## 1ginea2020001

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### Mission overview
- A Financial Sector Stability Review (FSSR) mission from the IMF Monetary and Capital Markets Department (MCM) was conducted from June 12–24, 2019.
- A scoping mission had been undertaken in January 2019.
- Mission team led by Dirk Jan Grolleman (MCM) with David Blache (MCM), Amel Ben Rahal, Alain Vandepeute, Jean-Michel Godeffroy, and Ahmad el Radi (external experts).
- Closing meeting on June 24 chaired by the Governor, Lounceny Nabé; attendees included the First Deputy Governor, Nianga Komata Goumou; BCRG senior management; MCM Deputy Director, Fabio Natalucci; AFRITAC West Banking Supervision Advisor, Eric Lemarchand; and IMF resident representative, Jose Sulemane.

### Main observations and diagnostic findings
- Scope: five topics — (i) financial stability oversight; (ii) systemic liquidity; (iii) payments systems; (iv) banking supervision; and (v) crisis management, bank resolution, and safety nets.
- Economic and inclusion context:
  - Real growth about 6 percent in 2018; mining grew 7.5 percent in 2018.
  - Headline inflation 9.9 percent at end-2018; 9.7 percent (year-on-year) in March 2019.
  - Core inflation declined from 4.5 percent at end-2018 to 4 percent (year-on-year).
  - Gross international reserves: 3.3 months of imports at end-2018; 3.6 months of imports at end-March 2019.
  - Rapid growth in financial inclusion via mobile money (see Mobile money growth figures).
- Data and reporting shortcomings impede in-depth assessment:
  - Data on the financial sector and the real sector insufficient.
  - Need for data quality assurance on prudential reporting by banks.
  - Anomalies in FSI calculations (e.g., net-open position discrepancy) require thorough analysis.
- Financial Soundness Indicators (FSIs) point to increasing vulnerabilities and possible idiosyncratic stress:
  - NPLs, large exposures, and net-open position on negative trend.
  - Reported FSIs show net-open position larger than 100 percent, whereas prudential reporting points to a ratio on average below 20 percent — discrepancy requires further analysis.
- Structural mitigants and features:
  - All banks are subsidiaries of foreign financial groups that can provide some parental support.
  - Insurance and microfinance sectors are small and not yet systemic (data limited).
  - Financial market infrastructures (RTGS, automated clearinghouse, delivery-versus-payment system) are new and operate but need improvements.
  - Banking system as a whole is liquid in GNF; main banks’ access to foreign currency liquidity supported by parent-company facilities.
  - Guinean banks largely domestically funded and not dependent on parents for funding.

### Institutional and operational concerns
- BCRG does not prepare an adequate analysis and explanation of drivers of observed FSI trends.
- Correspondent banking relations (CBR):
  - Commercial banks’ CBR were relatively stable over 2011–2018.
  - BCRG experienced CBR pressures related to activities outside core mandate (central cashier role for commercial banks; services to politically exposed persons; involvement in gold exports).
  - BCRG introduced compliance frameworks; should periodically evaluate whether advantages of these services outweigh CBR pressure risks.
- Development bank (BNIG) issues:
  - Recently created development bank licensed as a conventional commercial bank despite narrower strategy.
  - Ownership: government 65 percent, BCRG 25 percent, Afriland First Bank 10 percent.
  - Mandate: finance activities via government, commercial banks, international development institutions, and other domestic institutional or professional investors.
  - Recommendation: prevent business model drift (e.g., prevent taking public deposits); BCRG stake creates conflict of interest with supervisory role.
- Capacity constraints and TA implementation:
  - Authorities fairly responsive to past TA but BCRG absorptive capacity limited by resource constraints.
  - Additional resources needed to improve bank supervision, set up payments oversight, and create financial stability surveillance unit.
  - FSSR recommendations will support implementation of BCRG’s financial inclusion strategy (November 2018).

### Priority recommendations (preserving original phrasing and timelines)
- Financial stability oversight
  - Recommendation 1: Periodically evaluate to what extent the advantages of providing services not directly related to BCRG’s core mandate outweigh the risk of potential resulting pressures from correspondent banks (¶21 and Box 1). Timeline: Con. Priority: High.
  - Recommendation 2: Reconcile data discrepancies, increase data coverage and ensure data quality (¶20). Timeline: ST. Priority: High.
  - Recommendation 3: Create and operationalize a financial stability surveillance unit (FSSU), which should play a key role in addressing recommendation 2 (¶31 and 32). Timeline: ST. Priority: High.
  - Recommendation 4: a) Clarify BCRG’s macroprudential mandate in the BCRG Statute (¶31.1). b) Establish an institutional framework for macroprudential policy (¶31.1). Timeline: MT. Priority: Medium.
- Systemic liquidity assessment
  - Recommendation 5: Implement the past recommendations on liquidity management (¶45-46). Timeline: ST. Priority: High.
  - Recommendation 6: Establish a structured and ranked collateral framework (¶47-48). Timeline: MT. Priority: High.
  - Recommendation 7: Establish an operational framework for the ELA (¶49). Timeline: MT. Priority: High.
- Financial market infrastructures
  - Recommendation 8: a) Adopt a payments law guaranteeing: (i) the legal validity of clearing; (ii) payment finality; and (iii) the protection of holders of collateral (¶51). b) Adopt a regulation guaranteeing the end-of-day settlement operations of the clearing system (¶50). Timeline: ST. Priority: High.
  - Recommendation 9: a) Support the introduction of a “switch” (¶54). b) Establish a national payments committee (¶55). Timeline: MT. Priority: High.
  - Recommendation 10: Establish an organizational structure for payment systems oversight (¶56). Timeline: MT. Priority: Medium.
  - Recommendation 11: a) Discourage the use of high-value checks (¶52). b) Enhance the check clearing mechanism (¶52). Timeline: MT. Priority: Medium.
- Banking regulation and supervision
  - Recommendation 12: a) Increase the resources assigned to banking supervision (¶65). b) Enhance risk-based supervision (RBS) and the reporting system (¶64–65). Timeline: ST/MT. Priority: High.
  - Recommendation 13: a) Precise BCRG’s banking supervision mandate in the Banking Law (¶60). b) Include in the Law specific provisions for development banks (¶60). c) Divest BCRG’s stake in the development bank (¶60). d) Optional: include provisions to allow for Islamic banking (¶61). Timeline: MT. Priority: High.
  - Recommendation 14: a) Implement the relevant parts of the Basel II/III capital framework (¶63). b) Revise the regulations on large exposures and related parties (¶63). c) Complete the cross-border cooperation agreements for all banks (¶69). Timeline: MT. Priority: Medium.
  - Recommendation 15: a) Implement the relevant parts of the Basel II/III liquidity framework (¶63). b) Enhance the regulations on governance and risk management (¶63). c) Introduce requirements for Interest Rate Risk in the Banking Book (IRRBB) and country and transfer risks (¶63). Timeline: MT. Priority: (as listed).
- Crisis management, bank resolution, and financial safety net
  - Recommendation 16: Enhance the legal and regulatory framework for deposit insurance (¶76). Timeline: ST. Priority: High.
  - Recommendation 17: Strengthen in the law BCRG’s early intervention powers and tools, including requirements for and capacity to review recovery plans (¶73–74). Timeline: MT. Priority: High.
  - Recommendation 18: Enhance the resolution related provisions in the Banking Law (¶75). Timeline: MT. Priority: High.
  - Recommendation 19: Increase capacity on resolution and deposit insurance (¶79). Timeline: MT. Priority: High.
  - Recommendation 20: Establish a body for the coordination of crisis measures (¶77–78). Timeline: MT. Priority: High.

(*) Timeline definitions (as in the FSSR): Con, continuously; ST, short-term, less than six months; MT, medium-term, with results around 18 months; LT, long-term, with results around 30 months.

### Economic, regional, and financial system context — key facts
- Real growth: about 6 percent in 2018.
- Mining industry growth: 7.5 percent in 2018.
- Inflation and reserves:
  - Headline inflation 9.9 percent at end-2018; 9.7 percent (year-on-year) in March 2019.
  - Core inflation 4 percent (year-on-year) in March 2019.
  - Gross international reserves: 3.3 months of imports at end-2018; 3.6 months at end-March 2019.
- WAMZ context: Guinea, The Gambia, Ghana, Liberia, Nigeria and Sierra Leone; Guinea only Francophone country in WAMZ.

### Financial system structure, access, and market infrastructure (selected figures)
- Financial sector depth and inclusion:
  - Total financial sector assets represent just 22 percent of GDP.
  - Account access: 8 percent of population at end-2017 (5.5 percent in 2014).
  - Mobile wallet access: 13.8 percent of population at end-2017 (1.5 percent in 2014).
- Financial sector composition (end-2018 snapshot):
  - 16 commercial banks, 21 nonbank deposit institutions, 12 insurance companies.
  - Banks represent 94.6 percent of total financial sector assets; nonbank deposit-taking 2.5 percent; insurance 2.8 percent.
- Table 2 key figures (Total Assets x GNF 1 million):
  - Reporting entities in the depositor sector: Total Entities 37; Total Assets 23,493,029
  - Commercial banks: 16; 22,894,141
  - Nonbank deposit-taking institutions: 21; 598,889
  - Entities in other financial corporations: 106; 695,512
  - Insurance companies: 12; 681,197
  - Total: 143; 24,188,541
- Banking ownership and concentration (June 2018):
  - All commercial banks are subsidiaries of foreign groups.
  - Top three banks represent approximately 57.4 percent of total banking sector assets.
- Development bank (BNIG): ownership government 65 percent, BCRG 25 percent, Afriland First Bank 10 percent; to operate as second-tier development bank and will not take public deposits.
- Mobile money growth (Table 4):
  - Accounts: 2016 1,500,000; 2017 2,000,000; 2018 3,200,000; 05/29/2019 4,900,000
  - Active accounts: 2016 500,000; 2017 1,100,000; 2018 1,545,000; 05/29/2019 1,850,000
  - Value of transactions (GNF x 1,000,000): 2016 978; 2017 2,000,000; 2018 5,400,000; 05/29/2019 5,600,000
  - Total e-wallet balances (GNF x 1,000,000): 2016 186,000; 2017 300,000; 2018 452,000; 05/29/2019 505,000
- Currency composition and limits:
  - Dollarization of loan portfolio about 21 percent; dollarization of banking-sector deposits about 29 percent.
  - BCRG regulatory limit of 20 percent (of regulatory capital) on net open position of banks.
- Market infrastructures:
  - BCRG operates RTGS, automated clearinghouse, and delivery-versus-payment system; entered into operation between 2014 and 2016.

### Potential financial stability vulnerabilities (selected indicators and concerns)
- Overall: FSIs trended negatively in 2018 compared to 2017; vulnerabilities appear to be growing.
- Specific negative trends (2015–2018 where indicated):
  - Capital adequacy declined from 16.8 at end-2015 to 15.2 at end-2018.
  - NPLs increased from 6.1 percent to 12.2 percent over past four years.
  - NPLs net of specific provisions to capital increased from 6.7 percent to 37.5 percent.
  - Provisioning, large exposures, liquidity measures, and net open currency position on negative trend.
- Liquidity:
  - Banking system as a whole liquid in GNF; some mid-sized banks frequently fail to meet reserve requirements.
  - Main banks access foreign currency liquidity via parent-company facilities.
- Data quality and reporting discrepancies:
  - Discrepancies between FSIs and prudential reporting (e.g., net-open position >100 percent in FSIs vs. on average below 20 percent in prudential reporting).
  - BCRG does not systematically collect data to analyze drivers of observed trends; usable data on insurance and microfinance lacking.
- Sector drivers (anecdotal):
  - Increase in large exposures could reflect facilitation of economic growth and increased trade finance exposures.
  - Increase in NPLs suggested mainly due to defaults in the hotel sector.

### Correspondent banking relations and BCRG activities (Box 1 highlights)
- BCRG collected USD and euro cash from commercial banks and transformed it into bank money; remunerated at 0.5 percent for transfers.
- Since 2013 BCRG faced issues, particularly in euros, after Crédit Suisse closed accounts; subsequent correspondent banks excluded taking back cash.
- In 2017 euros represented 80 percent of total cash holdings (previously USD 80 percent); no valid explanation found.
- BCRG established a compliance framework and stopped accepting euros when compliance was difficult.
- Recommendation: BCRG should reflect on essential activities outside core mandate that could lead to breaks with correspondent banks: (i) provision of banking services to politicians; (ii) providing cash correspondent banking services for commercial banks; (iii) involvement in gold and diamond exports.
- A break with international correspondent banks would have severe economy-wide consequences.
- Recommendation: BCRG should closely monitor correspondent banking relations and periodically assess whether advantages outweigh risks.

