Jordan Commercial Bank– Ratings Affirmed

(MENAFN- Capital Intelligence Ltd) Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Jordan Commercial Bank (JCB) at ‘BB-’ and ‘B’, respectively. The LT FCR Outlook remains Stable. At the same time, CI Ratings has affirmed JCB’s Bank Standalone Rating (BSR) of ‘bb-’ with a Stable Outlook, Core Financial Strength (CFS) rating of ‘bb-’ and Extraordinary Support Level (ESL) of Moderate.

The BSR is derived from a CFS rating of ‘bb-’ and an Operating Environment Risk Anchor (OPERA) of ‘bb-’ (indicating moderate risk). While JCB’s ESL is Moderate, there is no uplift for the BSR as the latter is already at Jordan’s sovereign LT FCR level (‘BB-’/ Stable).

The CFS is supported by the Bank’s high-quality capital base and improving balance sheet leverage, as well as adequate regulatory capital ratios. Also supporting the CFS are the Bank’s good liquidity metrics and adequate profitability despite some challenges. The CFS is constrained by still elevated NPL ratio (notwithstanding ongoing measures to address loan asset quality) and reduced loan loss reserve (LLR) cover. The CFS is also constrained by the Bank’s modest balance sheet size and concentrations in the loan book, Jordanian government securities and funding base. The Bank’s rating also reflects the structurally challenging operating environment in Jordan, marked by elevated credit and geopolitical risks.

The OPERA takes into account both current and projected economic and financial conditions in Jordan, as well as the strengths and weaknesses of the banking sector. The assessment reflects the increase in foreign exchange reserves and moderate coverage of short-term external debt on a remaining maturity basis. It also takes into account Jordan’s track record of navigating persistent external pressures, including elevated geopolitical risks and regional instability. At the same time, the assessment factors in the country’s continued reliance on capital inflows to finance its chronic current account deficit, limited monetary policy flexibility, and significant socioeconomic challenges. The banking sector remains well-regulated, supported by strong capital and liquidity buffers, and has shown notable resilience in a difficult operating environment. Despite high exposure to the sovereign, asset quality remains acceptable, with the sector-wide NPL ratio at 5.6% as of December 2024.

JCB ranks among the smaller institutions in Jordan’s competitive and fragmented banking sector, with market shares of approximately 2.5% in loans and 2.1% in customer deposits. Despite its modest scale, the Bank operates a relatively wide domestic branch network of 37 outlets, which supports deposit mobilisation. Its business model remains largely focused on corporate banking, reflecting its position in a market where larger peers benefit from broader scale and access. While the Bank is gradually reorienting its business strategy toward asset growth, progress may be tempered in the near term by subdued credit demand, elevated credit risk, and continued regional geopolitical uncertainty.

In 2024, JCB continued efforts to strengthen asset quality by removing fully provisioned legacy NPLs from its balance sheet. However, the NPL ratio remained elevated at 8.2%, as new impairments, primarily in the corporate portfolio, offset these reductions. At the same time, LLR coverage declined to 84%, reflecting the transfer of associated provisions with off-balance sheet NPLs as well as reduced provisioning charges. As credit conditions remained subdued, Stage 2 loans also rose to 24%, indicating a sizeable pool of potentially at-risk exposures. Credit risk in the Bank’s loan book continues to be shaped by high borrower concentration, with the 20 largest NPLs accounting for more than half of total impaired exposures. Outside the loan book, credit concentration arises from significant holdings of Jordanian government securities, a structural feature of the domestic banking system. Asset quality remains subject to subdued credit conditions, concentration risk, and ongoing geopolitical uncertainty.

JCB’s operating profitability in 2024 remained adequate despite some headwinds. Operating profit declined by 18%, primarily due to pressure on net interest income as funding costs rose following Central Bank of Jordan (CBJ) rate hikes in late 2023. Nevertheless, the Bank’s net interest margin (NIM), though slightly compressed, remained above the sector average, supported by a higher-yielding asset base. The income profile continues to show limited diversification, with recurring fee and commission income contributing just 8% of operating income. The cost base remains relatively inflexible, reflecting the operational demands of the branch network. As a result, operating profitability to average assets, while below the sector average, is broadly aligned with similarly sized domestically focused peers. ROAA improved to 0.8%, at the top end of its peer group. However, this was partly driven by a decline in provisioning expenses, which did not keep pace with new NPL formation. Adjusted for this, net profitability would have been lower but remains consistent with assigned ratings. Q1 25 results indicate that operating profitability fundamentals remained stable, although – as quarterly provisioning expenses rose – net profitability for the quarter came under pressure. Pressure is set to persist for the rest of the year as credit conditions remain subdued.

Customer deposits are the Bank’s primary funding source, comprising the bulk of total liabilities. However, the funding profile remains concentrated, with the 20 largest depositors accounting for 22% of total funding. While this includes relatively stable balances from government-related entities (GREs), a significant portion reflects price-sensitive deposits held by high-net-worth individuals. The Bank also shows above-average reliance on higher-cost term deposits, highlighting the pricing pressure associated with its modest scale and limited market presence. Meanwhile, liquid assets accounted for a comfortable 31% of total assets at end-2024, and both the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) stood well above regulatory thresholds. This comfortable liquidity helps mitigate risks associated with depositor concentration and supports the bank’s ratings

The Bank’s high-quality capital base, composed almost entirely of CET-1, supports its ratings. In addition, its good leverage ratio, measured as capital to total assets, has improved further in recent years, as growth in retained earnings outpaced the modest balance sheet growth. The increase in retained earnings was matched by risk weighted asset (RWA) growth, resulting in stable regulatory capital ratios, standing sufficiently above applicable minima requirements. Notably, JCB’s RWA density ratio is higher than that of other local banks, reflecting its comparatively lower exposure to zero-risk-weighted Jordanian sovereign risk. While capitalisation is adequate for the current level of operations, in CI’s view internal capital generation alone is unlikely to sustain accelerated growth without a fresh infusion of capital.

Rating Outlook

The Outlook for the Bank’s LT FCR and BSR is Stable, indicating that the ratings are unlikely to change over the next 12 months. This reflects our view that the Bank is expected to maintain its current risk profile and that the sovereign ratings will remain at current levels.

Rating Dynamics: Upside Scenario

Although unlikely, the LT FCR and BSR could be upgraded if there is a similar action on Jordan’s sovereign ratings, as well as a significant improvement in the operating environment and in the Bank’s standalone financial fundamentals.

Rating Dynamics: Downside Scenario

Although not our current expectation, the LT FCR and BSR Outlook could be lowered were there to be a similar action on the Jordanian sovereign. Alternatively, downward pressure on the ratings could be exerted if the Bank’s key credit metrics – particularly asset quality and capitalisation – were to deteriorate or if the OPERA were to be lowered.

Contact

Primary Analyst: Stathis Kyriakides, Senior Credit Analyst; E-mail: ...
Secondary Analyst and Committee Chairperson: Morris Helal, Senior Credit Analyst

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