing US or Israeli plane?
Even so, many aid workers have sought the comparative calm in Jordan, away from the bombers and Saddam Hussain supporters who continue to destabilise Iraq. But even though people in Jordan act normally, they know that things could change in a heartbeat. “We are sitting on a volcano,” says one Jordanian UN official.
Even in the office of deputy prime minister and minister of trade and industry Mohammad al Halaiqa, he openly admits that long-term planning counts for nothing in this region. “The economy is doing fine,” he says. “But we are living between two fires. You cannot make five or 10-year plans in such a climate. Now with the Israelis’ strikes against Syria, the situation there will only get worse.”
Expansion moves
In the circumstances, it is remarkable to learn that Jordan’s Housing Bank for Trade and Finance is expanding its reach into neighbouring Syria and Iraq, bringing new banking techniques to countries that have for decades operated under tight governmental control. The bank has been spurred by a recent Syrian government decision to allow foreign banks to set up branches in the country. It has finalised an Initial Public Offering that paves the way for investors to own 51% of the new bank’s shares, which will be known as the International Bank for Trade and Finance.
“We expect the bank to start operating in the first quarter of next year, providing fully fledged commercial activities that are new to Syria,” says Omar Malhas, the executive manager of the foreign relations department of the Housing Bank.
Although Syria appears poised for economic liberalisation, progress is slow. The Syrian government is demanding a host of bureaucratic procedures from new banks in order to obtain an operating licence. The Arab Bank has also obtained preliminary approval for setting up a bank there. The final application will be filed at the end of November. “Once we are licensed we are planning to carry out all commercial banking activities, hoping the laws and regulations governing the Syrian market will have been reformed by the time the new banks will start their operations,” said a spokesman.
The Syrian market is very important and well known to Arab Bank. It opened its first branch in Syria in 1943, opening and operating a further seven until 1961, when banks were nationalised.
The Housing Bank is also gearing up to move into the Iraqi market. According to Mr Malhas, the bank is already working closely with a number of Iraqi banks, and is still debating on whether to assist the banks in their financial transactions or establish its presence in Iraq. “We are helping Iraqi banks to stand on their own feet through providing commercial banking transactions, issuing letters of credit, arranging payment orders or remittances. Both ways, we will be benefiting Jordan.”
Plans for Iraq
Wherever you find the Housing Bank, the Arab Bank is not far behind. According to the same spokesman, who did not want to be identified: “We also have plans to go back to Iraq, where we had four branches from 1945 until 1964 when they were nationalised. We are watching the scene there and waiting for the right moment to reopen our branches.”
For the past two years, the Housing Bank has expanded its presence in selective markets. Early this year, the bank opened a subsidiary in Algeria, and established a branch in the tiny oil-rich Gulf state of Bahrain.
“State-of-the-art banking is new to the area, we want to implement all modern practices within the legal framework,” says Mr Malhas.
Meanwhile, while the bank is targeting and negotiating a number of other major deals, it has already become the lead arranger and financial adviser for a $270m project finance deal (on a 30-year build-own-operate-transfer basis) – the Jordanian Gas Transmission Pipeline Project – which plans to build a natural gas pipeline that extends from Aqaba in southern Jordan to Rehab in the north. This project represents the second phase of the Arabian Gas Pipeline Project, which aims at satisfying the natural gas needs of Jordan, Syria, Lebanon, Turkey and Cyprus through a 36-inch pipeline.
High-profile deal
“We see this deal as a qualitative leap for the bank,” says Ihab Saadi, executive manager of corporate finance at the Housing Bank. “We are in the process of arranging the $160m term loan on a Libor plus fixed margin basis. We are also assisting the consortium in raising $55m of the $93m equity from Jordanian and regional investors.” Mr Saadi adds that this high-profile deal will boost the bank’s credentials, employing a significant amount of financing, up to $30m–$40m of the bank’s funds, contributing to the bank’s profitability and positioning the bank as a key player in the project finance business. He considers this deal to be a major achievement for Jordan’s infrastructure development plans and one that creates major energy cost-savings for the country.
Once again, the Arab Bank is not far behind. According to the same spokesman, his bank is bidding for the same project. He says that even if its consortium does not win the contract, Arab Bank expects to be lead arranger of the financing package. In addition, Arab Bank is finalising the financing for a wastewater treatment plant in Samra. The Samra Wastewater treatment plant is a build-operate-transfer, the first of its kind in Jordan.
Businessmen complain that money is expensive in Jordan. For example, the Housing Bank’s prime lending rate currently stands at 6.5% annually in local currency, the Jordanian Dinar. This rate is offered to the bank’s best clients. Lending, however, is considered expensive in Jordan compared with other countries in the region. Banks complain about a high default on loans as a result of the economic conditions in Jordan, brought about by the Iraqi war and the Palestinian Intifada next door.
Central Bank change
The Central Bank of Jordan requires the country’s commercial banks to deposit 8% of their reserves with it – an improvement from 1993, when it required deposits of 15% of their reserves. According to the Arab Bank spokesman, they are hoping for a better year in 2004. “We don’t know of any new legislation impacting the banking sector for the coming year so it is expected that this sector will have a much better performance in 2004 than it did in the previous year.”