### Institutional framework, mandates, and governance gaps
- BCRG main objective: price stability; also responsible for supervision of banks, nonbank deposit-taking institutions, mobile money operators and insurers; oversight of payments systems and financial stability.
- No institutional framework defining roles of MEF and BCRG for macroprudential policy and supervision.
- No specific authority responsible for consumer protection.
- Financial intelligence unit: CENTIF (administrative unit under the Ministry of Economy and Finance).
- Licensing Committee: chaired by Governor or Deputy Governor; includes DGSIF head (or representative), a member selected by MEF, a member by Minister of Justice, and an independent qualified public figure selected by Governor; decisions by majority vote; chair deciding vote in tie.
- Deposit Insurance Fund: created in 2018; Board chaired by Governor of BCRG; secretariat by Banking Supervision Department (DSB); first contributions to be collected in 2019.
- Crisis management framework defining roles of MEF and BCRG not yet in place.
- Recent legal framework includes: Charter of the BCRG (L/2014/016/AN), Banking Law (L/2013/060/CNT), Leasing Law (L/2012/005/CNT), Insurance Code (L/2016/023/AN), Inclusive Financial Institutions Act (L/2017/031/AN), Anti-Money Laundering Law (L/2006/010/AN), Countering the Financing of Terrorism Law (L/2014/010/AN).

### Financial stability function: objectives, data, and phased framework
- Ultimate objective: the long-term contribution of the financial sector to economic growth.
- Macroprudential policy aims to: (a) prevent emergence of financial imbalances; (b) reduce contagion risks and mitigate effects of upheavals; (c) increase capacity of financial institutions to absorb shocks.
- BCRG has explicit mandate in financial stability under its charter but lacks prudential institutional and operational framework to implement macroprudential policies.
- Implementation requirements: high-quality granular data; adequate information systems; staff with appropriate profiles; analytical tools.
- Data and credit registry:
  - BCRG compiled FSIs since 2014, currently covering only banks.
  - New, more complete reporting format to be launched based on revised chart of accounts.
  - Credit registry launched in 2017 but not yet operational.
- Phased macroprudential surveillance framework:
  1. Optimize governance and institutional framework, clarify BCRG powers and MEF role (informal or macroprudential surveillance committee).
  2. Establish dedicated structure and operational framework in five phases: (i) indicators and FSIs; (ii) identification of risks and vulnerabilities; (iii) selection and calibration of instruments; (iv) implementation; (v) evaluation and adjustment.
- Immediate actions and TA program:
  - Establish project group for financial stability function; create dedicated financial stability unit; improve data availability and quality; create analytical tools.
  - Proposed three-year TA program covering all areas related to financial stability.

### Systemic liquidity, collateral framework, and ELA
- Liquidity overview:
  - Three banks capture almost 60 percent of total deposits in GNF and foreign currencies.
  - HHI concentration index moderate at 0.13.
  - Required reserves level 16 percent.
  - Deposit dollarization: 29 percent.
  - Interbank market exists (repos, seven-day maturities); primary and secondary government securities markets emerging but illiquid.
- Assessment of liquidity management by BCRG:
  - Despite five IMF TA missions between December 2015 and June 2018, uneven progress in implementing monetary policy.
  - Promise in forecasting framework and instruments exists but BCRG does not systematically implement active liquidity management.
  - FSSR recommends implementing previous recommendations; does not recommend additional TA given prior assistance.
- Collateral framework:
  - BCRG accepts wide range of collateral but private securities framework vague.
  - Uniform discount of 10 percent currently applied to all collateral; collateral ranking needed.
  - FSSR recommends TA to develop structured, ranked collateral framework to enable large-scale liquidity injections and assign appropriate discounts.
- ELA framework:
  - Legal capacity recently established by Instruction No. 090/DGCC/DPMC/2019 for “bank” category credit institutions.
  - Operational framework not yet in place.
  - TA recommended to prepare operational framework and framework agreement for quick activation.

### Oversight of financial market infrastructures and payments
- BCRG operates RTGS, ACH, and delivery-versus-payment SSS (2014–2016); systems operate well but ACH lacks mechanism for end-of-day settlement completion.
- Legal gaps: no specific payments systems law; legal risks for clearing validity, payment finality, and protection of collateral holders in bankruptcy.
- Mobile payments:
  - More than 80 percent of mobile money transactions are cash withdrawals; payments less than 10 percent.
  - Regulatory framework based on regional practices; EMIs must hold amounts entrusted in bank accounts and BCRG requires deposits at least equal to electronic money issued.
  - BCRG prevents EMIs from depositing more than 25 percent of funds with a single bank.
- Interoperability:
  - Guinea lacks an electronic payment switch; ATM withdrawals limited to issuing bank’s network; merchant acceptance depends on issuer-provided POS terminals.
  - World Bank–supported interoperability project being implemented but hampered by administrative red tape.
- Recommendation: Establish a National Payments Committee chaired by the Governor of the BCRG with representation from main participants (including users) to improve interoperability and coordination.

### Payments systems oversight and organizational recommendations
- Articles 10 and 21 of the Central Bank Statute of 2014 grant extensive oversight powers to BCRG for payment systems.
- Current situation: BCRG has not created a unit to perform the oversight function; market infrastructures managed in “project mode”; ACH and RTGS/SSS managed by two different directorates without dedicated staff for operations and oversight.
- Recommendations:
  - (i) A single unit to operate the three market infrastructures, possibly integrated into “Direction Générale de l’Exploitation”.
  - (ii) Create a new unit for oversight, which could be part of a new directorate in charge of financial stability.

### Banking regulation and supervision — status, gaps, and TA needs
- BCRG reform program includes: revision of the August 2013 banking law, new chart of accounts and reporting system, automation of bank reporting, revision of prudential regulations, strengthening of RBS, consolidated supervision, transition to IFRS 9, adoption of Basel II/III standards, cybersecurity and crisis resolution framework.
- Progress slow; "none of the work program milestones have been entirely met."
- Legal framework recommendations:
  - Detail BCRG’s supervisory responsibility in Central Bank Statute.
  - Specify activities allowed for development banks (not allowed to attract public deposits).
  - BCRG should divest holdings in the development bank to avoid conflict of interest.
  - Include powers to limit transactions with parent companies or the group in times of stress.
- Islamic banking: one active Islamic bank and one Islamic window; plan for long-term specific legal and regulatory framework.
- Regulatory framework and TA priorities:
  - Short-term: update regulations in capital requirements, leverage ratio, related parties, concentration risk.
  - Medium-term: Basel II/III liquidity, governance and risk management, reporting for IRRBB, country and transfer risk.
  - Longer-term: Pillars 2 and 3 implementation, prudential stress-testing; prudential regulation on Islamic finance long-term.
- Reporting and supervision process:
  - RBS progress made but rating system needs improvement, especially qualitative criteria.
  - Supervisors do not yet use stress testing as an important tool.
  - No onsite supervision and inspection procedure manuals.
  - DSB staffing: total 12 (offsite examination 4 staff; onsite inspection 2 staff; regulation/review/licensing/analysis 3 staff).
  - Four offsite examination officials supervise 16 commercial banks and 1 development bank.
  - Supervision is chronically understaffed; over 2016–2018 only four comprehensive onsite inspections were carried out.
- Consolidated and cross-border supervision:
  - BCRG is essentially a host supervisor; Guinean banks have no subsidiaries abroad.
  - BCRG has signed or is concluding cooperation agreements with many home authorities; some agreements remain to be concluded with priority.
  - BCRG participated in three supervisory colleges in 2017 and four in 2018.

### Crisis management, bank resolution, and safety net — findings and recommendations
- Early intervention:
  - Legislative framework should be expanded and strengthened; some enhanced supervision provisions should be moved to law for cross-border applicability.
  - Triggers for early action should include indicators on parent bank position for subsidiaries-dominated systems.
- Preventative recovery plans:
  - Require banks to draft recovery plans; mission suggests BCRG impose recovery plans on all banks or at least largest banks within two to three years.
  - For subsidiaries, BCRG could rely on group recovery plans with cross-border cooperation; require identification of triggers and subsidiary-specific measures.
- Bank resolution powers:
  - Law should assign clearly defined objectives for bank resolution to BCRG and include provisions consistent with Financial Stability Board Key Attributes.
  - Decision-making procedure for bank resolution should be separate from supervisory body.
  - Amend Banking Law to provide broader resolution powers and detail conditions affecting shareholder or creditor rights.
  - Initial resolution powers could be partial; include measures to protect shareholders and creditors and draft resolution plans after legal amendments.
- Deposit insurance:
  - Adoption in 2018 responds to recent bank failure and WAMZ commitments.
  - Mandate, powers, objectives and essential elements should be specified in legislation to meet international standards.
  - Mission recommendation: deposit insurance limited to a “paybox plus” function (resources may be used to support resolution measures such as purchase-and-assumption and bridge bank tools).
  - Plan for government back-up line of credit as emergency financing if fund resources insufficient.
- Ministry of Finance role:
  - Prepare for involvement in potential resolutions including temporary financial support; subject to strict conditions to minimize moral hazard.
- Crisis management coordination:
  - Propose establishment of a national body for coordinating crisis management activities.
  - BCRG and MEF should prepare confidential memorandum indicating respective responsibilities in banking crises.

### Crisis management and prevention capacity (staffing and legal protection)
- Strengthen staffing and expertise of the BCRG and the Treasury in crisis management, bank resolution, and deposit insurance.
- Recruit and train crisis management, bank resolution, and deposit insurance experts (particularly crucial for BCRG).
- Expand legislative measures providing legal protection for BCRG and its officials explicitly to bank resolution and deposit insurance missions.

### TA Road Map — purpose, proposed projects, organization, and timing (selected)
- TA Road Map links baseline assessment to key strategic reforms over three years; IMF to collaborate with authorities and other TA providers.
- Banking regulation and supervision projects:
  - (#1) Amendment of the banking law: six weeks total (timing and organization as specified).
  - (#2) Revision of capital adequacy, asset classification, risk concentration, related-party transactions: 12 weeks; revision of liquidity standards, governance and risk management: 10 weeks (total 22 weeks).
  - (#3) Enhancement of bank risk assessment and RBS manuals: 12 weeks over three to four years.
  - (#4) Introduction of an automatic reporting tool (donor-provided ideally).
- Crisis management, bank resolution and safety nets:
  - (#5) TA to complement deposit insurance law and complete regulations. Target completion by March 2020. Organization: two two-week onsite missions and four weeks desk work.
  - (#6 and #7) TA to complete early intervention framework and prepare special bank resolution regime. Start early 2020 and conclude by December 2020.
  - (#8) TA to implement special bank resolution regime (resolvability analysis, operational improvements, drafting resolution strategies). Proposed completion by June 2022.
  - (#9) TA to build BCRG capacity to react to systemic crisis. Requires financial stability function established first.
- Financial stability oversight:
  - (#10) Complete three-year TA program covering financial stability and macroprudential surveillance. Organization: total 12 weeks (two desk weeks and multiple onsite missions).
- Systemic liquidity:
  - (#11) Establish structured and ranked collateral framework: one two-week mission and MCM follow-up.
  - (#12) Establish ELA framework agreement and operational framework: one two-week mission and MCM follow-up; mission after collateral framework established.
- Oversight of FMIs:
  - (#13) Amend payments systems law to introduce legal validity of clearing, payment finality, protection of collateral holders; establish mechanism for end-of-day settlement.
  - (#14) Create payments systems oversight function.
- Resource notes:
  - Total estimated TA for banking supervision excluding legal advice: 40 weeks (about 34 weeks covered by AFW’s existing TA program).
  - Delivery over approximately three years assuming two experts per mission and a two-week mission every three months.
- Prioritization suggested:
  1. Key recommendations on banking regulation and supervision.
  2. Strengthening banking resolution and crisis management frameworks and safety net.
  3. Establishing and operationalizing a financial stability surveillance unit.
  4. Developing macroprudential policy and selecting necessary instruments.
- Sequencing notes:
  - Banking supervision (#1), deposit insurance (#5), early intervention (#6), and special bank resolution regime (#7) require Banking Law changes and should be addressed simultaneously where possible.
  - Review of Banking Law amendments could be combined with Central Bank Statute review.

