Key Charts. Monthly Chart Book April Issue. ARBK Deal and Cash Transfers to JOPT Weigh on Foreign Reserves, Loans to Deposits Ratio Surpasses 70%

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1 Monthly Chart Book Issue Key Charts ARBK Deal and Cash Transfers to JOPT Weigh on Foreign Reserves, Loans to Deposits Ratio Surpasses 70% The Federal Open Market Committee (FOMC) raised the fed fund rate to 0.75%-1.00% in. The committee reconfirmed their December projection for a total of three rate hikes in 2017 and 2018 each. The Central Bank of Jordan (CBJ) followed FOMC s footsteps to raise short term interest rates in in a bid to curb dollarization and preserve the attractiveness of the Jordanian Dollar. The CBJ has increased its benchmark rate by one percentage point since December 2016 amid a drop in Foreign Currency (FC) reserves. Although higher interest rates should translate into higher Net Interest Margins (NIMs), we expect minimal impact on Jordanian banks given the intense competition on both sides of the balance sheet (loans and deposits), and the absence of an effective interbank market through which liquidity can flow smoothly among banks with varying liquidity needs. In February, total deposits fell by 2.1% m/m pulling the yearly growth in deposits to the negative territory (-1.5%). On a yearly basis, private sector deposits remained almost unchanged (0.1%), while public sector deposits fell sharply (Feb % y/y), likely due to: 1) the withdrawal of some deposits by the Social Security Corporation (SSC) to participate in government bond issues, 2) mobilizing some government deposits from commercial banks into the Single Treasury Account with the CBJ. On the other hand, direct credit facilities grew by 0.6% during February (8.9% y/y) to reach JOD23.2 billion, driven by a monthly lending growth of 6.7%, 4.4%, and 3.2% to agriculture, industry and construction sector respectively. Consequently, the loans to deposits ratio stood at 71.8% at the end of February, surpassing the 70% threshold for the first time since 2013; a sign of liquidity squeeze in the system. Weighted average interest rates on demand and saving deposits fell by 9bps m/m to 0.21% at the end of February, while interest rates on saving and time deposits increased by 5bps and 6bps during the month to reach 0.61% and 3.10% respectively. 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, % 23.0% 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 75.0% 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% FC Reserves (USD million) FC Deposits to total Deposits Loans to Deposits This report must be read with the disclaimer at the end of the report 1

2 The dollarization trend reversed in February with foreign currency deposits to total deposits falling to 22.0% from 22.4% in the previous month as foreign currency deposits fell from JOD7.4 billion in to JOD7.1 billion in February. However, foreign deposits level remains elevated compared to historical levels. The dollarization wave has been triggered by rising concerns over the USDJOD peg. Jordan s Banking Sector However, we continue to be confident about the prospects of the peg and we see the current USD/JOD interest rate spread to be very attractive in a risk-adjusted basis. The downward trend in FC reserves persisted in falling to USD11.5 billion, down from USD 11.6 billion in February and USD12.9 billion in December The drop was mainly attributed to Arab Bank s deal last February, in which Jordanian and Arab investors acquired a 20% stake in the Arab Bank for USD1.12 billion, in addition to cash transfers to Jordan Petroleum Refinery, and the establishment of the government s Unified Treasury Account. Our outlook on FC reserves remains positive, buoyed by the pledge of the Iraqi authorities to reopen and replenish Trebil cross border, the improved conditions in the GCC supported by higher oil prices, and the commitment of Saudi Arabia to finance mega projects in the kingdom. Currently, we are awaiting Q1 results for Jordanian banks. We expect to see tepid results as we believe that rising interest rates, fierce competition on liquidity, limited demand on credit by creditworthy individuals and corporates, and eroding purchasing power resulting from rising inflation should all have an adverse impact on banks growth and profitability. we still believe that only large banks, particularly Arab Bank and The Housing Bank for Trade and Finance are in a good position to reap the benefits of an increase in interest rates given their large stock of cash and cash equivalents. 2

3 34,000 33,000 32,000 31,000 30,000 29,000 28,000 27,000 26,000 25,000 Total Deposits (JOD million) 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% Deposits Growth %MoM %YoY RHS 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% FC Deposits to total Deposits Deposits By Type 24.0% 23.0% 22.0% 21.0% Demand 31% 20.0% 19.0% 18.0% 17.0% Time 53% Saving 16% 25,000 20,000 15,000 10,000 5,000 Direct Credit Facilities Extended by Licensed Banks (JOD million) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Growth in Direct Credit Facilities % MoM % YoY - 0.0% -2.0% -4.0% 3

