## _cr06321 ## Source details **Canonical URL:** [_cr06321](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06321.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06321.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06321.pdf.json) --- ### Overall assessment of stability, integration and development issues - The CEMAC financial sector: - "lacks depth, is highly fragmented, and its stability is exposed to significant risks." - Access to financial services is "among the lowest in Africa." - Dominated by a "noncompetitive banking sector" highly vulnerable to credit risk. - Institutional weaknesses: - "Lack of institutional independence of the Central African Banking Commission (COBAC)" with poor enforcement capacity and "protracted noncompliance with critical prudential norms by several banks." - Weak government cash management and weaknesses in the systemic liquidity management framework exacerbate vulnerabilities. ### Short-term risks to the banking sector and prudential framework - Credit risk and capital: - "A large number of banks are undercapitalized given their risk exposure to few sectors and borrowers and the weak judicial framework for enforcing creditor rights." - Mission recommended "raising the minimum capital adequacy ratio above the current 8 percent." - Supervisory capacity and governance: - Financial supervisors are "well trained," but national authorities' interference and an "acute shortage of staff" limit supervisory effectiveness. - Full enforcement of prudential norms requires "further curtailing the role of the national authorities in the issuance or withdrawal of bank licenses." - Regional authorities plan to "increase staffing of the supervisory agencies" and use FSAP recommendations for an action plan. - AML-CFT: - "Significant steps were taken by COBAC and the banking sector to implement the regional framework for AML-CFT," but the "division of labor between and accountability of the regional and national authorities needs to be clarified." - National authorities should "promptly establish the national Financial Intelligence Units and build up their operational capacities." ### Systemic liquidity: context, constraints and recommendations - Monetary policy context: - BEAC operates under a fixed exchange rate against the Euro; it "formulates common monetary policy targets" but "systemic liquidity management remains largely country-based due to the lack of integration of the money market." - Minimum statutory foreign exchange cover ratio is "20 percent." At end-2005, it "stood at 85 percent." - Financial relations and fiscal interactions: - Financial relations between BEAC and CEMAC governments "do not ensure a clear separation between money creation and budget financing." - "All the CEMAC countries but one have had recourse to advances from the BEAC." - Growing fiscal surpluses raised the issue of "BEAC remuneration of government deposits." - Factors limiting effective liquidity management: - Continued recourse to monetary financing ("avances statutaires") and placement of government deposits with local banks contributed to excess liquidity and complicated BEAC liquidity management; "It cannot be ruled out that the abundance of liquidity may have led to risky lending." - A "negative spread" has arisen between interest rates in the CEMAC and those in the euro area. - The monetary program is "not used to assess the volume of liquidity to be absorbed"; liquidity absorption has declined; limited transparency and administrative measures have hampered money market development. - Recent policy steps and recommendations: - Adopted a new framework for remuneration of government deposits with the BEAC; need to ensure remuneration remains adequate "while not jeopardizing the profitability of the BEAC." - Review of the BEAC’s accounting rules is "desirable" to ensure consistency with best international practices. - Recommendations: - "Introduce central bank bills to conduct liquidity management operations." - "Strengthen its corporate governance and the transparency in monetary policy implementation." - "Raise the rate at which it conducts its liquidity absorbing operations at least to the level of the European Central Bank’s policy rate." - CEMAC governments should "introduce treasury bills markets so that monetary financing by the BEAC can be eliminated." - Develop a framework to assess the level of international reserves sufficient to absorb oil related shocks, and the resulting level of savings by the oil-producing states. - "Immediate action in these areas is warranted, as the weaknesses identified may exacerbate financial sector vulnerabilities." ### Financial sector integration and development - Lack of integration: - Despite a common currency and regional institutional setup, these "have not led to financial integration in the region." - Low intraregional trade, deficiencies in infrastructure and markets, and limited effectiveness of the "agrément unique" framework hinder integration. - Need to "design a coherent strategy to develop regional interbank and debt markets" and to review the "agrément unique" framework. - Deepening intermediation and access: - Financial intermediation is "among the lowest in the world." - One million bank accounts and 780,000 customers of MFIs correspond to penetration rates of only 3 percent and 2.2 percent, respectively, of the population. - Interest rate controls induce banks to require high minimum savings balances and management fees. - Mission stressed focusing on systemic reforms rather than creating specialized government-sponsored financial institutions. - Legal framework and enforcement: - OHADA brought improvements but implementation deficiencies hamper credit activities. - Debt collection and foreclosure remain inefficient due to complex OHADA procedures, uncertainties in civil procedure, and weak judicial capacity and governance. - OHADA could be enhanced in "secured transactions and collateral as well as enforcement and insolvency procedures." - Capital markets: - Two parallel stock markets are being developed despite "potential legal and financial incompatibilities." - Given high fixed costs and a narrow base of issuers/investors, "the two markets should be merged." ### Priority recommendations (responsibility and timing annotations preserved) - Financial sector supervision: - "Reduce further the powers of the national authorities in the issuance or withdrawal of bank licenses N (ST)." - "Increase staffing levels at the COBAC R-N (ST)." - "Enforce fully current regulations, including for AML-CFT R-N (ST)." - "Strengthen further the consistency of the prudential framework with international standards R (MT)." - Systemic liquidity management and recycling of fiscal surpluses: - "Centralize government cash balances at the BEAC N (ST)." - "Reinforce the use of market-based instruments for monetary R and public debt management N (MT)." - "Establish a framework to assess a desirable target for international reserves R (ST)." - Banking sector stability: - "Increase the minimum capital adequacy ratio for the banks so that they can better absorb shocks R (MT)." - Access to financial services: - "Foster financial intermediation by bringing the limits on deposit and lending interest rates in line with market fundamentals R (ST) and ultimately lifting all interest rate controls R (MT)." - "Strengthen the business environment by enhancing the proper functioning of the legal and judicial framework and strengthening financial infrastructure R-N (MT)." - Notes on action codes: - R: regional level. N: national level. ST: short term. MT: medium term. ### Macro-financial context and main risks (2005 and structural features) - 2005 macro performance: - Strengthened in 2005 due to "higher oil revenue and some fiscal savings of the oil windfall." - Fiscal surpluses increased; external current account turned positive; international reserve coverage rose; external debt burden declined. - Growth "decelerated," while inflation increased partly due to weather-related conditions. - Surge in oil-related inflows led to acceleration of regional broad money and credit growth; "in the absence of an active sterilization policy by BEAC, excess bank liquidity increased further." - Main macro-risks to banks: - High dependence on oil, narrow economic and corporate lending base, and excess liquidity. - Oil sector accounts for "40 percent of the region’s output, generates