### Key Financial Soundness Indicators (FSIs) — core FSIs (percentage)
- Regulatory capital to risk-weighted assets: 2013 15.7, 2014 18.3, 2015 16.5, 2016 17.9, 2017 16.8, 2018 15.2
- Regulatory Tier 1 capital to risk-weighted assets: 2013 14.6, 2014 18.6, 2015 16.9, 2016 18.0, 2017 17.4, 2018 15.6
- NPLs net of provisions to capital: 2013 8.2, 2014 8.0, 2015 6.8, 2016 14.7, 2017 11.3, 2018 37.5
- NPLs to total gross loans: 2013 6.2, 2014 6.1, 2015 6.1, 2016 9.4, 2017 10.7, 2018 12.2
- Return on assets: 2013 2.0, 2014 1.7, 2015 2.2, 2016 2.1, 2017 2.0, 2018 2.0
- Return on equity: 2013 19.2, 2014 15.2, 2015 20.9, 2016 18.8, 2017 16.7, 2018 19.3
- Interest margin to gross income: 2013 27.7, 2014 22.6, 2015 20.1, 2016 38.9, 2017 41.8, 2018 38.6
- Noninterest expenses to gross income: 2013 84.0, 2014 88.2, 2015 86.6, 2016 79.2, 2017 78.1, 2018 78.0
- Liquid assets to total assets: 2013 36.3, 2014 32.8, 2015 25.6, 2016 28.9, 2017 26.8, 2018 26.2
- Liquid assets to short-term liabilities: 2013 58.4, 2014 50.1, 2015 42.1, 2016 45.8, 2017 43.1, 2018 42.6
- Net open position in foreign exchange to capital: 2013 168.0, 2014 30.7, 2015 -56.3, 2016 25.1, 2017 79.2, 2018 105.7

### Additional FSIs (percentage) and sectoral loan distribution (percentage)
- Capital to assets: 2013 10.2, 2014 11.1, 2015 10.6, 2016 11.0, 2017 11.9, 2018 8.9
- Large exposures to capital: 2013 110.8, 2014 90.8, 2015 99.1, 2016 142.4, 2017 162.4, 2018 243.7
- Personnel expenses to noninterest expenses: 2013 13.0, 2014 10.3, 2015 9.2, 2016 16.6, 2017 18.6, 2018 17.5
- Customer deposits to total (non-interbank) loans: 2013 214.9, 2014 181.4, 2015 170.3, 2016 175.0, 2017 191.0, 2018 190.5
- Foreign-currency-denominated loans to total loans: 2013 21.6, 2014 26.7, 2015 29.2, 2016 27.5, 2017 20.0, 2018 21.5
- Foreign-currency-denominated liabilities to total liabilities: 2013 29.7, 2014 26.0, 2015 26.5, 2016 29.4, 2017 30.2, 2018 29.3
- Sectoral distribution of loans (residents/nonfinancial corporations/households nonresidents): Residents 2013 99.6, 2014 99.6, 2015 99.7, 2016 100.0, 2017 99.7, 2018 99.6; Nonfinancial corporations 2013 65.5, 2014 60.0, 2015 58.9, 2016 53.0, 2017 59.9, 2018 64.2; Households 2013 34.1, 2014 39.5, 2015 40.7, 2016 46.8, 2017 39.6, 2018 35.1; Nonresidents 2013 0.4, 2014 0.4, 2015 0.3, 2016 0.0, 2017 0.3, 2018 0.4.

### Treatment of credit risk — NPLs (selected actions and timelines)
- "Classification of assets and provisioning December 2018" — "Instruction enacted"
- "Review texts on provisioning rules" — "Draft available for introduction with the implementing regulations for the new bank chart of accounts"
- "Training on the treatment of credit risk June 2020" — "1 Training provided"
- Policy focus: strengthen and finalize provisioning rules linked to the new bank chart of accounts and ensure capacity building through targeted training.

### Monetary policy implementation / liquidity management — selected recommendations (calibration of Open Market Operations)
- Key operational recommendations (selected):
  - Develop forecasts for each component of base money and sensitivity to monetary policy (Time Frame: Medium term).
  - Develop forecasts of medium-term autonomous factors (Time Frame: Short term).
  - Create a monetary policy committee to determine policy direction before each maintenance period (Time Frame: August 2018); committee provided for by law but not yet established.
  - Establish internal liquidity committee meeting weekly (Time Frame: Immediate); on August 24, 2018 BCRG established a liquidity committee and forecasting team (Decision No. 086/DGCC/DPMC/2018 and Decision No. 087/DGCC/DPMC/2018).
  - Conduct weekly liquidity injection or absorption operations on a specific day with preannounced amounts (Time Frame: August 2018).
  - Publish results of monetary policy operations directly after they take place (Time Frame: August 2018).
  - Communicate BCRG’s intention to actively manage liquidity via a seminar (Time Frame: August 2018); planned for 2019.
  - Determine required reserve base before beginning of period and align forecasting, operations, and reserve maintenance period (Time Frame: August 2018); instruction issued by BCRG on required reserve procedures and penalties.
- Time frame legend: Immediate (I) = 0-3 months, Short term (ST) = 3–6 months, Medium term (MT) = 6–18 months, Long term (LT) = 18–24 months.

*This report contains the main observations and recommendations of the Financial Sector Stability Review (FSSR) mission to Guinea, June 12–24, 2019.*

### Preface.................................................................................................................

### 1ginea2020001 - Preface

### Mission overview
- A Financial Sector Stability Review (FSSR) mission from the IMF Monetary and Capital Markets Department (MCM) was conducted from June 12–24, 2019.
- A scoping mission had been undertaken in January 2019.
- Mission team led by Dirk Jan Grolleman (MCM) and consisting of David Blache (MCM), Amel Ben Rahal, Alain Vandepeute, Jean-Michel Godeffroy, and Ahmad el Radi (external experts).
- Closing meeting on June 24 was chaired by the Governor, Lounceny Nabé, and attended by the First Deputy Governor, Nianga Komata Goumou; BCRG senior management; MCM Deputy Director, Fabio Natalucci; AFRITAC West Banking Supervision Advisor, Eric Lemarchand; and IMF resident representative, Jose Sulemane.

### Main observations and diagnostic findings
- The FSSR covered five topics: (i) financial stability oversight; (ii) systemic liquidity; (iii) payments systems; (iv) banking supervision; and (v) crisis management, bank resolution, and safety nets.
- The current economic situation was described as benign, with a positive economic outlook and rapid growth in financial inclusion through mobile money services.
- Financial Soundness Indicators (FSIs) point to increasing vulnerabilities and possible idiosyncratic stress in the banking sector:
  - Nonperforming loans (NPLs), large exposures, and the net-open position are on a negative trend.
  - Reported FSIs show the net-open position larger than 100 percent, whereas prudential reporting points to a ratio of on average below 20 percent. This discrepancy requires further analysis and explanation.
- Data and reporting shortcomings impede in-depth assessment:
  - Data on the financial sector and the real sector are insufficient.
  - More data quality assurance is needed on prudential reporting by banks.
  - Anomalies in the calculation of FSIs identified by the mission could not be explained by the BCRG and require thorough analysis.
  - Negative trends observed in FSIs require further analysis to understand developments and scope of potential vulnerabilities.
- The financial sector structure provides partial mitigants:
  - All banks are part of foreign financial groups that can provide support during stress periods to a certain extent.
  - Insurance and microfinance sectors are small and not yet of systemic importance (data limited).
  - Financial market infrastructures are new; improvements needed but no immediate financial stability problems evident.
  - Banking system as a whole is liquid in GNF; main banks’ access to foreign currency liquidity is supported by facilities arranged with their parent companies.
  - Guinean banks are largely domestically funded and not dependent on parents for funding.

### Institutional and operational concerns
- BCRG does not prepare an adequate analysis and explanation of drivers of observed trends in FSIs.
- Correspondent banking relations (CBR):
  - Commercial banks’ CBR were relatively stable over 2011–2018.
  - BCRG was subject to CBR pressures, potentially originating in activities not directly related to its core mandate (cash money services for commercial banks; commercial bank activities for current and past politically exposed persons; and gold exports).
  - BCRG is introducing compliance frameworks to mitigate risks but should periodically evaluate whether the advantages of providing these services continue to outweigh correspondent-bank pressure risks.
- Development bank issues:
  - The recently created development bank was licensed as a conventional commercial bank despite a narrower strategy and business model.
  - Its mandate is to finance activities via the government, commercial banks, international development institutions and any other domestic institutional or professional investor.
  - To avoid business model drift, BCRG should identify tools (potentially requiring an amendment of the banking law) or use existing instruments (e.g., Licensing Committee) to prevent the bank from taking public deposits.
  - Recent failure of a domestic (publicly owned) development bank underscores need for close supervision of governance arrangements.
  - BCRG’s stake in the development bank creates a conflict of interest with its supervisory role and could complicate resolution decisions.

### Capacity and TA implementation
- Authorities have been fairly responsive to past TA recommendations, but BCRG’s absorptive capacity has been limited due to resource constraints.
- Additional resources will be needed to implement FSSR recommendations, notably to improve bank supervision and to set up payment systems oversight and a financial stability surveillance unit.
- The FSSR recommendations will supplement and support implementation of the financial inclusion strategy published by the BCRG in November 2018.

### Priority recommendations (selected, preserving original phrasing and timelines)
- Financial stability oversight
  - Recommendation 1: Periodically evaluate to what extent the advantages of providing services not directly related to BCRG’s core mandate outweigh the risk of potential resulting pressures from correspondent banks (¶21 and Box 1). Timeline: Con. Priority: High.
  - Recommendation 2: Reconcile data discrepancies, increase data coverage and ensure data quality (¶20). Timeline: ST. Priority: High.
  - Recommendation 3: Create and operationalize a financial stability surveillance unit (FSSU), which should play a key role in addressing recommendation 2 (¶31 and 32). Timeline: ST. Priority: High.
  - Recommendation 4: a) Clarify BCRG’s macroprudential mandate in the BCRG Statute (¶31.1). b) Establish an institutional framework for macroprudential policy (¶31.1). Timeline: MT. Priority: Medium.
- Systemic liquidity assessment
  - Recommendation 5: Implement the past recommendations on liquidity management (¶45-46). Timeline: ST. Priority: High.
  - Recommendation 6: Establish a structured and ranked collateral framework (¶47-48). Timeline: MT. Priority: High.
  - Recommendation 7: Establish an operational framework for the ELA (¶49). Timeline: MT. Priority: High.
- Financial market infrastructures
  - Recommendation 8: a) Adopt a payments law guaranteeing: (i) the legal validity of clearing; (ii) payment finality; and (iii) the protection of holders of collateral (¶51). b) Adopt a regulation guaranteeing the end-of-day settlement operations of the clearing system (¶50). Timeline: ST. Priority: High.
  - Recommendation 9: a) Support the introduction of a “switch” (¶54). b) Establish a national payments committee (¶55). Timeline: MT. Priority: High.
  - Recommendation 10: Establish an organizational structure for payment systems oversight (¶56). Timeline: MT. Priority: Medium.
  - Recommendation 11: a) Discourage the use of high-value checks (¶52). b) Enhance the check clearing mechanism (¶52). Timeline: MT. Priority: Medium.
- Banking regulation and supervision
  - Recommendation 12: a) Increase the resources assigned to banking supervision (¶65). b) Enhance risk-based supervision (RBS) and the reporting system (¶64–65). Timeline: ST/MT. Priority: High.
  - Recommendation 13: a) Precise BCRG’s banking supervision mandate in the Banking Law (¶60). b) Include in the Law specific provisions for development banks (¶60). c) Divest BCRG’s stake in the development bank (¶60). d) Optional: include provisions to allow for Islamic banking (¶61). Timeline: MT. Priority: High.
  - Recommendation 14: a) Implement the relevant parts of the Basel II/III capital framework (¶63). b) Revise the regulations on large exposures and related parties (¶63). c) Complete the cross-border cooperation agreements for all banks (¶69). Timeline: MT. Priority: Medium.
  - Recommendation 15: a) Implement the relevant parts of the Basel II/III liquidity framework (¶63). b) Enhance the regulations on governance and risk management (¶63). c) Introduce requirements for Interest Rate Risk in the Banking Book (IRRBB) and country and transfer risks (¶63). Timeline: MT. Priority: (as listed).
- Crisis management, bank resolution, and the financial safety net
  - Recommendation 16: Enhance the legal and regulatory framework for deposit insurance (¶76). Timeline: ST. Priority: High.
  - Recommendation 17: Strengthen in the law BCRG’s early intervention powers and tools, including requirements for and capacity to review recovery plans (¶73–74). Timeline: MT. Priority: High.
  - Recommendation 18: Enhance the resolution related provisions in the Banking Law (¶75). Timeline: MT. Priority: High.
  - Recommendation 19: Increase capacity on resolution and deposit insurance (¶79). Timeline: MT. Priority: High.
  - Recommendation 20: Establish a body for the coordination of crisis measures (¶77–78). Timeline: MT. Priority: High.