4 25,000 Domestic Credit Extended to Private Sector (JOD million) 75.0% Loans to Deposits 20,000 15, % 65.0% 60.0% 10, % 5, % 45.0% 40.0% Interest Rates on Deposits 6.00% Demand Saving Time 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Interest Rates on Loans 11.0% Prime Lending Rate Overdrafts 10.5% Loans and Advances Discounted Bills & Bonds 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% Arab spring, Egyptian gas supply disruptions, NEPCO losses at unprecedented levels FC Reserves (USD million) GCC grant, several Eurobond issues, contractionary monetary policy prioritizing the attractiveness of JOD over growth coupled with fiscal reforms Geopolitical tensions & worsening financial conditions in the GCC adversely impacting remittances, tourism, FDIs and most importantly exports USD1.0 bn Eurobond Arab Bank deal, cash transfers to JOPT, and the establishment of the Unified Treasury Account

5 JOD Million, unless otherwise stated August December February Total Deposits 33,260 33,292 32,850 32,902 32,900 33,016 32,317 % MoM 0.54% 0.10% -1.33% 0.16% 0.00% 0.35% -2.12% % YoY 3.54% 3.24% 1.45% 1.44% 0.92% 1.26% -1.49% Private Sector Deposits 30,458 30,553 30,290 30,463 30,430 30,634 29,948 % MoM 1.03% 0.31% -0.86% 0.57% -0.11% 0.67% -2.24% % YoY 4.20% 3.70% 2.56% 2.43% 1.84% 2.48% 0.10% Domestic Credit 32,320 32,534 32,620 32,179 31,869 32,000 32,268 % MoM 1.31% 0.66% 0.26% -1.35% -0.96% 0.41% 0.84% % YoY 7.83% 7.55% 6.82% 4.73% 4.11% 4.32% 3.97% Direct Credit Facilities (DCFs) 22,313 22,448 22,499 22,737 22,906 23,045 23,193 % MoM 0.25% 0.60% 0.23% 1.06% 0.74% 0.61% 0.64% % YoY 8.27% 7.73% 7.06% 8.02% 8.54% 8.93% 8.90% DCFs Extended to: Mining Sector % MoM -4.78% 2.99% 2.46% 14.11% -0.65% 4.16% 0.23% % YoY 36.37% 26.36% 23.92% 51.83% 69.45% 50.65% 48.76% Construction Sector 5,228 5,233 5,466 5,549 5,828 5,830 6,016 % MoM -0.64% 0.09% 4.46% 1.52% 5.01% 0.04% 3.20% % YoY 8.56% 8.52% 11.76% 12.31% 18.82% 17.24% 19.42% Industrial Sector 3,899 3,982 3,905 3,960 4,076 4,120 4,190 % MoM 1.34% -1.73% 0.81% -1.27% 0.38% -1.84% 4.38% % YoY -0.89% -1.93% 0.78% -1.21% 2.68% -1.27% 2.20% Interest Rates On: Demand Deposits 0.24% 0.24% 0.24% 0.24% 0.26% 0.30% 0.21% Saving Deposits 0.60% 0.58% 0.56% 0.64% 0.56% 0.56% 0.61% Time Deposits 2.95% 3.00% 3.00% 3.04% 3.04% 3.04% 3.10% Overdrafts 7.62% 7.76% 7.65% 7.64% 7.60% 8.02% 7.86% Loans and Advances 8.01% 7.99% 8.05% 7.90% 7.83% 7.92% 7.89% FC Reserves (USD Million) 12,667 12,584 12,063 12,709 12,883 12,151 11,621 11,534 % MoM 1.01% -0.66% -4.14% 5.36% 1.37% -5.68% -4.36% -0.75% % YoY % % % -9.72% -8.98% % % % 5

6 Research Contacts: Mohammad A. Al Zou bi, CFA Senior Financial Analyst Tel: Ext Mohammad.alzoubi@capitalinv.com Trading Contacts: Khaldoun Al-Zou bi Head of Local Brokerage Tel: Ext Khaldoun.zoubi@Capitalinv.com Customer Service: Sawsan Saleh Head of Customer Service Tel: Ext Sawsan.Saleh@Capitalinv.com Disclaimer The information and opinions contained in this document have been compiled in good faith from sources believed to be reliable. Capital Investments makes no warranty as to the accuracy and completeness of the information contained herein. All opinions and estimates included in this report constitute and reflect our independent judgment as of the date published on the report and are subject to change without notice. Capital Investments accepts no liability whatsoever for any loss of any kind arising out of the use of all or any part of this report. Capital Investments and its related companies may have performed or seek to perform any financial or advisory services for the companies mentioned in this report. Capital Investments, its funds, or its employees may from time to time take positions or effect transactions in the securities issued by the companies mentioned in this report.this document may not be reproduced in any form without the expressed written permission of Capital Investments. The opinions contained within the report are based upon publicly available information at the time of publication and are subject to change without notice. Prior to investing, investors should seek independent financial, tax and legal advice. 6