more than 80 percent of export earnings and 50 percent of tax revenues." - Five of the six CEMAC countries are oil producers. - Past bank vulnerabilities to oil price shocks occurred mainly indirectly through weakening public finances with "public debt defaults and arrears accumulation" hampering servicing of bank loans. - Excess liquidity consequences: - Deposits in banks "have increased by nearly 25 percent in 2005 due to increased government deposits and the clearance of government arrears following oil related windfalls." - Excess liquidity has led banks to circumvent prudential norms on exposure limits and related party lending and has been costly as banks pay a high minimum rate on saving accounts. - Key structural feature: - The primary sector accounts for "more than 50 percent of economic activity"; industrial sector plays a limited role. ### Monetary policy procedures and government cash management (detailed) - Assessment of implementation and liquidity conditions: - The regional monetary program allows coordination but is "not used by the BEAC to assess the volume of liquidity to be absorbed." - No framework to assess adequacy of international reserves to deal with oil sector shocks and determine Funds for Future Generations. - Between December 2003 and October 2005, banks’ excess reserves increased by more than CFAF 400 billion. - Mopping up operations through BEAC’s deposit auctions were cut by CFAF 70 billion (to CFAF 14 billion). - Banks’ reserves sterilized through required reserves increased by only CFAF 50 billion. - Transparency and governance issues: - The governor of the BEAC decides on the use of instruments, at times without reference to clear rules. - Monetary policy council was set up but "has not met for the last two years." - Rules for eligibility and allocation at deposit auctions are not transparent. - Government cash management and TSAs: - Equatorial Guinea has adopted the principle of a TSA. - Cameroon has operated a TSA since late 2005. - CAR plans one TSA per commercial bank and at the BEAC. - Chad should create a TSA under the petroleum management law (LGP). - Republic of Congo has no plans to adopt a TSA. - Gabon has adopted the TSA principle but law authorizes the government to open bank accounts. - Placements of deposits with local banks do not systematically involve prior assessment of counterparty risks; instances of deposits breaching prudential norms were noted. - Recommended governance changes: - Establish a monetary policy board (CPM) responsible for monetary policy formulation; independent members appointed by governments, with governor and vice-governor as members and governor as chairperson. - Create a monetary policy implementation committee (chaired by the governor) to transparently implement CPM decisions. ### Policy recommendations to improve monetary policy effectiveness and instrument use - Increase transparency, centralize government balances at the BEAC, and rely more on market forces: - Create committees at the BEAC and establish clear rules for instrument use. - Locate the Treasury Single Account at the BEAC. - BEAC should assess the volume of liquidity to be withdrawn and conduct mopping up operations at interest rates reflecting market conditions: - The BEAC’s deposit auction rate should be raised at least to the level of the ECB policy rate (i.e., from 1.55 to at least 2.5 percent). - April 2006 principles for remuneration of government deposits at the BEAC recognize need to safeguard BEAC profitability; remuneration must provide an incentive to repatriate government revenues to the BEAC. - Alternative for Funds for Future Generations: consider external managers, with BEAC oversight. - Separate money creation from budget financing: - Launch treasury bill markets to allow the BEAC to phase out monetary financing ("avances statutaires"). - Given fiscal surpluses and weak credit reputation in some countries, large-scale issuance should not be expected; BEAC should introduce tradable central bank bills to mop up excess liquidity. ### BEAC instrument regimes and April 2006 remuneration mechanism (Box 2) - Remuneration mechanism based on indexation on interest earned by BEAC on deposits with the French Treasury (ECB policy rate plus 100 basis points, "that is 3.50 percent currently") minus a margin to ensure BEAC profitability. - Rates and maturities: - Conventional deposits (one-month minimum maturity): - 0.50 percent for countries with outstanding advances from BEAC. - 1.40 percent for the other countries. - Fiscal Revenue Stabilization Mechanisms (minimum maturity six months): 1.70 percent, subject to a 30 percent reduction if withdrawn before maturity. - Fund for Future Generations (minimum maturity five years): 1.90 percent, subject to a retroactive reduction if withdrawn before maturity. - Expected yield guidance for Funds for Future Generations: - Risk-free assets yields in 5–10 year government bonds "currently yielding 3.7 to 4 percent." ### Key statistics and structure of the financial system (end-2005) - The financial system is bank-dominated: - As of end-2005, 31 of the 33 banks are privately owned. - Banks’ total assets: CFAF 3,132.3 billion (86.7 percent of financial system assets; 15.8 percent of GDP). - Private banks: 31 banks, CFAF 3,020.0 billion, 83.6 percent of financial system assets, 15.3 percent of GDP. - Local banks: 8 banks, CFAF 869.0 billion, 24.0 percent of financial system assets, 4.4 percent of GDP. - Foreign banks1/: 23 banks, CFAF 2,151.0 billion, 59.5 percent of financial system assets, 10.9 percent of GDP. - Government banks: 2 banks, CFAF 112.3 billion, 3.3 percent of financial system assets, 0.6 percent of GDP. - Nonbank financial institutions: 17 institutions, CFAF 215.2 billion, 5.6 percent of financial system assets, 1.1 percent of GDP. - Microfinance: 1,018 institutions, CFAF 133.0 billion, 3.6 percent of financial system assets, 0.5 percent of GDP. - Insurance companies: 36 companies, CFAF 164.0 billion, 4.5 percent of financial system assets, 0.8 percent of GDP. - Total financial system assets: CFAF 3,644.5 billion (100.0 percent; 18.2 percent of GDP). - Market structure and performance: - Banks’ total assets amount to 16 percent of GDP; lending to the private sector is 7 percent of GDP (15 percent for sub-Saharan Africa). - Minimum deposit rate: 4.25 percent. - Maximum lending rate: 15 percent. - For 2005, average return on assets (ROA): 1.8 percent; return on equity (ROE): close to 17 percent. - Average return on loans: 11 percent in 2004. - Average cost of funds: 2.5 percent. - Soundness indicators (end-2005): - Average capital adequacy ratio: 14.8 percent. - Eight banks (representing 18 percent of system assets) are under the 8 percent minimum; five of these show negative equity. - Average provisioning rate: 79 percent. - Exchange cover ratio: about 80 percent (well above the 20 percent minimum). ### Stress tests: main findings and selected results - Credit risk is the main source of vulnerability. - Key stress-test outcomes: - A sharp deterioration in loan quality would lead to a significant decline in capital adequacy ratios in Chad, Cameroon, and the CAR. - For the CEMAC aggregate, twelve banks would not comply with the minimum capital adequacy ratio, and six of them would have negative equity under certain shocks. - Default by each bank’s largest borrower would bring most capital adequacy ratios below 8 percent; banks in Chad, Equatorial Guinea, and Congo are most exposed; only Gabonese banking system would continue to comply. - Selected aggregate capital adequacy ratios (CEMAC): - Capital adequacy ratio (pre-shock) — 14.8 (CEMAC) - Capital adequacy ratio after shocks (CEMAC): - Default largest individual risk — 6.6 - Petroleum and gas sector — 14.7 - Reclassification of loans in one category — 13.9 - 50% increase in NPLs — 10.8 - Deterioration convergence criteria — 14.7 - Default on govt. loans — 14.0 - Default on govt. loans and securities — 12.7 - Default on govt. + salary arrears — 12.6 - 40% depreciation against the euro — 24.9 - 20% appreciation against the euro — 9.8 - 40% depreciation against the dollar — 17.6 - 40% appreciation against the dollar — 12.8 - Yield curve: + 500 basis points — 11.3 - Liquidity ratio (pre-shock) — 82.7 (CEMAC) - 25% withdrawal on all deposits — 76.9 (CEMAC) - 50% reduction of public sector deposits — 81.6 (CEMAC) - Combination: Interest rate + govt. default — 9.3 (CEMAC) - Combination: USD appreciation + oil + govt. default — 11.9 (CEMAC) - Combination: Interest rate + increase in NPLs — 7.4 (CEMAC) - Combination: Increase in NPLs + govt. default — 10.0 (CEMAC) - Appendix Table 2: Capital shortfall (selected entries, percent of GDP) - Cameroon: Capital Shortfall (Default): 0.35; Deposits of Banks with Negative Capital (Default): 4.6; Capital Shortfall (Appreciation): 0.43; Deposits ... (Appreciation): 4.6 - CRA: Capital Shortfall (Default): 0.57; Deposits ... (Default): 2.5; Capital Shortfall (Appreciation): 0.43; Deposits ... (Appreciation): 2.5 - Congo: Capital Shortfall (Default): 0.05; Deposits ... (Default): 5.1; Capital Shortfall (Appreciation): 0.40; Deposits ... (Appreciation): 7.0 - Gabon: Capital Shortfall (Default): - ; Deposits ... (Default): - ; Capital Shortfall (Appreciation): 1.23; Deposits ... (Appreciation): 13.6 - Equatorial Guinea: Capital Shortfall (Default): 0.33; Deposits ... (Default): 10.6; Capital Shortfall (Appreciation): 0.06; Deposits ... (Appreciation): 1.7 - Chad: Capital Shortfall (Default): 0.18; Deposits ... (Default): 2.3; Capital Shortfall (Appreciation): 0.11; Deposits ... (Appreciation): 0.9 - CEMAC (aggregate): Capital Shortfall (Default): 0.24; Deposits ... (Default): 4.5; Capital Shortfall (Appreciation): 0.41; Deposits ... (Appreciation): 4.3 ### Prudential framework, supervision and recommended reforms - Regulatory gaps and shortcomings: - Minimum capital adequacy ratio set at 8 percent; modalities for calculation fall short of Basel Committee recommendations. - Large exposure limit: 45 percent of regulatory capital (not consistent with Basel recommended 25 percent); can be up to 90 percent for companies recognized as strategically important. - Full provisioning for NPLs required only after three to four years. - Compliance and supervisory capacity: - In November 2005, nearly one-fourth of banks violated the minimum capital adequacy ratio, and nearly three-fourths did not comply with limits on large exposures. - COBAC understaffed: only four staff for off-site audits and eleven for on-site audits; five experienced staff recently left. - Independence concerns: national finance ministries retain roles in licensing; most commissioners hold official positions in national ministries. - Recommendations: - Prepare an action plan to update the regulatory framework. - Increase institutional independence of COBAC by reducing finance ministries' role in licensing and diversifying commissioners. - Doubling the number of COBAC staff suggested. - Enforce sanctions as contemplated in current regulations. - Increase the minimum capital adequacy ratio to reflect environment risks. ### Microfinance, insurance, deposit insurance and LOLR - Microfinance: - Regional regulations for MFIs adopted in 2002 (for implementation in 2007) follow international good practice. - Recommend adopting a licensing threshold that better accounts for risks and increasing COBAC’s supervision capacity. - Insurance: - Regional framework adopted in 1995 improved oversight, but effectiveness deteriorated: inadequate resources, political pressures, unclear division of responsibilities, regulatory loopholes. - Plan to increase staffing and update regulations is welcome; independence should be increased. - Deposit insurance and LOLR: - BEAC has intervened occasionally as lender of last resort; last large intervention was in 2003 in the CAR. - Recommendation: BEAC should review past interventions to draw lessons. - Regional deposit insurance fund (FOGADAC) adopted in January 2004; implementation depends on correcting prudential weaknesses and defining operational methods. ### Debt collection, insolvency, accounting, and payment systems - Debt collection and insolvency: - Proceedings suffer from complexity of OHADA mechanisms and governance problems; foreclosing collateral and enforcing judgments are problematic. - Insolvency administrators are unreliable, "neither regulated nor properly supervised." - Measures at national level: - Reinforce training and specialization of judges; improve commercial and land registries; adopt regulatory and supervisory framework for insolvency administrators. - OHADA and regional reforms: - Revisit OHADA uniform acts; revise enforcement procedures; review secured transactions and insolvency regime; simplify cooperative act provisions. - Accounting and auditing: - OHADA Accounting Framework places an excessive burden on SMEs; thresholds need revision. - Adopt International Auditing Standards (ISA) to improve audit quality. - Require banks to make audited financial statements public and strengthen bank chart of accounts for IFRS compliance. - Payment systems: - Regional payment system reform launched in 2003; implementation delayed due to lack of experience, weak coordination, and bank divergences. - Recommended: create a payment system management unit at BEAC headquarters and units in each country; ensure Coordination and Monitoring Committee meets regularly. ### Central African States Development Bank (BDEAC) and securities exchanges - BDEAC: - Restructured after financial difficulties to strengthen corporate governance, reduce governments’ influence, and enhance risk controls. - Designated administrator of the Community Development Fund (FODEC), granted a revolving line of credit by the BEAC, and started mobilizing market funds. - Recommendations: finalize reforms, raise market resources for private lending, strengthen corporate governance (independent Board), and monitor solvency; authorities should be prepared to close the bank if activities are not viable. - Securities exchanges: - Two independent and parallel exchanges developing: Douala Stock Exchange (DSX) and a regional securities exchange in Libreville. - Recommendation: Merge the two exchanges and unify supervision; halt new duplicate investments while awaiting merger. ### Enforcement, credibility, transparency and IMF assessment highlights - Enforcement and credibility: - "COBAC does not fully enforce existing regulations," altering its credibility and effectiveness. - On-site inspections occur only every two to four years; controls are infrequent; sanctions often imposed too late. - Resources and staffing: - COBAC employs 39 officers, including 4 in ongoing supervision and 11 in on-site inspections; 5 experienced staff recently left. - Recommendation: "doubling the number of officers currently assigned to COBAC" as a reasonable goal. - Recommended BCP action plan highlights (selected): - Principle 1: Significantly strengthen COBAC staff; strengthen independence and diversify commissioners; introduce rules for winding-up CI. - Principle 3: Review licensing conditions and the role of national finance ministries. - Principle 6: "Increase gradually the minimum capital adequacy ratio above 8 percent. Update the regime (i.e., risk weights)..." - Principle 9: "Reduce the large exposure limit from 45 percent to 25 percent..." - Principle 22: "Ensure that COBAC’s powers to impose sanctions ... are effectively used when serious breaches are detected." - Transparency findings: - All treaties, conventions, and regulations are posted online, but not all COBAC regulations. - BEAC’s and COBAC’s annual reports are published with a two-year lag; COBAC bulletin not published since September 2003. - Recommended transparency actions include posting regulations online, restoring timely publication of reports, and publishing information exchange agreements. *Source: 1. Structure of the Financial System, December 2005; IMF staff report content as provided in the supplied text.