(*) Timeline definitions (as in the FSSR): Con, continuously; ST, short-term, less than six months; MT, medium-term, with results around 18 months; LT, long-term, with results around 30 months.

*Preface and Executive Summary of the Financial Sector Stability Review (FSSR) mission to Guinea, June 12–24, 2019.*

### 5. This report contains the main observations and recommendations of the Financial

### 1ginea2020001 - 5. This report contains the main observations and recommendations of the Financial

### II. ECONOMIC, REGIONAL, AND FINANCIAL SYSTEM CONTEXT — A. Economic and Regional Developments
- Real growth reached about 6 percent in 2018 driven by mining and construction and solid agriculture performance.
- The mining industry grew 7.5 percent in 2018, with higher than anticipated bauxite and diamond production offsetting a sharp decline in artisanal gold production.
- Headline inflation reached 9.9 percent at end-2018 and slowed to 9.7 percent (year-on-year) in March 2019, explained by the decline in food inflation.
- Core inflation declined from 4.5 percent at end-2018 to 4 percent (year-on-year).
- Gross international reserves increased to 3.3 months of imports at end-2018 and to 3.6 months of imports at end-March 2019.
- Outlook points to continued strong foreign direct investment in the mining sector and further infrastructure-driven construction; improvements in business climate, governance, and electricity supply should support private sector development.
- West African Monetary Zone (WAMZ) context:
  - WAMZ members: Guinea, The Gambia, Ghana, Liberia, Nigeria and Sierra Leone.
  - Guinea is the only Francophone country in the WAMZ; other Francophone countries in the region are members of the West African Economic and Monetary Union (WAEMU).
  - At present individual members of the WAMZ plan to join the WAEMU directly, without first creating their own monetary union.
  - Regional cooperation occurs through the Economic Community of West African States (ECOWAS).

### II. B. Overview Financial System — Structure, Access, and Market Infrastructure
- Financial sector depth and inclusion:
  - Total financial sector assets represent just 22 percent of GDP.
  - At end-2017, 8 percent of the population had access to an account in a bank or nonbank deposit-taking institution (as against 5.5 percent in 2014).
  - At end-2017, approximately 13.8 percent of the population had access to a mobile wallet (as against 1.5 percent in 2014).
- Financial sector composition (end-2018 snapshot):
  - 16 commercial banks, 21 nonbank deposit institutions, and 12 insurance companies.
  - Banks represent 94.6 percent of total financial sector assets; nonbank deposit-taking represent 2.5 percent; insurance companies represent 2.8 percent.
- Table 2 (Guinea: Structure of the Financial System, December 2018) key figures (Total Assets x GNF 1 million):
  - Reporting entities in the depositor sector: Total Entities 37; Total Assets 23,493,029
  - Commercial banks: 16; 22,894,141
  - Nonbank deposit-taking institutions: 21; 598,889
  - Entities in the other financial corporations sector: 106; 695,512
  - Insurance companies: 12; 681,197
  - Pension funds: 0; 0
  - Other financial intermediaries: 4; 14,315
  - Finance companies: 3; 14,315
  - Leasing companies: 1; 0
  - Financial auxiliaries: 90; 0
  - Brokers and agents: 46; 0
  - Exchange bureaus: 44; 0
  - Total: 143; 24,188,541
  - Source: IMF Financial Soundness Indicators.
- Trends in nonbank sectors:
  - The share of insurance companies in total financial sector assets in 2018 stood at 0.3 percent; non-deposit-taking institutions at 1.1 percent.
  - Real assets of nonbank deposit-taking institutions declined by almost 20 percent owing to serious performance issues.
  - Statistics for insurance and nonbank deposit-taking sectors have not been included consistently since 2017, making long-term trends difficult to assess.
- Banking ownership and concentration (June 2018):
  - All commercial banks are subsidiaries of foreign groups.
  - Top three banks represent approximately 57.4 percent of total banking sector assets.
  - Government holds a minority share in three commercial banks; one domestic commercial bank failed in 2011.
  - Only one bank provides Islamic banking services; two others have Islamic banking windows.
- Table 3 (Guinea: Structure of the Banking Sector, June 2018) — top banks and shares (Total Assets %):
  - Ecobank: 21.2 (ETI Holding (Togo)) — Memorandum of Agreement: Yes
  - Société Générale Guinée (SGBG): 20.3 (Société Générale (France)) — Yes
  - BICIGUI: 15.9 (BNP (France)) — Yes
  - Orabank: 7.6 (Oragroup (Togo)) — Yes
  - Banque Populaire Maroco-Guinéenne: 5.2 (Atlantic Business International (ABI Côte d’Ivoire) a subsidiary of Banque Populaire (Morocco)) — Yes
  - Vista Bank: 5.2 (Vista Group (The Gambia)) — Yes
  - United Bank for Africa: 5.0 (UBA (Nigeria)) — Yes
  - BSIC Guinee: 4.1 (BSIC (Libya)) — No
  - Banque Islamique de Guinée (BIG): 2.9 (Tamweel Africa Holding (Senegal)) — Yes
  - FBN Bank Guinée: 2.8 (First Bank of Nigeria (Nigeria)) — Yes
  - Afriland First Bank: 2.7 (Afriland First Bank (Cameroon)) — No (Proposed)
  - NSIA Banque Guinee: 2.6 (NSIA (Ivory Coast)) — Yes
  - Banque pour le Commerce et l’Industrie: 2.2 (BCI Group (Mauritanie)) — No (Proposed)
  - Skye Bank: 1.1 (Polaris Bank (Nigeria)) — Yes
  - Banque Nationale de Guinee: 0.7 (Groupe AON (Mauritania)) — No
  - BDG: 0.5 (BDG Capital (Malaysia)) — No
  - Source: BCRG
- Development bank:
  - A development bank (Banque Nationale d’Investissement de Guinée (BNIG)) was recently established and has just entered into operation.
  - Ownership: government 65 percent, BCRG 25 percent, Afriland First Bank 10 percent.
  - The bank is to operate as a second-tier development bank and will not take public deposits.
- Mobile money growth (Table 4: Development of mobile money):
  - Accounts: 2016 — 1,500,000; 2017 — 2,000,000; 2018 — 3,200,000; 05/29/2019 — 4,900,000
  - Active accounts: 2016 — 500,000; 2017 — 1,100,000; 2018 — 1,545,000; 05/29/2019 — 1,850,000
  - Value of transactions (GNF x 1,000,000): 2016 — 978; 2017 — 2,000,000; 2018 — 5,400,000; 05/29/2019 — 5,600,000
  - Total e-wallet balances (GNF x 1,000,000): 2016 — 186,000; 2017 — 300,000; 2018 — 452,000; 05/29/2019 — 505,000
  - Source: BCRG
- Currency composition and limits:
  - Dollarization of the loan portfolio about 21 percent; dollarization of banking-sector deposits about 29 percent.
  - Individual customers may hold accounts in GNF, USD and euros.
  - BCRG regulatory limit of 20 percent (of regulatory capital) on the net open position of banks.
- Market infrastructures:
  - BCRG operates RTGS, an automated clearinghouse, and a delivery-versus-payment system for securities purchased on a turnkey basis; these systems entered into operation between 2014 and 2016.

### II. C. Potential Financial Stability Vulnerabilities — Key Indicators and Concerns
- Overall observation: financial vulnerabilities appear to be growing; most FSIs trended negatively in 2018 compared to 2017.
- Specific negative trends (2015–2018 where indicated):
  - Capital adequacy declined from 16.8 at end-2015 to 15.2 at end-2018.
  - NPLs increased from 6.1 percent to 12.2 percent over the past four years.
  - Ratio of NPLs net of specific provisions to capital increased from 6.7 percent to 37.5 percent.
  - Provisioning, large exposures, liquidity measures, and net open currency position are on a negative trend.
- Heterogeneity and mitigating factors:
  - Significant variation exists between banks; figures are averages for the sector.
  - All banks are part of foreign financial groups that can provide access to parental support, taking into account the relatively small size of Guinean subsidiaries.
- Liquidity:
  - Banking system as a whole is liquid in GNF.
  - Main banks have access to foreign currency liquidity via parent-company facilities.
  - Some mid-sized banks frequently fail to meet reserve requirements, indicating liquidity management problems.
- Data quality and reporting discrepancies:
  - Discrepancies exist between FSIs and prudential reporting (e.g., net-open position >100 percent in FSIs vs. on average below 20 percent in prudential reporting).
  - BCRG needs to further analyze these discrepancies.
  - BCRG does not systematically collect necessary data to analyze drivers of observed trends; usable data on insurance and microfinance sectors is largely lacking.
- Sector-specific drivers (anecdotal evidence):
  - Increase in large exposures could reflect banks facilitating economic growth and increasing trade finance exposures.
  - Increase in NPLs is suggested to be mainly due to defaults in the hotel sector.

### II. C. Correspondent Banking Relations and BCRG Activities
- Correspondent banking relations (CBR):
  - Commercial banks’ CBRs appear stable; CBR rates for the banking sector did not decline over 2011–2018 according to Basel Committee analysis.
  - BCRG has experienced pressures in its correspondent banking relationships and scope of services.
- BCRG activities that may have contributed to CBR pressures:
  - Cash money services for commercial banks (central cashier role for commercial banks for foreign currency cash).
  - Commercial banking activities for current and previous politically exposed persons.
  - Involvement in gold and diamond exports (BCRG has received Kimberley certification).
- Box 1 key points (BCRG correspondent bank experience and recommendations):
  - BCRG collected USD and euro cash from commercial banks and transformed it into bank money; remunerated at 0.5 percent for transfers.
  - Since 2013, BCRG faced issues, particularly in euros, after Crédit Suisse closed accounts; subsequent correspondent banks excluded taking back cash.
  - In 2017 euros represented 80 percent of total cash holdings (formerly USD 80 percent); no valid explanation found for this change.
  - To avoid international anti-money laundering sanctions, BCRG established a compliance framework and stopped accepting euros when compliance was difficult.
  - Recommendation: BCRG should reflect on essential activities that do not fall within its core mandate and could lead to breaks with correspondent banks, specifically:
    - (i) provision of banking services to (past and present) politicians;
    - (ii) providing cash correspondent banking services for the commercial banks;
    - (iii) involvement in gold and diamond exports.
  - A break with international correspondent banks would have severe economy-wide consequences (inability to clear international checks or make international transfers, impacts on reserves management, BCRG intervention policy, foreign debt management, exports and imports, and potential capital flight).
  - Recommendation: BCRG should closely monitor correspondent banking relations and periodically assess whether the advantages of services provided outweigh the risks.

