Massive deposit withdrawals bring Jordan Gulf Bank to verge of collapse

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Massive deposit withdrawals bring Jordan Gulf Bank to verge of collapse

The sudden decision, announced by the Central Bank of Jordan (CBJ) on Sunday, February 2, to dissolve the board of directors of Jordan Gulf Bank (JGB) and appoint a managing committee for the troubled financial institution, came as a surprise to the bank’s clients. In their panic, many rushed to draw their deposits, bringing the bank to the verge of bankruptcy.

Banking sources in Jordan revealed to menareport.com that some 16.5 millions Jordanian dinars ($23 million) were withdrawn from JBG accounts over the past two days. This is turn left the bank’s liquidity ratio at below 20 percent, exposing the bank to the risk of bankruptcy. CBJ’s move itself brought down JGB’s share price by five percent on the Amman’s Stock Exchange (ASE).

The managing committee, headed by a member of CBJ’s board of directors, Thabet Al-Taher, is hoped to strengthen the bank’s financial standings ahead of JGB’s anticipated merger, reportedly with the Cairo Amman Bank. Al-Taher stated that all of JGB’s branches continued to operate as usual.

Tuqan stressed that the measure was intended to guarantee the stability of the kingdom’s banking system and to protect the public’s funds. He voiced a reassurance to depositors that their savings would be protected entirely in case of merger. Similar measures where taken by the CBJ towards Philadelphia Investment Bank.

CBJ’s surprise move sparked resentment among the bank’s main shareholders and its management. The bank’s vice chairman, Fuad Bjali, has resigned earlier this month. JGB’s Deputy Chairman Ayamn Al-Majali, told menareport.com that the decision was hasty and lacked the essential technical basis. He added that it involved personal considerations in dealing with the bank.

Al-Majali told menareport.com that the bank’s management has called a meeting of the general assembly to study the central bank’s decision. He asserted that a large number of shareholders are expected to file a legal appeal against the decision.

Earlier this week, Al-Majali submitted a memorandum to the chairman CBJ’s board of directors, a copy of which obtained by menareport.com, calling on the board to take into consideration JGB’s reform plan presented by the bank’s former chairman, Nabil Barakat. “CBJ’s management did not bother to discuss the proposed reform plan with the dissolved board but instead took a unilateral decision on an official holiday,” Al-Majali told menareport.com. CBJ’s governor was unavailable for comment.

Majali also complained of lack of cooperation on part of the central bank, despite JGB’s compliance with instructions and adherence to the reform plan. “Despite the lack of clear response from the central bank and our apparent compliance with all its instructions, we were headed to achieving positive results, 41 percent over any other Jordanian bank, by broadening the bank’s client base. We generated about three million JD’s in profits in the second half of the last fiscal year,” Al-Majali wrote in his memorandum.

He added the “outgoing board of directors also drew a strategic plan for the year 2003 that would generate five million JD’s in net profit as evidenced by the January 2003 results but regrettably the central bank did not take all this into consideration.”

Majali concluded saying, “Despite this promising start, CBJ’s decision has hardly hit JGB’s reputation, the Jordanian economy and the investment environment. This will make the task of any new management very difficult if not impossible. The responsibility for all of this will fall solely on CBJ’s governor, from both the personal and legal points of view. This confused policy will undoubtedly harm the national economy and its reputation. Investors and shareholders will present all the details to the King who is the constant and only guarantee for us all.”

JGB is one of three banks were involved in a lending scandal that surfaced in February 2002. The bank extended an 8.5 million Jordanian Dinar loan to Majd Sami Al-Shamaylih, without demanding adequate collateral. JGB filed a lawsuit against local businessman who fled the country, demanding to freeze his assets.

The affair dealt a serious blow to the bank as investor confidence diminished. JGB accumulated a total of JD19.70 million in losses in the past several years. Credit facilities extended by JGB in the first six months of 2002 showed a 17.84 percent decline, reaching JD230.47 million, as compared to JD280.5 million in the comparable period in 2001.

The bank’s deposits in the first nine months of 2002 totaled JD213.9 million, down 42.2 percent from 256.1 million the year before. Established as a public shareholding company in May 1977, JGB offers commercial banking services through its 22 branches and two working offices in Jordan and Palestine. — (menareport.com)

At the same time, JGB’s General Manager Mohammed Kamel Abu Areedah reassured that the bank’s financial standing was sound. He estimated that panic among some people would soon come to an end. He stressed that the bank’s financial indicators showed very good results over the past few months. JGB, he said, had generated three million JDs in net profits in the second half of fiscal year 2002 and 228,000 JD’s in net profits in January 2003. He asserted that his bank had no liquidity problem.

Abu Areedah reassured depositors that their money was in safe hands and that the bank continues carry on business as usual. He added that the bank’s management has set out a strategic plan to bolster JGB’s competitive edge, its profitability and services. The management targeted no less than 19 million JDs in operating profits this year and a decrease in expenses and to improve the bank’s financial performance. — (menareport.com)

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