* ### 1. Structure of the Financial System, December 2005.....................................................13 ### 1. Structure of the Financial System, December 2005 ### Overall assessment of stability, integration and development issues - The CEMAC financial sector: - "lacks depth, is highly fragmented, and its stability is exposed to significant risks." - Access to financial services is "among the lowest in Africa." - Dominated by a "noncompetitive banking sector" highly vulnerable to credit risk. - Institutional weaknesses: - "Lack of institutional independence of the Central African Banking Commission (COBAC)" has resulted in poor enforcement capacity and "protracted noncompliance with critical prudential norms by several banks." - Weak government cash management and weaknesses in the systemic liquidity management framework exacerbate vulnerabilities. ### Short-term risks to the banking sector and prudential framework - Credit risk and capital: - "A large number of banks are undercapitalized given their risk exposure to few sectors and borrowers and the weak judicial framework for enforcing creditor rights." - Mission recommended "raising the minimum capital adequacy ratio above the current 8 percent." - Supervisory capacity and governance: - Financial supervisors are "well trained," but national authorities' interference and an "acute shortage of staff" limit supervisory effectiveness. - Full enforcement of prudential norms requires "further curtailing the role of the national authorities in the issuance or withdrawal of bank licenses." - Regional authorities indicated plans to "increase staffing of the supervisory agencies" and to use FSAP recommendations to prepare an action plan for consistency with international standards. - AML-CFT: - "Significant steps were taken by COBAC and the banking sector to implement the regional framework for AML-CFT," but the "division of labor between and accountability of the regional and national authorities needs to be clarified." - National authorities should "promptly establish the national Financial Intelligence Units and build up their operational capacities." ### Systemic liquidity - Monetary policy context: - BEAC operates under a fixed exchange rate against the Euro; it "formulates common monetary policy targets" but "systemic liquidity management remains largely country-based due to the lack of integration of the money market." - Financial relations and fiscal interactions: - Financial relations between BEAC and CEMAC governments "do not ensure a clear separation between money creation and budget financing." - "All the CEMAC countries but one have had recourse to advances from the BEAC." - Growing fiscal surpluses raised the issue of "BEAC remuneration of government deposits." - Factors limiting effective liquidity management: - Continued recourse to monetary financing ("avances statutaires") and placement of government deposits with local banks have contributed to excess liquidity and complicated BEAC liquidity management; "It cannot be ruled out that the abundance of liquidity may have led to risky lending." - A "negative spread" has arisen between interest rates in the CEMAC and those in the euro area. - The monetary program is "not used to assess the volume of liquidity to be absorbed"; liquidity absorption has declined; limited transparency and administrative measures have hampered money market development. - Recent policy steps and recommendations: - Authorities adopted a new framework for remuneration of government deposits with the BEAC; they need to ensure remuneration remains adequate "while not jeopardizing the profitability of the BEAC." - A review of the BEAC’s accounting rules is "desirable" to ensure consistency with best international practices. - Recommendations: - "Introduce central bank bills to conduct liquidity management operations." - "Strengthen its corporate governance and the transparency in monetary policy implementation." - "Raise the rate at which it conducts its liquidity absorbing operations at least to the level of the European Central Bank’s policy rate." - CEMAC governments should "introduce treasury bills markets so that monetary financing by the BEAC can be eliminated." - Develop a framework to assess the level of international reserves sufficient to absorb oil related shocks, and the resulting level of savings by the oil-producing states. - The report states: "Immediate action in these areas is warranted, as the weaknesses identified may exacerbate financial sector vulnerabilities." ### Financial sector integration and development - Lack of integration: - Despite a common currency and regional institutional setup, "have not led to financial integration in the region." - Low intraregional trade, deficiencies in infrastructure and markets, and limited effectiveness of the "agrément unique" framework hinder integration. - Need to "design a coherent strategy to develop regional interbank and debt markets" and to review the "agrément unique" framework. - Deepening intermediation: - Financial intermediation is "among the lowest in the world." - Factors discouraging development of services to SMEs and microfinance ties: flaws in legal and judicial framework, poor quality of financial data, weak payment systems. - Imposition of minimum deposit and maximum lending interest rates "not in line with market fundamentals" has induced banks to require high minimum savings balances and management fees. - Mission stressed focusing on systemic reforms rather than creating specialized government-sponsored financial institutions. - Legal framework and enforcement: - OHADA regional legal framework brought improvements but implementation deficiencies hamper credit activities. - Debt collection and foreclosure remain inefficient due to complex OHADA procedures, uncertainties in civil procedure, and weak judicial capacity and governance. - OHADA could be enhanced in "secured transactions and collateral as well as enforcement and insolvency procedures." - Capital markets: - Two parallel stock markets are being developed despite "potential legal and financial incompatibilities." - Given high fixed costs and a narrow base of issuers/investors, "the two markets should be merged." ### The way forward — priority recommendations - Financial sector supervision (with responsibility and timing annotations): - "Reduce further the powers of the national authorities in the issuance or withdrawal of bank licenses N (ST)." - "Increase staffing levels at the COBAC R-N (ST)." - "Enforce fully current regulations, including for AML-CFT R-N (ST)." - "Strengthen further the consistency of the prudential framework with international standards R (MT)." - Systemic liquidity management and recycling of fiscal surpluses: - "Centralize government cash balances at the BEAC N (ST)." - "Reinforce the use of market-based instruments for monetary R and public debt management N (MT)." - "Establish a framework to assess a desirable target for international reserves R (ST)." - Banking sector stability: - "Increase the minimum capital adequacy ratio for the banks so that they can better absorb shocks R (MT)." - Access to financial services: - "Foster financial intermediation by bringing the limits on deposit and lending interest rates in line with market fundamentals R (ST) and ultimately lifting all interest rate controls R (MT)." - "Strengthen the business environment by enhancing the proper functioning of the legal and judicial framework and strengthening financial infrastructure R-N (MT)." - Notes on action codes: - R: action to be taken at the regional level. - N: action to be taken at the national level. - ST: short term (i.e., within a year or two). - MT: medium term (up to three–four years). ### Macro-financial context and risks - 2005 macro performance: - Strengthened in 2005 due to "higher oil revenue and some fiscal savings of the oil windfall." - Fiscal surpluses increased; external current account turned positive; international reserve coverage rose; external debt burden declined. - Growth "decelerated," while inflation increased partly due to weather-related conditions. - Surge in oil-related inflows led to acceleration of regional broad money and credit growth; "in the absence of an active sterilization policy by BEAC, excess bank liquidity increased further." - Main macro-risks to banks: - High dependence on oil, narrow economic and corporate lending base, and excess liquidity. - Oil sector accounts for "40 percent of the region’s output, generates more than 80 percent of export earnings and 50 percent of tax revenues." - Five of the six CEMAC countries are oil producers. - Under fixed exchange rate regime, surges in volatile oil-related inflows complicate monetary policy; lack of developed financial markets undermines monetary policy effectiveness. - Past bank vulnerabilities to oil price shocks occurred mainly indirectly through weakening public finances, with "public debt defaults and arrears accumulation" hampering the ability of government suppliers and employees to service bank loans. - Economic structure and exposure: - Primary sector accounts for "more than 50 percent of economic activity"; industrial sector plays a limited role. - High income volatility and small number