### II. D. Institutional Framework — Mandates, Governance, and Legal Framework
- BCRG roles and responsibilities:
  - Main objective: price stability.
  - Also responsible for supervision of the financial sector as an integrated supervisory authority (banks, nonbank deposit-taking institutions, mobile money operators and insurers).
  - Responsible for oversight of payments systems and financial stability.
- Institutional arrangements and gaps:
  - No institutional framework yet defining roles of the MEF and BCRG for macroprudential policy and supervision.
  - No specific authority responsible for consumer protection.
  - Guinea’s financial intelligence unit: National Financial Information Processing Unit (CENTIF), an administrative unit under the Ministry of Economy and Finance.
- Licensing and crisis arrangements:
  - All essential licensing decisions and approvals are made by the BCRG Licensing Committee (chaired by the Governor or a Deputy Governor).
  - Licensing Committee membership includes head of the Directorate General of Supervision of Financial Institutions (DGSIF) or representative, a member selected by the Minister of Economy and Finance (MEF), a member selected by the Minister of Justice, and an independent qualified public figure selected by the Governor of the BCRG.
  - Decisions taken by majority vote; chair has deciding vote in case of tie.
  - In 2018 the Licensing Committee launched the creation of a Deposit Insurance Fund:
    - The Fund acts as a pay-box and has its own Board of Directors chaired by the Governor of the BCRG; secretariat provided by the Banking Supervision Department (DSB).
    - First contributions to the deposit insurance system to be collected in 2019.
  - An official crisis management framework defining roles of the MEF and the BCRG has not yet been put in place.
- Recent legal framework updates — main components:
  - Charter of the BCRG (L/2014/016/AN)
  - Banking Law (L/2013/060/CNT)
  - Leasing Law (L/2012/005/CNT)
  - Insurance Code (L/2016/023/AN)
  - Inclusive Financial Institutions Act (L/2017/031/AN)
  - Anti-Money Laundering Law (L/2006/010/AN)
  - Countering the Financing of Terrorism Law (L/2014/010/AN)

*Source: This report contains the main observations and recommendations of the Financial Sector Stability Review (FSSR).*

### 26. The ultimate objective of developing the financial stability function is the long-term

### 26. The ultimate objective of developing the financial stability function is the long-term

### Financial stability function: objective and aims
- Ultimate objective: the long-term contribution of the financial sector to economic growth.
- The financial stability function aims to implement an effective macroprudential policy that will:
  - (a) prevent the emergence of financial imbalances that could have serious repercussions for the real economy;
  - (b) reduce contagion risks and mitigate the effects of upheavals using crisis management mechanisms; and
  - (c) increase the capacity of financial institutions or structures to absorb shocks.

### Institutional mandate and current capacity at the BCRG
- The BCRG has an explicit mandate in the area of financial stability under its charter.
- In the absence of a prudential framework (institutional and operational) allowing implementation of policies with macroprudential intent, the financial stability function has not yet been developed within the BCRG.
- Implementation of macroprudential policies requires:
  - collection of high-quality granular data;
  - development of adequate information systems;
  - staff with appropriate profiles;
  - analytical tools to produce vulnerability indicators.

### Data, reporting, and the credit registry
- The BCRG has compiled financial soundness indicators (FSIs) since 2014; currently these indicators cover only banks because data on insurance companies and deposit-taking microfinance institutions are incomplete or not timely.
- Data reported by banks to the banking supervision department are processed but are not yet available in the databases.
- A new, more complete reporting format will be launched in the near future based on the revised chart of accounts.
- Several BCRG officials have participated in training seminars, which have included some stress testing.
- To address lack of lending data, the BCRG launched the establishment of a credit registry in 2017, which should allow for complete automation of data sharing between the banks and the BCRG.
  - The project has encountered a number of difficulties and the credit registry is not yet operational.
  - Footnote: The main objective of the credit registry is to be an important source of information for credit bureaus and credit institutions to assess the quality of borrowers and their total indebtedness. This together with the recent establishment of a commercial court are important preconditions for creating an environment that is supportive of amongst others small-to medium-size (SME) lending.

### Phased macroprudential surveillance framework
- The various phases for implementing a macroprudential surveillance framework:
  1. Optimization of governance and the institutional framework by more clearly defining the powers of the BCRG in this area and developing a clearer decision-making process in which also the role the Ministry of Finance should be considered (e.g., informal coordination or a more formalized role through the creation of a macroprudential surveillance committee).
  2. Establishment of a dedicated structure to create the operational framework for macroprudential policy in five phases:
     - i. preparation of indicators, compilation of FSIs, construction of indices, examination of macroeconomic and performance indicator trends in the financial sector, forecasting models, stress testing;
     - ii. identification of risks and assessment of vulnerabilities using the above tools, of which the results could be published in a Financial Stability Report, providing BCRG’s forward looking views on the risks to financial stability;
     - iii. selection and calibration of instruments for the prevention and mitigation of shocks and crisis management (introduction of macroprudential ratios, for example, the establishment of ceilings on loan-to-value or loan-to-income ratios). The BCRG already has a number of instruments (e.g., large exposure requirements, open currency position ratio, and liquidity ratio) and plans to introduce other ratios as part of the AFW TA road map for 2021;
     - iv. implementation of these macroprudential instruments; and
     - v. evaluation and adjustment of measures.

### Immediate actions and TA program
- The BCRG should immediately begin to put in place a project group for the establishment of the financial stability function.
- Time will be needed to introduce necessary legal amendments and establish an institutional framework.
- A dedicated financial stability unit should be established, work should begin to improve the availability and quality of the data, and necessary analytical tools should be created.
- Proposed three-year TA program:
  - Should cover all areas related to financial stability.
  - Aim to establish a clear macroprudential surveillance framework based on reliable data and the capacity to identify risks and select adequate instruments for preventive, corrective or crisis management actions.

### Systemic liquidity: objectives and risks
- At the aggregate level, banking system liquidity refers to the capacity of banks to finance their reserves at the central bank.
- Supply and demand of reserves on the interbank market determines short-term interest rates.
- Interest rate volatility creates three problems:
  - (i) it imposes a liquidity premium, increasing cost of financing and hampering market development;
  - (ii) it exacerbates the credit cycle owing to abrupt changes in liquidity needs;
  - (iii) it can destabilize other markets where domestic currency interest rates are important, such as the foreign exchange market or the government securities market.
- Liquidity management aims to stabilize short-term rates.

### Current situation of Guinea’s banking liquidity and markets
- Banking system concentration:
  - Three banks capture almost 60 percent of total deposits in GNF and foreign currencies.
  - HHI concentration index is moderate at 0.13 at present.
  - Degree of concentration of excess reserves is higher.
- Bank penetration rate is 8 percent.
- Mobile money development has increased penetration but not reduced deposit concentration; two mobile money operators deposit their cash in the banking system.
- The banking system usually has a problem of liquidity overhang in GNF, a direct result of lack of domestic liquidity management by the BCRG.
- Some moderately sized banks frequently fail to meet their reserve requirements.
- Required reserves in foreign currencies also saw failures owing to the refusal of the BCRG to accept euro cash following correspondent bank problems.
- Interbank liquidity market functions but is small; takes the form of repos primarily for seven-day maturities.
- Introduction of RTGS and paperless SSS have facilitated operations.
- Primary and secondary markets for government securities are emerging; negotiable public debt constitutes a tiny fraction of total public debt and the secondary market is quite illiquid.
- Required reserves level provides a buffer:
  - Required reserves level is 16 percent, which provides a comfortable liquidity buffer for the BCRG to meet a liquidity crisis.
- Guinea deposit dollarization:
  - 29 percent of deposits are in foreign currency.
- Protections against foreign exchange liquidity risk:
  - All commercial banks in Guinea are subsidiaries of international groups (access to international liquidity).
  - BCRG imposes a foreign currency liquidity prudential ratio.
  - High level of foreign currency required reserves at 16 percent.

### Assessment of liquidity management by the BCRG
- Despite numerous IMF TA missions (five TA missions between December 2015 and June 2018), uneven progress has been made in implementing monetary policy.
- A promising liquidity forecasting framework and instruments exist, but the BCRG still does not systematically implement active liquidity management.
- The background note identifies disadvantages for inflation targeting and financial stability due to this inaction.
- The FSSR recommends that the BCRG implement previous recommendations and does not recommend additional TA in this area given substantial prior TA; implementation is at the discretion of the BCRG.

### Assessment of the collateral framework
- The BCRG theoretically accepts a wide range of collateral (private securities and government securities) for liquidity injections.
- Collateral framework for private securities is very vague and steps for mobilization of these securities have not been planned.
- Collateral ranking is needed: a uniform discount of 10 percent is currently applied to all collateral.
- The FSSR recommends TA to develop an advanced, structured collateral framework to:
  - enable large-scale liquidity injections if needed;
  - allow sound assessment and ranking of risks (market, credit and liquidity) and assign appropriate discounts to collateral types;
  - maintain the same level of residual risk while improving behavioral incentives of banks toward assets;
  - improve neutrality of guarantee mechanism and avoid preferential treatment for government securities;
  - encourage securitization of private claims and improve market liquidity;
  - define residual collateral for the establishment of an ELA mechanism.

### Implementation of the ELA framework
- Legal capacity for emergency liquidity assistance (ELA) was recently established by Instruction No. 090/DGCC/DPMC/2019 on the emergency liquidity assistance arrangements for “bank” category credit institutions.
- The operational framework for ELA has not yet been put in place.
- TA would be useful to prepare an operational framework and a framework agreement for quick activation in the event of an unanticipated ELA requirement.
- Aim: enable BCRG to provide ELA efficiently and safely for the BCRG balance sheet.

### Oversight of financial market infrastructures (FMIs) and payments
- BCRG operates three market infrastructures: an RTGS system, an automated clearinghouse, and a delivery-versus-payment system for securities; these entered into operation between 2014 and 2016 and operate well.
- The clearinghouse lacks a mechanism to ensure completion of end-of-day settlements.
- Legal gaps (no specific payments systems law) create legal risks related to:
  - legal validity of clearing operations;
  - payments finality;
  - protection of collateral holders in bankruptcy.
- The World Bank provided TA on a draft law in 2016, but that draft needs revision due to subsequent legislation (e.g., law on inclusive financial institutions).
- Checks remain widely used; authorities should discourage high-value checks and require clearing/settlement only after validation by the drawee bank.
- Mobile payments:
  - More than 80 percent of mobile money transactions consist of cash withdrawals; payments represent less than 10 percent of the total.
  - Regulatory framework for mobile payment operators is based on regional/African practices and is on the stricter side but does not seem to harm rapid development.
  - The law on inclusive financial institutions (2017) governs EMIs; EMIs must hold amounts entrusted to them in bank accounts and BCRG requires deposits at least equal to electronic money issued.
  - BCRG prevents EMIs from depositing more than 25 percent of funds with a single bank.
  - Convergence between banks and telephone operators is occurring (examples noted in the source).
- Guinea lacks an electronic payment switch for interoperability between payment service providers, banks and mobile payment operators.
  - ATM withdrawals are limited to the issuing bank’s network; merchant acceptance depends on issuer-provided point-of-sale terminals.
  - A World Bank–supported project for interoperability is being implemented but hampered by administrative red tape.
- Recommendation: Establish a National Payments Committee, chaired by the Governor of the BCRG, with representation from main participants (including users: merchants, major billers, government departments) to improve interoperability and coordination and to mitigate failures of past initiatives.

*Source: IMF mission background note and FSSR sections as provided in the supplied content.*

### 56. The BCRG does not yet have the means to fulfill its legal obligations in oversight of

### 1ginea2020001 - 56. The BCRG does not yet have the means to fulfill its legal obligations in oversight of

### Payments systems oversight
- Articles 10 and 21 of the Central Bank Statute of 2014 (modified in 2016 and 2017) give extensive oversight powers to BCRG, including: "...to promote the smooth functioning and ensure the supervision and safety of payment systems" and that the central bank "...takes measures required to ensure the efficiency, the solidity and the safety of interbank net-settlement systems, securities settlement systems and other systems or means of payment ..."
- Current situation:
  - BCRG has not yet created a unit to perform the oversight function.
  - Market infrastructures are managed in “project mode”.
  - The Automated Clearing House (ACH) and the RTGS/SSS are managed by two different directorates without dedicated staff assigned to payment systems operations and oversight.
- Recommendations:
  - (i) A single unit should be in charge of the operation of the three market infrastructures, possibly integrated into the “Direction Générale de l’Exploitation”.
  - (ii) A new unit should be created to manage the oversight function which could be part of a new directorate in charge of financial stability.

### Banking regulation and supervision — overview
- The BCRG has undertaken a very ambitious reform program to strengthen its regulatory framework, including:
  - Revision of the August 2013 banking law to align with the framework defined by the WAMZ member countries.
  - Finalization of a new bank chart of accounts and reporting system.
- Current projects of the Banking Supervision Department (DSB):
  - Automation of bank reporting to the BCRG.
  - Revision of the main prudential regulations.
  - Strengthening of RBS.
  - Consolidated supervision.
  - Transition to the International Financial Reporting Standards (in particular IFRS 9).
  - Adoption of the Basel II/III standards.
  - Development of a cybersecurity and crisis resolution framework.
- These enhancements are highly ambitious and will require a multi-year perspective.

### Reform support and implementation progress
- AFW is supporting the reform strategy with a work plan for 2017–2020 based on IMF performance indicators using a results-based management approach (Annex II.A).
- Deadlines are regularly updated.
- Despite commitment, progress is very slow and "none of the work program milestones have been entirely met."

