Inadequately checked letter of credit (L/C) deals may be a significant factor behind Jordan's latest banking crisis. Rumours about bad loans, specifically those related to a troubled computer company involved in fulfilling state contracts, pushed shares in Jordan's banks to their lowest level this year.

Speculation

A statement issued by Central Bank of Jordan (CBJ) governor, Umayya Toukan, sought to calm the crisis and said the proportion of credit facilities extended to the unidentified firm was limited in relation to the country's total loan portfolio. But speculation amongst bankers reported in local media suggests three or four banks may be most affected in the crisis.

One banker is reported as saying competition for commercial credit business is so fierce that banks have entered into deals without properly checking the credibility of suppliers and other parties to a transaction.

Forged documents

A source at the Jordan Securities Commission told news agency, Reuters, that four banks - reported to be the Jordan Investment Finance Bank, Jordan National Bank , Jordan Gulf Bank and Union Bank of Savings and Investment - had been asked by regulators to explain sharp falls in their share prices.

Irregularities in L/Cs and assignment of proceeds documents related to computer equipment supplies to government departments precipitated the crisis, according to reports quoting bankers who were also cited as saying letters of guarantee by state departments were forged.

The size of the exposure has been quoted as around US$90 million, compared with a total loan portfolio held by Jordan's 21 banks of around US$5.5 billion.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.