of borrowers exacerbate banks' credit risk. - Excess liquidity consequences: - Excess bank liquidity may lead to unsound lending practices and financial disintermediation. - Excess liquidity driven by surge in oil inflows and government deposits, lack of bankable projects, restrictions on outward investment, underdeveloped regional markets, and BEAC liquidity management weaknesses. - Deposits in banks "have increased by nearly 25 percent in 2005 due to increased government deposits and the clearance of government arrears following oil related windfalls." - Liquidity distribution is uneven; established banks hold more than weaker and smaller ones. - Excess liquidity has led banks to circumvent prudential norms on exposure limits and related party lending and has been costly as banks pay a high minimum rate on saving accounts. ### Systemic liquidity management details - BEAC operational framework: - BEAC "formulates and implements the common monetary policy in the context of a fixed exchange rate against the euro, free capital movement between countries in the CEMAC, but remaining capital controls with non-CEMAC countries." - BEAC formulates common monetary policy targets "with the view to meeting the foreign exchange cover ratio established in the monetary cooperation agreement with France." - The minimum statutory foreign exchange cover ratio is "20 percent." At end-2005, it "stood at 85 percent." - Country-based liquidity management and instruments: - Liquidity management remains largely country-based due to lack of money market integration. - BEAC applies "differentiated reserves requirement ratios to CEMAC countries based on the liquidity situation of their respective banking sectors." - Open market type operations in the form of "deposits auctions" are used to absorb part of the excess liquidity. - Monetary financing and treasury market development: - Policy objective to phase out monetary financing ("avances statutaires") and develop treasury bill markets stalled; "all the CEMAC countries except one had recourse to the 'avances statutaires' as of end 2005." - Growing fiscal surpluses prompted review of arrangements to "increase the attractiveness of the deposits at the BEAC." *Source: 1. Structure of the Financial System, December 2005* ### 21. Monetary policy procedures and cash management practices by CEMAC ### 21. Monetary policy procedures and cash management practices by CEMAC ### Assessment of current monetary policy implementation and liquidity conditions - Governments are not well suited to the prevailing excess liquidity in the banking sector. - The regional monetary program allows coordination of monetary and fiscal policy but: - It is currently not used by the BEAC to assess the volume of liquidity to be absorbed. - There is no framework to assess the adequacy of international reserves to deal with oil sector shocks and determine a corresponding level of government savings (i.e., Funds for Future Generations). - The absorption of liquidity has declined: - Between December 2003 and October 2005, banks’ excess reserves increased by more than CFAF 400 billion. - Mopping up operations through the BEAC’s deposit auctions were cut by CFAF 70 billion (to CFAF 14 billion). - Banks’ reserves sterilized through required reserves increased by only CFAF 50 billion. - Limited transparency and administrative measures hinder money market development: - The governor of the BEAC decides on the use of instruments, at times without reference to clear rules. - Transfers abroad have occasionally been subject to prior authorizations not contemplated in the exchange regulations. - Interest rate inconsistency with the euro area under excess liquidity: - The BEAC’s deposit auction rate (the relevant policy rate given structural excess liquidity) is below the ECB policy rate. - This creates an incentive for residents to export capital, evidenced by large foreign exchange positions of banks and anecdotal evasion of the repatriation requirement for export proceeds. ### Government cash management, centralization, and BEAC governance - Poor centralization of government balances at the BEAC has complicated BEAC liquidity management: - Placement of deposits with local banks has contributed to excess liquidity. - Continued recourse of governments to the “avances statutaires” from the BEAC has also contributed. - Governments’ cash management practices: - Several countries hold significant government deposits in commercial banks, increasing volatility and complicating liquidity management. - Moves toward Treasury Single Accounts (TSA): - Equatorial Guinea has adopted the principle of a TSA. - Cameroon has operated a TSA since late 2005. - CAR plans one TSA per commercial bank and at the BEAC. - Chad has identified accounts to be closed and should create a TSA under the petroleum management law (LGP). - Republic of Congo has no plans to adopt a TSA. - Gabon has adopted the TSA principle but law authorizes the government to open bank accounts. - Placements of deposits with local banks do not systematically involve prior assessment of counterparty risks; instances were noted of deposits breaching prudential norms. - BEAC corporate governance and decision-making: - The governance framework rests on the Board of Directors (CA) and the governor; CA has 13 members appointed by CEMAC countries and France. - The governor’s role is more important than the Statutes might suggest; the CA has delegated some powers to the governor, who defines and implements monetary policy, exercising these powers directly. - A monetary policy council was set up but has not met for the last two years. - Monetary policy decisions are not taken according to a schedule known in advance; rules for eligibility and allocation at deposit auctions are not transparent. - Recommended governance changes: - Establish a monetary policy board (CPM) responsible for monetary policy formulation and decisions; independent members appointed by governments, with governor and vice-governor as members and governor as chairperson. - Create a monetary policy implementation committee (chaired by the governor) to transparently implement CPM decisions, based on clear rules regarding eligibility for monetary policy operations and their use. ### Policy recommendations to improve monetary policy effectiveness - Increase transparency, centralize government balances at the BEAC, and rely more on market forces: - Create committees at the BEAC and establish clear rules for instrument use (see Box 1 recommendations). - Complete reforms to centralize government cash balances; locate the Treasury Single Account at the BEAC. - BEAC should assess the volume of liquidity to be withdrawn and conduct mopping up operations at interest rates reflecting market conditions: - The BEAC’s deposit auction rate should be raised at least to the level of the ECB policy rate (i.e., from 1.55 to at least 2.5 percent). - April 2006 principles for remuneration of government deposits at the BEAC recognize need to safeguard BEAC profitability; however: - It is important that remuneration provides an incentive to repatriate all government revenues to the BEAC. - It is not clear that the remuneration being offered, in particular on the Funds for Future Generations, meets this condition. - An alternative to investing the Funds for Future Generations with the BEAC may be considered: these Funds have a long-term horizon, assets should not be available for balance of payments purposes, and countries should be involved in investment strategies. Funds could be entrusted to external managers, with BEAC oversight. - Separate money creation from budget financing: - Launch treasury bill markets to allow the BEAC to phase out monetary financing (“avances statutaires”). - Centralization of balances at the BEAC and strengthened government cash management would facilitate this reform. - Given fiscal surpluses and weak credit reputation in some countries, large-scale issuance should not be expected; to mop up excess liquidity and encourage money market development, the BEAC should introduce tradable central bank bills. - Related financial costs should be taken into account when setting the margin left to the BEAC (as discussed in Box 2). ### BEAC instrument use, remuneration regimes, and costs - BEAC’s limited use of market-based liquidity absorption mechanisms is linked to: - Preeminence of cost considerations in conducting