### Legal framework — findings and recommendations
- Further improvements to the banking law should be planned to bring it into alignment with international best practices, including:
  - Detailing BCRG’s responsibility in supervising and regulating banks as embedded in the Central Bank Statute.
  - Clearly stipulating activities and operations that a development bank is allowed to undertake; most importantly, the development bank should not be allowed to attract deposits from the public.
  - BCRG should divest its holdings in the recently established development bank because it creates a conflict of interest with its role as supervisory authority.
  - Include powers to limit transactions with parent companies or the group to which the bank belongs in times of stress.
- The mission recommends reviewing these recommendations in the new draft banking law prepared based on the framework/example law implemented by the WAMZ member countries.

### Islamic banking
- Islamic banking activities are not yet widespread: currently there is only one active Islamic bank, and another bank has opened an Islamic banking window.
- Recommendation:
  - BCRG should plan to develop a specific legal and regulatory framework for Islamic financial institutions over the longer term, since existing laws governing traditional banks will not meet the requirements of Islamic instruments.

### Regulatory framework — findings and TA needs
- The regulatory framework consists of a set of instructions grouped in a compendium first issued in 2016 and updated in 2017 titled “Les Textes Légaux et Règlementaires Régissant l’Activité Bancaire et Financière en République de Guinée.”
- These regulations are not published and accessible on the BCRG website.
- The instructions reflect the Banking Law but will need significant expansion and amendments to comply with regional convergence criteria.
- TA needs and priorities:
  - Short-term: update or improve regulations in capital requirements, the leverage ratio, transactions with related parties, and concentration risk.
  - Medium-term (lower priority): Basel II/III regulations for liquidity risk, governance and risk management enhancements, reporting requirements for interest rate risk in the banking book, and country and transfer risk.
  - Longer-term: frameworks for implementation of Pillars 2 and 3 of Basel II/III, a framework for prudential stress-testing.
  - Long-term (not immediate priority): prudential regulation on Islamic finance in line with Islamic Financial Services Board standards.
- Note: Given banks’ dominance in Guinea's financial system, TA on prudential regulations is a precondition for operationalizing macroprudential tools.

### Reporting and supervision process — findings and capacity constraints
- Risk-Based Supervision (RBS):
  - DSB has made progress implementing RBS, using a bank rating system intended to trigger supervisory actions (annual onsite inspection plan, enhanced supervision, requests for adjustments).
  - The rating system requires improvement, especially in assessment of qualitative criteria (governance, risk management, internal control, AML/CFT).
  - Supervisors do not yet use stress testing as an important tool in RBS.
  - There are no onsite supervision and inspection procedure manuals to guide a harmonized supervision process.
- Staffing and resources:
  - DSB staffing total: 12 (including director, deputy director, assistant).
  - Distribution: offsite examination (4 staff), onsite inspection (2 staff), regulation/review of licensing/analysis of bank prudential reports including financial statements (3 staff).
  - The four offsite examination officials supervise 16 commercial banks and 1 development bank.
  - Not all information is received via an automated information system for secure data collection.
  - Consequence: supervision is chronically understaffed and far from having sufficient resources for effective supervision.
  - Example: Over 2016–2018 only four comprehensive onsite inspections were carried out, plus thematic inspection missions.
- Reporting improvements since 2011 with AFW assistance:
  - New chart of accounts, model financial statements, and periodic reports covering capital adequacy, liquidity, major risks, risk concentration by economic sector/region/currency, asset quality, loan loss provisions, and transactions with related parties.
  - Missing prudential reports: concentration by depositor (considered in new reporting framework), interest maturity gap in the banking book, and interest rate risk in the trading book (latter may be less relevant given market development and absence of material trading portfolios).

### Consolidated and cross-border supervision
- Current status:
  - BCRG is essentially a host supervisor; Guinean banks, including subsidiaries of foreign banks, have no banking subsidiaries abroad.
  - Some foreign-owned banks or parent companies have participations in both the Guinean bank subsidiary and in a Guinean microfinance institution under BCRG supervision.
  - Cross-border cooperation agreements are essential.
- Legal provisions:
  - Banking Law authorizes the supervisory authority of a foreign bank operating in Guinea to conduct an onsite inspection of that subsidiary; final report must be transmitted to the BCRG.
  - Banking Law authorizes sharing of information to facilitate consolidated supervision subject to reciprocity and confidentiality.
- Cooperation agreements:
  - BCRG has entered into or is in the process of entering into cooperation agreements with most home authorities concerned; signed memoranda of understanding with many supervisors in Africa and with France.
  - BCRG has signed agreements with: (i) the Bank of France (ACPR); (ii) the Central Bank of the Congo (BCC); (iii) Bank Al Maghrib (Morocco); (iv) the WAMU Banking Commission; (v) the Central African Banking Commission (COBAC); and (vi) the WAMZ.
  - Some agreements remain to be concluded and "should be concluded with priority."
  - BCRG participated in three supervisory colleges in 2017 and four in 2018.
- Recommendation on consolidated supervision:
  - Implementation of consolidated supervision is part of WAMZ convergence criteria but is not a current priority for Guinea because none of the banks have subsidiaries or branches abroad.
  - When developing new regulations, BCRG could clarify the extent to which they would apply on a consolidated basis if a bank establishes a subsidiary.

### Crisis management, bank resolution, and the safety net — review and recommendations
- Scope:
  - Review adjusted for Guinea’s system where banks are exclusively subsidiaries of foreign groups; focus on early intervention, resolution measures, and cross-border issues.
  - Emergency Liquidity Assistance (ELA) topic moved to systemic liquidity report.
- Early intervention (“enhanced supervision”):
  - Legislative framework should be expanded and strengthened despite successful past implementations.
  - Some provisions of enhanced supervision should be moved to law to facilitate cross-border application.
  - Triggers for early action should include indicators on the position of the parent bank in subsidiaries-dominated systems.
- Preventative recovery plans:
  - Requirement for banks to draft preventative recovery plans should be added.
  - Mission suggests that in the coming two to three years BCRG impose preventative recovery plans on all banks, or at least the largest banks, operating in Guinea.
  - For subsidiaries of foreign banks, BCRG could rely on group recovery plans and advanced cross-border cooperation.
  - Recovery plan regulations should require identification of triggers and measures specific to the Guinean subsidiary.
- Bank crisis management and resolution powers:
  - Law should assign clearly defined objectives for bank resolution to BCRG and include more provisions, objectives, and resolution powers to meet the “Financial Stability Board Key Attributes.”
  - Recommended that the decision-making procedure for bank resolution be separate from the body responsible for supervision.
  - Banking law should be amended to provide broader resolution powers and detail conditions for implementation when they affect shareholder or creditor rights.
  - Initial implementation could include only a portion of bank resolution powers; measures to protect shareholders and creditors of banks under resolution must be included.
  - Only after banking law amendments can BCRG begin drafting initial resolution plans, based on home authorities' work and cooperation.
- Deposit insurance:
  - Adoption of deposit insurance system in 2018 responded to a recent bank failure and WAMZ commitments.
  - The mandate, powers, objectives and essential elements of the deposit insurance system should be specified in legislation to meet international standards.
  - Preconditions to develop further: sound governance of agencies in the financial safety net; effective regulation and supervision; well-functioning legal, accounting, and disclosure systems.
  - Authorities must determine parameters for the deposit insurance fund to be fully operational.
  - Mission recommendation: deposit insurance should be limited to a “paybox plus” function (i.e., resources may be used to financially support resolution measures such as purchase-and-assumption and bridge bank tools).
  - A government back-up line of credit should be planned as emergency financing for situations where the fund’s resources might be insufficient or depleted.
- Ministry of Finance role:
  - Should prepare for involvement in potential bank resolutions including provision of temporary financial support.
  - System-wide crises may require exceptional last-resort measures (e.g., guarantees or capital injections).
  - Any funding should be subject to strict conditions to minimize moral hazard, including allocation of losses to equity holders and residual costs to unsecured and uninsured depositors and the industry through ex-post assessments, insurance premiums, or other mechanisms.
- Crisis management coordination:
  - Propose establishment of a national body responsible for coordinating crisis management activities.
  - BCRG and MEF should prepare a confidential memorandum indicating their respective responsibilities in banking crises.
  - BCRG’s extensive network of cross-border cooperation agreements covers crisis management coordination and would require only adjustments once a statutory resolution regime is adopted.

*IMF staff assessment as presented in the specified chapter/section of the source document.*

### 79. It is crucial to strengthen the bank crisis management and prevention capacity of

### 79. It is crucial to strengthen the bank crisis management and prevention capacity of

### Crisis management and prevention capacity
- Strengthen staffing level and expertise of the BCRG and the Treasury in crisis management, bank resolution, and deposit insurance.
- Recruit and train crisis management, bank resolution, and deposit insurance experts; this is particularly crucial for the BCRG.
- Expand legislative measures providing legal protection for the BCRG and its officials explicitly to the bank resolution and deposit insurance missions.

### IV. TA ROAD MAP — purpose and approach
- The TA road map links the baseline assessment in Section III to the key strategic reforms planned and emphasizes specific measures the authorities agreed to take within a predetermined time frame (three years).
- The IMF, with assistance from other TA providers if possible, will collaborate with the authorities to implement and monitor progress versus expected outcomes.
- The TA road map is a set of milestones for targeted strategic objectives; specific TA timetable will be detailed when terms of reference are prepared.
- Flexibility is important to adapt TA projects to changing financial conditions in Guinea.

### Proposed TA projects (organization, timing, and scope)
- Overall: TA projects aim to measurably improve performance of authorities within indicated time frames; descriptions reference corresponding numbers (#) in Annex III.

- Banking regulation and supervision
  - (#1) Amendment of the banking law: Organization: six weeks in total (two weeks offsite support; two weeks onsite follow-up with authorities; one week offsite and one week onsite follow-up on stakeholder comments).
  - (#2) Revision of capital adequacy standards, asset classification, risk concentration, related-party transactions: 12 weeks of TA. Revision of liquidity standards, governance and risk management (including operational risk), market risk and portfolio interest rate risk comparisons: 10 weeks of TA. Organization: a total of 22 weeks of TA.
  - (#3) Enhancement of bank risk assessment (offsite examinations and onsite inspections), including RBS manuals: Organization: 12 weeks of TA over three to four years.
  - (#4) Introduction of an automatic reporting tool: Organization: ideally provided by the donor supporting the acquisition of the reporting tool.

- Crisis management, bank resolution and safety nets
  - (#5) TA to complement the law on the deposit insurance system and complete regulations to meet international standards and make them operational. Target completion by March 2020. Organization: two two-week onsite missions and four weeks of desk work.
  - (#6 and #7) TA to complete early intervention framework (“enhanced supervision”) and prepare a special bank resolution regime. Start early 2020 and conclude by December 2020. Organization: two one-week onsite missions and two weeks of desk work.
  - (#8) TA to implement the special bank resolution regime (bank resolvability analysis; operational improvements; drafting resolution strategies). Cannot take place until legislative regime adopted. Proposed completion by June 2022. Organization: two one-week onsite missions and two weeks of desk work.
  - (#9) TA to build BCRG capacity to react to a systemic crisis (prepare responses, draft crisis scenarios and crisis management plans in liaison with financial stability function). Cannot take place until a financial stability function has been established in the BCRG. Organization: two one-week onsite missions and two weeks of desk work.

- Financial stability oversight
  - (#10) Complete three-year TA program covering financial stability and macroprudential surveillance areas: establish clear institutional framework for macroprudential surveillance based on reliable data and capacity to identify risks and select measures. Organization: two weeks of desk review and a two-week onsite mission to review/amend the Central Bank Statute and four two-week missions to operationalize the financial stability unit (total 12 weeks), of which two missions will be jointly undertaken by MCM and the IMF Statistics Department.

- Systemic liquidity
  - (#11) Establish structured and ranked collateral framework: Organization: one two-week mission and MCM follow-up.
  - (#12) Establish ELA framework agreement and operational framework (institutional framework, eligibility criteria, collateral valuation, financing plan, financing conditions/deadlines; possible government guarantee model). Mission after collateral framework established. Organization: one two-week mission and MCM follow-up.
  - (#11 and #12) A follow-up mission covering both areas recommended.

- Oversight of financial market infrastructures
  - (#13) Amend payments systems law to introduce: (i) legal validity of clearing; (ii) payment finality; (iii) protection of holders of collateral; and establish mechanism guaranteeing completion of end-of-day settlement operations. Organization: ideally covered by the World Bank.
  - (#14) Create payments systems oversight function. Organization: ideally covered by the World Bank.

- Resource notes on TA delivery
  - The total estimated amount of TA for banking supervision, excluding legal advice, is 40 weeks of which about 34 weeks (projects #2 and 3) are to be provided and covered by AFW’s existing TA program.
  - Assuming missions consist of two experts, and a two-week mission every three months, delivery of the proposed TA would take approximately three years.
  - Time between drafting new regulations and their adoption can be long; drafting might be possible within three years assuming increased DSB resources and strong BCRG ownership, but adoption dates are more difficult to estimate.

### Prioritization, sequencing, and resource constraints
- Realizing the TA Roadmap requires additional resources; recommendations on banking supervision, crisis management, and financial stability draw on the same DSB staff pool.
- Achieving recommendations within a three-year timeframe requires additional resources to be made available.
- Setting up separate payments operations and payments oversight units will also require additional resources.
- Clear prioritization is key given limited BCRG resources. Suggested prioritization:
  1. Key recommendations on banking regulation and supervision.
  2. Strengthening banking resolution and crisis management frameworks and safety net.
  3. Establishing and operationalizing a financial stability surveillance unit.
  4. Developing macroprudential policy and selecting necessary macroprudential tools.
- Recommendations on systemic liquidity and financial market infrastructures can be addressed in parallel as they are the responsibility of other departments and draw on other resources.
- Some TA Roadmap elements should be covered simultaneously or considered in relation to each other:
  - Banking supervision (#1), deposit insurance (#5), early intervention (#6), and special bank resolution regime (#7) all require changes to the Banking Law and ideally should be addressed simultaneously.
  - Review of proposed amendments to the Banking Law could be combined with review of necessary amendments to the Central Bank Statute.
  - Consideration of institutional frameworks for crisis management and financial stability simultaneously (one option: make one body responsible for both) and consider organizational arrangements for financial stability, payments oversight, and resolution units.

### Key Financial Soundness Indicators (FSIs) — core FSIs (percentage)
- Regulatory capital to risk-weighted assets: 2013 15.7, 2014 18.3, 2015 16.5, 2016 17.9, 2017 16.8, 2018 15.2
- Regulatory Tier 1 capital to risk-weighted assets: 2013 14.6, 2014 18.6, 2015 16.9, 2016 18.0, 2017 17.4, 2018 15.6
- NPLs net of provisions to capital: 2013 8.2, 2014 8.0, 2015 6.8, 2016 14.7, 2017 11.3, 2018 37.5
- NPLs to total gross loans: 2013 6.2, 2014 6.1, 2015 6.1, 2016 9.4, 2017 10.7, 2018 12.2
- Return on assets: 2013 2.0, 2014 1.7, 2015 2.2, 2016 2.1, 2017 2.0, 2018 2.0
- Return on equity: 2013 19.2, 2014 15.2, 2015 20.9, 2016 18.8, 2017 16.7, 2018 19.3
- Interest margin to gross income: 2013 27.7, 2014 22.6, 2015 20.1, 2016 38.9, 2017 41.8, 2018 38.6
- Noninterest expenses to gross income: 2013 84.0, 2014 88.2, 2015 86.6, 2016 79.2, 2017 78.1, 2018 78.0
- Liquid assets to total assets: 2013 36.3, 2014 32.8, 2015 25.6, 2016 28.9, 2017 26.8, 2018 26.2
- Liquid assets to short-term liabilities: 2013 58.4, 2014 50.1, 2015 42.1, 2016 45.8, 2017 43.1, 2018 42.6
- Net open position in foreign exchange to capital: 2013 168.0, 2014 30.7, 2015 -56.3, 2016 25.1, 2017 79.2, 2018 105.7

### Sectoral distribution of loans (percentage)
- Residents: 2013 99.6, 2014 99.6, 2015 99.7, 2016 100.0, 2017 99.7, 2018 99.6
- Deposit takers: 2013 0.0, 2014 0.0, 2015 0.0, 2016 0.0, 2017 0.0, 2018 0.0
- Central bank: 2013 0.0, 2014 0.0, 2015 0.1, 2016 0.1, 2017 0.0, 2018 0.1
- Other financial corporations: 2013 0.0, 2014 0.0, 2015 0.0, 2016 0.0, 2017 0.0, 2018 0.0
- Government: 2013 0.0, 2014 0.0, 2015 0.0, 2016 0.0, 2017 0.2, 2018 0.1
- Nonfinancial corporations: 2013 65.5, 2014 60.0, 2015 58.9, 2016 53.0, 2017 59.9, 2018 64.2
- Households: 2013 34.1, 2014 39.5, 2015 40.7, 2016 46.8, 2017 39.6, 2018 35.1
- Nonresidents: 2013 0.4, 2014 0.4, 2015 0.3, 2016 0.0, 2017 0.3, 2018 0.4

### Additional FSIs (percentage)
- Capital to assets: 2013 10.2, 2014 11.1, 2015 10.6, 2016 11.0, 2017 11.9, 2018 8.9
- Large exposures to capital: 2013 110.8, 2014 90.8, 2015 99.1, 2016 142.4, 2017 162.4, 2018 243.7
- Personnel expenses to noninterest expenses: 2013 13.0, 2014 10.3, 2015 9.2, 2016 16.6, 2017 18.6, 2018 17.5
- Customer deposits to total (non-interbank) loans: 2013 214.9, 2014 181.4, 2015 170.3, 2016 175.0, 2017 191.0, 2018 190.5
- Foreign-currency-denominated loans to total loans: 2013 21.6, 2014 26.7, 2015 29.2, 2016 27.5, 2017 20.0, 2018 21.5
- Foreign-currency-denominated liabilities to total liabilities: 2013 29.7, 2014 26.0, 2015 26.5, 2016 29.4, 2017 30.2, 2018 29.3

### Monetary and financial statistics, balance sheet matrix, and planned TA
- MFS for central bank and other depository corporations based on SRFs was submitted to STA for review; a mission in January 2019 finalized migration to SRFs conforming with the IMF’s MFSMCG methodology.
- Monetary and financial statistics based on the SRFs were submitted and are under review.
- The balance sheet matrix (BSA) for Guinea is still work in progress.
- IMF Statistics Department planned one TA mission this fiscal year to support further improvement to MFS and FSIs.
- As part of the TA Roadmap, four weeks of onsite support are budgeted (Section IV TA project #10) to assist in improving data availability and quality for financial stability surveillance.

### Annex II — Select milestones and deadlines for banking supervision (AFW TA Program)
- Adoption of the Basel II/III standard:
  - Impact study on new capital definition and minimum capital requirement: Deadline June 2020; Indicator: 1 Impact study completed.
  - Definition of prudential capital: Deadline Dec 2020; Indicator: 1 Instruction enacted.
  - Revision of weighted risks for credit risk: Deadline Dec 2020; Indicator: 1 Instruction enacted.
  - Introduction of market and operational risk requirements: Deadline Dec 2020; Indicator: 1 Instruction enacted.
  - Impact study on new liquidity and funding norms: Deadline June 2021; Indicator: 1 Impact study completed.
  - Revision of liquidity regulations: Deadline Dec 2021; Indicator: 1 Instruction enacted.
  - Revision of regulation on long term funding: Deadline Dec 2021; Indicator: 1 Instruction enacted.
  - Introduction of a leverage ratio: Deadline June 2021; Indicator: 1 Instruction enacted.
  - Adoption of Basel II’s Pillars 2 and 3: Deadline Dec 20121; Indicator: 1 Instruction enacted.
  - Training in Basel II and Basel III standards: Deadline December 2020; Indicator: 1 Training completed.

- Strengthening of regulation and supervision:
  - Revision of regulation on risk concentration: Deadline June 2021; Indicator: 1 Instruction enacted.
  - Revision of regulation on liabilities to related parties: Deadline June 2021; Indicator: 1 Instruction enacted.
  - Net stable funding: Deadline December 2021; Indicator: 1 Instruction enacted.
  - Definition of content of internal control report: Deadline June 2020; Indicator: 1 Circular to banks.

- Implementation of RBS:
  - New chart of accounts and revision of reporting: Deadline December 2018; Indicator: 3 Bank chart of accounts and reporting statements prepared.
  - Training in new chart of accounts and reporting: Deadline June 2019; Indicator: 1 Training completed.
  - Data collection and processing system automating bank report use: Deadline January 2020; Indicator: 2 Process implemented.
  - Organization of offsite examination: Deadline Dec 2020; Indicator: 1 Reorganization of offsite examination and increase in staffing.
  - Increase in supervisory staff: Deadline December 2018; Indicator: 1 Reorganization of offsite examination and its staff.
  - Implementation of bank rating methodology: Deadline June 2020; Indicator: 3 Methodology drafted and applied.
  - Preparation of onsite inspection procedures and manuals: Deadline December 2019; Indicator: 3 Revised onsite inspection procedure.
  - Training in RBS: Deadline June 2020; Indicator: 2 Training provided.

*Source: IMF staff report content as provided in the supplied PDF content.*

### 4. TREATMENT OF CREDIT RISK - NPLs

### 4. TREATMENT OF CREDIT RISK - NPLs

### Classification of assets and provisioning; training
- Timeline and status items:
  - "Classification of assets and provisioning December 2018" — "Instruction enacted"
  - "Review texts on provisioning rules" — "Draft available for introduction with the implementing regulations for the new bank chart of accounts"
  - "Training on the treatment of credit risk June 2020" — "1 Training provided"
  - "Training on the treatment of credit risk" (additional listing present but without separate status detail)

### Key implications and policy focus
- Strengthen and finalize provisioning rules and implementing regulations linked to the new bank chart of accounts.
- Ensure continued capacity building through targeted training on credit risk treatment (noted training delivered June 2020).

---

### B. Monetary Policy Implementation / Liquidity Management

### Summary of Calibration of Open Market Operations (June 18–29, 2018)
- This section summarizes and reiterates recommendations from 5 previous missions.

### Recommendations, time frames, and implementation progress (numbered)
- Recommendation 1
  - Action: The Research and Analysis Directorate and the Statistics and Balance of Payments Directorate should develop forecasts for each component of base money and quantitative estimates of their sensitivity to monetary policy.
  - Time Frame: Medium term
  - Implementation Progress: The Research Department is currently reviewing monetary policy conduct. This will be taken into account during that review.
- Recommendation 2
  - Action: The Research and Analysis Directorate and the Statistics and Balance of Payments Directorate should develop forecasts of the medium-term autonomous factors to assess the change in the structural liquidity position.
  - Time Frame: Short term
  - Implementation Progress: The Research Department is currently reviewing monetary policy conduct. This will be taken into account during that review.
- Recommendation 3
  - Action: Creation of a monetary policy committee to determine the monetary policy direction before the start of each maintenance period, including:
    - the amount of excess liquidity targeted for the maintenance period;
    - the monetary policy rate;
    - the required reserve ratio (only in case of a structural change in the liquidity position).
  - Time Frame: August 2018
  - Implementation Progress: Although the monetary policy committee is provided for by law, it has not yet been established as the members have not been appointed.
- Recommendation 4
  - Action: Establishment of an internal liquidity committee that meets weekly on a specific day to review the liquidity position for the week and decide on operations to achieve the excess liquidity target.
  - Time Frame: Immediate
  - Implementation Progress: On August 24, 2018, the BCRG established a liquidity committee and a team to forecast the bank autonomous liquidity factors (Decision No. 086/DGCC/DPMC/2018 and Decision No. 087/DGCC/DPMC/2018).
- Recommendation 5
  - Action: Establishment of a delegation of authority to ensure timely decisions on operations each week.
  - Time Frame: Immediate
  - Implementation Progress: The chair of the liquidity committee may delegate authority to the Director of Monetary Policy and Credit to facilitate decision-making.
- Recommendation 6
  - Action: Weekly participation of a central bank official in the “cash flow committee support unit,” with the Treasury Directorate.
  - Time Frame: Immediate
  - Implementation Progress: The DPMC is a member of this unit; participation will allow real-time information on flows affecting the Treasury balance at the BCRG.
- Recommendation 7
  - Action: Continue to reduce errors in one-week liquidity forecasting.
  - Time Frame: Short term
  - Implementation Progress: Forecasting errors are steadily declining.
- Recommendation 8
  - Action: Hiring of two officials assigned to liquidity forecasting and analysis.
  - Time Frame: Short term
  - Implementation Progress: With the return of the DPMC official, who was on training in Dakar, recruitment of additional officials is not seen as necessary.
- Recommendation 9
  - Action: Conduct liquidity injection or absorption operations each week on a specific day, with a preannounced amount, based on the decision of the liquidity committee.
  - Time Frame: August 2018
  - Implementation Progress:
    - Proposes weekly MPO for absorption or injection based on liquidity forecasting.
    - BCR issues two types of TRM: fixed rate TRMs and variable rate TRMs (variable rate TRMs highly recommended).
    - Notes importance of active weekly liquidity management to neutralize autonomous factors and develop an interest rate formation mechanism.
    - To reduce monetary policy cost, absorption of excess reserves can take the form of an adjustment of the reserve ratio.
- Recommendation 10
  - Action: Calibrate monetary policy operations to neutralize the autonomous factors and achieve the excess liquidity target.
  - Time Frame: August 2018
  - Implementation Progress: Calibration is described as an optimal monetary policy gauge to influence bank credit trends and inflation; measure aligns with BCRG’s price stability objectives.
- Recommendation 11
  - Action: Publish the results of monetary policy operations directly after they take place.
  - Time Frame: August 2018
  - Implementation Progress: Suggests publication could take the form of emails to participants as for MEBD or Treasury bill (BDT) auction results.
- Recommendation 12
  - Action: By means of a seminar, communicate the BCRG’s intention to actively manage liquidity.
  - Time Frame: August 2018
  - Implementation Progress: Central bank proposes to organize this seminar in 2019.
- Recommendation 13
  - Action: Determine the required reserve base before the beginning of the period.
  - Time Frame: August 2018
  - Implementation Progress: An instruction was issued by the BCRG to:
    - take account of changes in the required reserve system since 2005;
    - determine the required reserve base before the beginning of the establishment period;
    - establish a four-week establishment period for the required reserves;
    - set penalty rates on the required reserves (TPO +8) and the deadline for submission of required reserve reports.
- Recommendation 14
  - Action: Align the forecasting period, monetary policy operations, and the reserve maintenance period.
  - Time Frame: August 2018
  - Implementation Progress: Liquidity forecasting is currently based on the required reserve maintenance period; however, MPO to mop up liquidity are not implemented, indicating relevance of this recommendation.
- Recommendation 15
  - Action: On the central bank’s website, indicate the amount of excess liquidity targeted by the BCRG for the next maintenance period, before the beginning of that period.
  - Time Frame: August 2018
  - Implementation Progress: BCRG website is being overhauled; once ready, this information will be indicated.
- Recommendation 16
  - Action: Each day communicate the amount of excess liquidity in the banking system since the beginning of the maintenance period.
  - Time Frame: August 2018
  - Implementation Progress: Recommendations 15 and 16 intended to provide transparency in liquidity management.