monetary policy. - Shallowness of the money market. - Cost considerations in BEAC–government relations: - When BEAC remunerates government deposits, they earn only a fraction of the interest BEAC earns on its deposits with the French treasury; the spread has encouraged nonrepatriation of oil revenues or placement of government deposits with local banks. - Given importance of central bank profitability, authorities should review BEAC’s accounting framework consistency with best practices and review the appropriateness of the current profit-sharing mechanism with CEMAC States. - Box 2: April 2006 remuneration mechanism (indexation and rates) - The mechanism is based on indexation on the interest earned by BEAC on its deposits with the French Treasury (i.e., ECB policy rate plus 100 basis points, that is 3.50 percent currently) minus a margin to ensure BEAC profitability. - Conventional deposits (dépôts spéciaux classiques). One-month minimum maturity. Remuneration: - 0.50 percent for countries with outstanding advances from BEAC. - 1.40 percent for the other countries. - Fiscal Revenue Stabilization Mechanisms. Minimum maturity of six month. Remuneration is 1.70 percent, subject to a 30 percent reduction in case of withdrawals before maturity. - Fund for Future Generations. Minimum maturity of five years. Remuneration rate is currently set at 1.90 percent, subject to a retroactive reduction in case of withdrawals before maturity. - Expected yield guidance for Funds for Future Generations: - The yield to be expected on Funds for Future Generations if invested in risk free assets should match those in 5–10 year government bonds (currently yielding 3.7 to 4 percent). If a proportion is invested in equity, expected returns may be higher. ### Risks to monetary policy credibility and financial market development - Lack of an effective liquidity management framework can exacerbate banking sector vulnerabilities and hinder financial sector development: - BEAC has achieved its intermediate objectives (exchange cover ratio at about 80 percent, well above the 20 percent minimum; inflation seems under control), but: - The cover ratio is not a good measure of reserves adequacy. - Reliability of price indices is limited. - Country differences in inflation can be related to liquidity situation. - BEAC may be uncertain about its ability to tighten monetary policy due to reluctance to assume related costs and lack of effective operational procedures. - Reliance on administrative measures and excess liquidity hamper development of financial markets. ### Key statistics and structural features of the financial sector (end-2005) - The financial system is bank-dominated: - As of end-2005, 31 of the 33 banks are privately owned. - Banks’ total assets: CFAF 3,132.3 billion (86.7 percent of financial system assets; 15.8 percent of GDP). - Private banks: 31 banks, CFAF 3,020.0 billion, 83.6 percent of financial system assets, 15.3 percent of GDP. - Local banks: 8 banks, CFAF 869.0 billion, 24.0 percent of financial system assets, 4.4 percent of GDP. - Foreign banks1/: 23 banks, CFAF 2,151.0 billion, 59.5 percent of financial system assets, 10.9 percent of GDP. - Government banks: 2 banks, CFAF 112.3 billion, 3.3 percent of financial system assets, 0.6 percent of GDP. - Nonbank financial institutions: 17 institutions, CFAF 215.2 billion, 5.6 percent of financial system assets, 1.1 percent of GDP. - Microfinance: 1,018 institutions, CFAF 133.0 billion, 3.6 percent of financial system assets, 0.5 percent of GDP. - Insurance companies: 36 companies, CFAF 164.0 billion, 4.5 percent of financial system assets, 0.8 percent of GDP. - Total financial system assets: CFAF 3,644.5 billion (100.0 percent; 18.2 percent of GDP). - Source note: COBAC. 1/ Foreign banks are those controlled by an entity outside the CEMAC. - Market structure and performance: - Banks’ total assets amount to 16 percent of GDP; lending to the private sector is 7 percent of GDP (15 percent for sub-Saharan Africa). - Minimum deposit rate: 4.25 percent. - Maximum lending rate: 15 percent. - For 2005, average return on assets (ROA): 1.8 percent; return on equity (ROE): close to 17 percent. - Average return on loans: 11 percent in 2004. - Average cost of funds: 2.5 percent. - Soundness indicators (end-2005): - Average capital adequacy ratio: 14.8 percent. - Eight banks (representing 18 percent of system assets) are under the 8 percent minimum; five of these show negative equity. - Average provisioning rate: 79 percent. - Exchange cover ratio: about 80 percent (well above the 20 percent minimum). *Source: IMF staff.* ### 31. The stress tests summarized in the Appendix indicate that credit risk is the main ### 31. The stress tests summarized in the Appendix indicate that credit risk is the main ### Stress test findings: credit risk and sectoral vulnerabilities - Credit risk is the main source of vulnerability. - A sharp deterioration in the quality of loans would lead to a significant decline in the capital adequacy ratio of banks in Chad, Cameroon, and the CAR. For the CEAMC, twelve banks would not comply with the minimum capital adequacy ratio, and six of them would have negative equity. - Widespread noncompliance with large exposure limits is a major vulnerability: - Default by each bank’s largest borrower would bring most capital adequacy ratios below 8 percent, with banks in Chad, Equatorial Guinea, and Congo being the most exposed. - Only the Gabonese banking system would continue to comply. - Sectoral exposures: - Banks in Gabon, Cameroon, Congo, and Equatorial Guinea are vulnerable to a downturn in the forestry sector. - Adverse developments in the oil sector would have an indirect effect on banks in oil producing countries through weaker fiscal performance, but the effect would be contained because the banks have limited direct exposure to the sector. - Footnote data points (as reported): - A decline from 100 to 20 percent of the weight applied to correspondent accounts in OECD, CEMAC, and WAEMU; a weight to loans to governments based on convergence criteria instead of the previous 100 percent. - Equity requirements would represent only 0.1 percent of GDP in the CEMAC. - The deposits of banks with negative equity represent 0.4 percent of regional GDP (0.7 percent in Cameroon and 2.5 percent in the CAR). ### Financial soundness indicators (selected figures reported for CEMAC 2002–2005) - Capital adequacy ratio: - Weighted ratio 1/: 11.4 (2002) and 10.8 (2005) - Weighted ratio 2/: ... (2002) and 14.8 (2005) - Capital/assets: 10.5 (2002) and 10.8 (2005) - Asset quality, profitability and liquidity: - Gross NPL/gross loans: 13.9 (2002) and 13.7 (2005) - Net NPLs/gross loans: 3.4 (2002) and 2.6 (2005) - Net NPLs/capital: 18.2 (2002) and 11.6 (2005) - Assets return (ROA): 2.2 (2002) and 1.8 (2005) - Equity return (ROE): 21.0 (2002) and 16.9 (2005) - Liq. assets/total assets: 16.0 (2002) and 22.1 (2005) - Liq. assets/demand deposits: 29.3 (2002) and 38.5 (2005) - Banks’ ratings (number of banks rated): - Total rated: 25 (2002) and 33 (2005) - Solid and Good: 16 (2002) and 22 (2005) - Slightly Fragile and Moderately Fragile: 7 (2002) and 5 (2005) - Very Fragile and Critical: 2 (2002) and 6 (2005) - Source attribution for table: COBAC and staff estimates. 1/ Estimates based on weights used prior to 2005. 2/ Estimates based on weights used since 2005. 