- Time frame legend included: Immediate (I) = 0-3 months, Short term (ST) = 3–6 months, Medium term (MT) = 6–18 months, Long term (LT) = 18–24 months.

---

### ANNEX III. FSSR TA ROAD MAP — Banking Regulation, Supervision, Crisis Management, and Market Infrastructure

### Overview
- The annex lists identified weaknesses, strategic objectives, expected outcomes, timelines, key TA outputs, and implementation risks across banking regulation and supervision, crisis management and resolution, financial stability oversight, systemic liquidity, and financial market infrastructure.
- Timelines and responsible authority acronyms (e.g., BCRG, MEF) are specified for each item.

### Selected items (numbered) — Weakness, Strategic Objective, Outcomes, Timeline, Key TA Outputs, Implementation Risks

- 1
  - Weakness Identified: Detailing of BCRG’s mandate for banking supervision; No specific provisions for development banks; (Optional) no provisions for Islamic banking
  - Strategic Objective: Strengthen the legal framework
  - Outcomes Expected by the Authorities:
    - Strengthened and more precise mandate on financial / banking sector supervision
    - The legal framework sets out specific requirements for development banks.
    - (Optional) inclusions of provisions for Islamic banking
  - Timeline: December 2020 (BCRG)
  - Key TA Outputs: Draft amendments to update and revise the banking law
  - Implementation risk: Parliamentary delay in voting on and passing the law

- 2
  - Weakness Identified: Outdated prudential regulations
  - Strategic Objective: Develop and strengthen banking regulation and the prudential rules
  - Outcomes Expected:
    - The prudential regulations require banks to apply sound policies and processes for identifying, measuring, monitoring and controlling their financial risks on a timely basis and for assessing the adequacy of their capital vis-à-vis their risk profile
  - Timeline: December 2020 (BCRG) and December 2021 (BCRG) for additional outputs
  - Key TA Outputs:
    - Draft prudential regulations based on the Basel II / III capital adequacy standards, and for transactions with related parties and large exposures
    - Draft prudential regulations based on the Basel II / III liquidity standards
    - Revised drafts of regulations on governance and risk management
    - Draft requirements for IRRBB and country and transfer risks
  - Implementation risks: Lack of supervisors to participate; Lack of TA providers within required time frames

- 3
  - Weakness Identified: Insufficient risk assessment processes
  - Strategic Objective: Introduce a more effective RBS system and upgrade other supervisory processes
  - Outcomes Expected: Operational procedures and manuals for the implementation of RBS
  - Timeline: June 2020 (BCRG)
  - Key TA Outputs: Draft manuals and templates to effectively implement RBS
  - Implementation risk: Delay in recruitment of additional bank supervisors

- 4
  - Weakness Identified: Lack of an automated reporting system
  - Strategic Objective: Introduce an effective prudential reporting system
  - Outcomes Expected: Enhanced quality and timeliness of regulatory data
  - Timeline: December 2020 (BCRG)
  - Key TA Outputs: Recommendations on the (automated and flexible) analysis of prudential returns
  - Implementation risk: Lack of financial resources or delays in donor financing for purchase of the automated system

- 5
  - Weakness Identified: Deposit insurance is not operational or credible
  - Strategic Objective: Protection of depositors in the event of a bank liquidation; Prevent depositor panic; Financing of resolution
  - Outcomes Expected:
    - Identify essential elements of deposit insurance to be specified in law to meet international standards
    - Propose legal provisions and regulations to complete the deposit insurance framework (e.g., coverage, target)
    - Establish an emergency line from the government if the deposit insurance fund is insufficient
  - Timeline: March 2020 (BCRG, Board of Directors of the Deposit Insurance Fund, MEF)
  - Key TA Outputs:
    - Recommendations on elements to specify in legislation to meet international standards
    - Recommendations on legal provisions and regulations to complete the deposit insurance system
    - Recommendations on implementation of the deposit insurance system including a possible emergency line from the government
  - Implementation risks:
    - Very limited human resources (“key person”)
    - Willingness and consensus of authorities (BCRG, MinFin, Justice)
    - Legislative changes depend on government/legislature
    - Opposition of interest groups (large banks versus small banks)

- 6
  - Weakness Identified: Incomplete framework of early intervention measures (“enhanced supervision”)
  - Strategic Objective: Earlier intervention in problem banks; build on financial and operational support from parent companies of Guinean banks
  - Outcomes Expected:
    - Regulatory/legislative reforms to complete the enhanced supervision framework
    - Require banks to prepare recovery plans at group or individual level
    - Recommendations on assessment of bank recovery plans by supervisors
  - Timeline: December 2020 (BCRG)
  - Key TA Outputs: Recommendations on regulatory/legislative proposals for early intervention and recovery plans
  - Implementation risks: Almost complete lack of human resources; Need for training; Legislative changes depend on government/legislature; Cooperation with home supervisors

- 7
  - Weakness Identified: Very incomplete bank crisis resolution regime, limited resolution tools, questionable legislative basis, lack of consideration of foreign groups
  - Strategic Objective: Adopt a special bank resolution regime (tailored to Guinean banking system)
  - Outcomes Expected:
    - Propose legislative changes for resolution/liquidation tools and a protection mechanism
    - Establish a Resolution College / Financial Stability Board
    - Recognition in Guinea of cross-border crisis management and resolution measures
  - Timeline: December 2020 (BCRG / Special Resolution Unit)
  - Key TA Outputs:
    - Recommendation on resolution tools
    - Discussion of amendments to the Banking Law and BCRG Statute
    - Legal and resolution training (IMF ATI and/or Bank of France IBFI)
  - Implementation risks: Almost complete lack of human resources; Need for training; Legislative changes depend on government/legislature

- 8
  - Weakness Identified: Limited capacity to implement bank resolution measures
  - Strategic Objective: Implementation of the special bank resolution regime
  - Outcomes Expected:
    - Analysis of the resolvability of banks
    - Assessment of operational improvements
    - Drafting of resolution strategies taking account of groups
  - Timeline: June 2022 (BCRG / Special Resolution Unit)
  - Key TA Outputs: Working groups on crisis scenarios and resolution measures; Identification of operational obstacles
  - Implementation risks: Almost complete lack of human resources; Need for training; Opposition of interest groups (banks)

- 9
  - Weakness Identified: Limited capacity to react to a systemic crisis
  - Strategic Objective: Preparation for a systemic bank crisis (liquidity or solvency)
  - Outcomes Expected:
    - Prepare crisis scenarios and crisis management plans
    - Liaison with financial stability function analyses/alerts
  - Timeline: December 2021 (BCRG / MEF)
  - Key TA Outputs: Working groups on crisis scenarios and crisis management mechanism; Advice on crisis management plans
  - Implementation risks: Almost complete lack of human resources; Need for training; Financial stability function to be established

- 10
  - Weakness Identified: Lack of financial stability and macroprudential surveillance capacity
  - Strategic Objective: Establish an institutional framework for macroprudential surveillance based on reliable data and capacity to identify risks and select instruments
  - Outcomes Expected:
    - Improve financial stability and ability to identify and mitigate risks
  - Timeline: June 2022 (BCRG / MEF)
  - Key TA Outputs:
    - Recommendations on institutional framework and mandate for macroprudential surveillance for the BCRG
    - Recommendations on operational framework for data collection, development of FSIs, identification of risks, selection of instruments, and analytical tools
    - Recommendations on communications strategy to ensure transparency
  - Implementation risks: Willingness of authorities to implement function within BCRG; Collection of reliable data; Human resources with desired profile

- 11
  - Weakness Identified: Establish a structured and ranked collateral framework (systemic liquidity)
  - Strategic Objective: Protection of the BCRG balance sheet and neutral monetary policy implementation
  - Outcomes Expected:
    - Ranking of various types of collateral accepted (public and private securities)
    - Definition of the minimum credit risk accepted
    - Adoption of differentiated discounts
    - Mobilization of private securities
  - Timeline: June 2020 (BCRG)
  - Key TA Outputs:
    - Recommendations on ranking of collateral and appropriate discounts by instrument and maturity
    - Recommendations on minimum risk accepted for private securities
    - Recommendation on a temporary solution pending rating of private debtors
    - Recommendations on mobilization of private securities
  - Implementation risk: Establish a structured and ranked collateral framework (implementation risk statement mirrors the objective)

- 12
  - Weakness Identified: Lack of operational framework and framework agreement for emergency liquidity assistance (ELA)
  - Strategic Objective: Be prepared when ELA is necessary
  - Outcomes Expected:
    - Establish operational framework for ELA
    - Draft a framework agreement between parties for ELA
  - Timeline: June 2021 (BCRG)
  - Key TA Outputs:
    - Recommendations on institutional framework, eligibility criteria, collateral valuation, government guarantee, financing plan, ELA exit strategy, deadlines, financial conditions
  - Implementation risk: Build operational framework and framework agreement for ELA

- 13
  - Weakness Identified: Lack of a law on the payments systems and lack of an instrument on end-of-day operations
  - Strategic Objective: Establish effective legal and regulatory framework providing assurance on payment finality
  - Outcomes Expected: Reliable payments systems
  - Timeline: June 2021 (BCRG)
  - Key TA Outputs: Draft national law on the payments systems and instruction on end-of-day payments
  - Implementation risk: Parliamentary delay in adoption of the law

- 14
  - Weakness Identified: Lack of a payments system oversight function
  - Strategic Objective: Ensure security and efficiency of the payments systems and other market infrastructures to avoid systemic risk
  - Outcomes Expected: Reliable and effective payments systems
  - Timeline: June 2020 (BCRG)
  - Key TA Outputs: Create a separate unit within the BCRG for payment systems oversight
  - Implementation risks: Willingness of authorities to implement this function within the BCRG; Human resources with the desired profile

*Source: 4. TREATMENT OF CREDIT RISK - NPLs and associated sections of the provided PDF content.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1ginea2020001.pdf_