3/ Ratings are for the years 2001 and 2005. ### Foreign exchange, liquidity, and interest rate risks - Foreign currency exposure: - Large long foreign currency positions protect banks against a depreciation of the currency. - Eleven banks have net positions that exceed twice their regulatory capital, with the positions of Gabonese and Congolese banks being the largest, and those of domestic banks and banking groups being larger than those of foreign banks. - In the event of an appreciation of the currency against the euro (and to a lesser extent against the dollar), the capital adequacy ratio of banks in Cameroon and Congo and of some other domestic banks and local groups would fall short of the regulatory minimum. Gabonese banks would be less affected due to a high capital adequacy ratio, and local groups would suffer more than foreign ones. - Footnote details: Regulations limit the aggregate net position to 45 percent of capital and the net position in a single currency to 15 percent. Compliance is spotty, controls are infrequent, and COBAC has no breakdown of positions by currency. Net long positions represent 1.8 percent of GDP; one local group holds one-third of the total position. Lack of relevant information did not allow an assessment of cross-currency exposures. - Liquidity risk: - Banks’ exposure to liquidity risks appears limited, with banks in Cameroon being the most vulnerable. - A withdrawal of all demand deposits by central governments and half of their term deposits would have, overall, a modest effect. - As of December 31, 2005, public entities (central government, local administrations, and public agencies such as Social Security) hold CFAF 474 billion in banks, and state-owned enterprises hold CFAF 125 billion. - However, large deposits by the public sector have boosted liquidity positions of some banks, leaving them highly exposed to sudden withdrawals. - Interest rate risk: - Banks are somewhat exposed to interest rate risk despite the lack of long-term intermediation. - Most bank loans are at fixed rates, so an increase in short-term rates or in the cost of funds would have a significant impact. - A shift upward of the yield curve by 500 basis points would primarily affect banks in Cameroon (a four-point reduction in the capital adequacy ratio) and Gabon. - An increase in short-term rates only would have a similar effect on the capital adequacy ratio of the banks. ### Prudential framework: regulations, compliance, and gaps - Regulatory developments and shortcomings: - Regulations on the minimum capital adequacy ratio, large exposures, and internal controls have been adopted since 2001 and a prudential framework for microfinance was introduced in 2002. - Modalities for the calculation of the capital adequacy ratio fall short of the Basel Committee recommendations, and its minimum level (8 percent) does not reflect risk levels in the CEMAC. - The limit to large exposures (45 percent of regulatory capital) is not consistent with the Basel Committee’s recommended 25 percent, and it can be up to 90 percent for companies that COBAC recognizes as strategically important. - Full provisioning for NPLs is required only after three to four years, which is considered too slow. - Compliance and supervisory capacity: - Compliance with prudential norms is low, though improving: in November 2005, nearly one-fourth of banks violated the minimum capital adequacy ratio, and nearly three-fourths did not comply with limits on large exposures. - COBAC’s severe understaffing has resulted in delays drafting implementing regulations, less frequent on-site inspections (on-site missions take place only every two to four years), and flaws in off-site supervision. - COBAC’s ability to impose sanctions is used too late, evidenced by long-lasting violations such as negative equity or large exposures amounting to several times a bank’s capital. - Staffing: COBAC has only four staff for off-site audits and eleven for on-site audits, while five experienced staff have recently left the agency. Despite a slight increase in staff since 2001, a serious lack of resources continues to hamper COBAC’s work. - Independence concerns: threat to COBAC’s independence due to the role retained by national finance ministries in bank licensing and the fact that most commissioners have official positions in national ministries. - Recommendations for the prudential framework: - Prepare an action plan to update the regulatory framework. - Increase the institutional independence of COBAC by reducing the role of finance ministries in the licensing process and ensuring greater diversification of COBAC’s commissioners. - Doubling the number of COBAC staff would be reasonable. - COBAC needs to enforce sanctions as contemplated in current regulations to prevent banks from operating without complying with regulations. - Increase the minimum capital adequacy ratio so that it reflects the risks associated with the environment in which banks operate; this would help alleviate exposure to risk concentration. ### Microfinance and insurance supervision - Microfinance: - Regional regulations adopted by COBAC in 2002 for supervision of MFIs (for implementation in 2007) follow international good practice. - Most cooperative networks or federations cannot consolidate or aggregate members’ balance sheets or supervise them correctly. - Given uneven MFI development and COBAC’s inadequate resources, recommend adopting a licensing threshold that better accounts for risks, and increasing COBAC’s supervision capacity and resources. - Insurance: - Regional framework for insurance supervision adopted in 1995 improved oversight, but effectiveness has deteriorated. - Problems identified: inadequate resources to the supervisor, political pressures on staff (many on secondment from national authorities), unclear division of responsibilities between regional and national authorities, and regulatory loopholes excluding supervision of reinsurance and brokerage. - Plan to increase staffing and update regulations is welcome; independence should be increased (e.g., creating a dedicated group of inspectors). - Footnote: Insurance supervision is financed through levies on insurance premiums; however, it is estimated that less than one-third of the amount collected is allocated to the regional supervisor. ### Deposit insurance and lender-of-last-resort (LOLR) - BEAC interventions and recommendations: - The BEAC has intervened occasionally as a lender of last resort but has not formally set internal criteria for interventions nor reviewed outcomes of past interventions. - Last large intervention was in 2003 in the CAR: emergency liquidity and suspension of required reserves. - Recommendation: BEAC should review past interventions to assess effectiveness and draw lessons for future interventions. - Deposit insurance: - A regional framework for a deposit insurance fund (FOGADAC) was adopted in January 2004. - It defines conditions for calling guarantees from FOGADAC and assigns administrative management to national banking associations with COBAC monitoring and expected implementing regulations. - Mission view: Correcting weaknesses in the prudential framework—particularly sanctioning powers—is a precondition to implementing FOGADAC. ### AML-CFT framework: strengths and implementation gaps - Legal basis: - The CEMAC regulation of 2003 provides a robust regional legal basis for AML-CFT. - COBAC’s implementing regulation for the banking sector is a significant step forward. - Implementation gaps: - The framework still needs amendments to align with standards and remains largely ignored outside the banking sector. - Predominance of cash-based transactions increases the need to implement AML-CFT obligations across the economy. - Need to emphasize benefits of effective AML-CFT for good governance, fighting corruption and trafficking of natural resources to foster national-level action. - Institutional responsibilities: - Unclear responsibilities between regional agencies and national authorities impede effective implementation. - National authorities must establish national Financial Intelligence Units (FIUs), build their operational capacities, guarantee their independence, and ensure secure and confidential treatment of information. - National authorities also need to strengthen law enforcement and the judiciary to investigate and prosecute suspicious transactions. ### Developing the financial sector: access, SMEs, and market infrastructure - Access to financial services: - Access in the CEMAC is among the lowest in the world: - One million bank accounts and 780,000 customers of MFIs correspond to penetration rates of only 3 percent and 2.2 percent, respectively, of the population. - Contributing factors: - Interest rate controls discourage savings mobilization and risk-taking to expand lending, inducing banks to set high minimum balances and management fees that deter low-income individuals. - Low population density and limited purchasing power create high operating costs and geographic concentration of financial institutions. - Lack of financial data on potential borrowers, absence of credit registries, and weaknesses in the legal and judicial environment discourage expansion of customer base and private sector lending. - SMEs financing: - Few institutions provide financial services tailored to SME needs. - Support for SMEs mainly comes through capacity building and guarantee programs from development partners or governments. - Obstacles: weak management and governance in SMEs, unreliable balance sheets, complexity of recording and enforcing guarantees, and few financial institutions with technical capacity to assess SME risk and design suitable services. - Recommendation: Eliminate the system of administrative interest rates to lift obstacles to financial deepening. In the meantime: - Ensure limits to lending and deposit rates are kept in line with market fundamentals. - Given current market conditions, the floor on deposit rates should be lowered, and possibly indexed to a wholesale rate (i.e., below the BEAC policy rate). - The ceiling on lending rates should be increased without reaching usurious levels. - Improve legal and judicial systems and create credit history centers for SMEs. - Footnote: The authorities indicated that eliminating the lending rate ceiling depended on the introduction of usury laws. - Microfinance sector development: - Uneven across CEMAC: well developed in Cameroon, Congo, and Chad; moderately developed in the CAR; incipient in Gabon and Equatorial Guinea. - Sector concentrated around some 20 institutions (federations and networks), more than half in Cameroon. - Large MFIs generally have sound management and good financial results but are fragile given rapid growth; many small institutions appear unprofitable. - Emerging links between banks and MFIs (notably in Cameroon), but some MFIs face difficulties opening bank accounts as banks view them as competitors or at-risk clients. - Legal and judicial framework and secured transactions: - Credit environment governed by uniform OHADA legislation which is relatively modern but perceived as complicated and not always well understood or implemented. - Weak governance, limited training and specialization in the judiciary hinder creditor rights efficiency: court proceedings are lengthy, unpredictable, and suffer perceptions of malpractice and corruption. - Lending hampered by difficulties in implementing OHADA legislation on secured transactions: - Secured interests on movables are typically considered unreliable by banks. - MFIs suffer from complexity of requirements and formalities. - Lack of titled land and administrative bottlenecks in commercial registries limit SME and housing finance development. *Source: IMF staff report content as provided in the supplied text.* ### 51. Debt collection and insolvency proceedings suffer from the complexity of ### _cr06321 - 51. Debt collection and insolvency proceedings suffer from the complexity of ### Debt collection, insolvency, and judicial weaknesses - Debt collection and insolvency proceedings suffer from the complexity of OHADA mechanisms and governance problems in the national judicial systems. - Banks face problems in foreclosing collateral and enforcing court decisions. - Insolvency procedures are rare and inefficient mostly due to the unreliability of insolvency administrators, who are neither regulated nor properly supervised. ### Measures at national level - Judicial systems - Reinforce training and specialization of judges in commercial, financial, and credit-related legal matters. - Tackle governance issues through better enforcement of disciplinary measures, strengthening of inspection services, collegiality, and the publication of court decisions. - Commercial and land registries - Improve operations of land and commercial registries. - Run commercial registries and archives independently from general court records. - Strengthen cooperation with OHADA institutions to centralize data and computerize records. - Insolvency administrators - Adopt a regulatory and supervisory framework including requirements for appointment, training, professional ethics, and discipline. ### Regional (OHADA) reforms - Revisit several OHADA uniform acts. - Revise enforcement procedures, especially fast-track measures for debt collection and foreclosure, in light of best practices. - Review the regime for secured transactions to make collateral agreements more reliable and easier to implement. - Revise the draft OHADA uniform act on cooperatives to further simplify rules on creation, registration, and enforcement of collateral and to make this regime available to all credit providers (or at least all micro-credit providers). - Review the insolvency regime to buttress creditor rights and market discipline. ### Accounting and auditing - OHADA Accounting Framework - Places an excessive burden on SMEs; thresholds have not been revised, making SMEs subject to an excessive level of requirements. - Consistency of the framework for large companies with International Financial Reporting Standards (IFRS) should be strengthened over the medium term. - Auditing standards - Lack of a standard for auditing practices raises serious concerns regarding the quality of financial statement audits. - Adopting International Auditing Standards (ISA) would address regulatory weaknesses and improve the image of the accounting profession. - State-owned enterprises (SOEs) - Financial information published by SOEs needs significant strengthening. - A review indicates a number of problems; only very few SOEs publish their financial statements. - Recommendation: set up a unit in each country to monitor publication of SOEs’ financial accounts. - Banks - Require banks to make their audited financial statements available to the public. - Strengthen the chart of account that applies to banks to ensure compliance with IFRS, after an appropriate transition period. ### Payment systems - A regional payment system reform project under the aegis of the BEAC was launched in 2003 to make national and regional payment systems more effective and secure. - Implementation has taken longer than anticipated due to a lack of experience, weak coordination, and divergences with banks regarding the interbank card system component. - Recommended measures - Create a payment system management unit at BEAC headquarters, supplemented by units in each country, responsible for implementation and supervision. - Strengthen consultation, communication, and dissemination of information to address banks’ concerns. - Ensure the recently created Coordination and Monitoring Committee meets regularly (at least during the phase of implementation) to discuss and propose measures addressing future users’ concerns. ### Central African States Development Bank (BDEAC) - BDEAC designated as a primary instrument for financing integration. - Following financial difficulties, BDEAC was restructured to strengthen corporate governance, reduce governments’ influence in decision-making bodies, and enhance risk control mechanisms. - BDEAC was designated administrator of the Community Development Fund (FODEC) to receive an annual allocation from tax and customs revenues, granted a revolving line of credit by the BEAC, and has started mobilizing funds from the market. - Recommendations and constraints - Finalize initiated reforms and resume activities with prudence to avoid past errors. - Member states continue to be predominant shareholders (holding more than 75 percent of the shares), discouraging entry of new private shareholders. - Strengthen corporate governance by, inter alia, establishing an independent and qualified Board of Directors. - Current business strategy (primarily cofinancing with well-known lenders and refinancing of national financial institutions—sound banks and MFIs) seems prudent. - For private lending, raise resources from the market to avoid distortions and ensure long-term viability. - Monitor solvency of BDEAC; authorities should be prepared to close the bank if activities are not viable. ### Securities exchanges - Two independent and parallel securities exchanges are developing in the CEMAC despite potential legal and financial conflicts: - Douala Stock Exchange (DSX) promoted by Cameroon. - Regional securities exchange established in Libreville following a decision of the Conference of Heads of States. - Status and concerns - Despite official inauguration of the DSX in 2003, the national market has not started trading yet, although structures, mechanisms, and systems are ready. - The parallel development of two exchanges raises legal questions and would likely be non-viable given the small size of the market. - Recommendations - Merge the two exchanges and unify responsibility for supervision. - Consider options for integration (at least partial cross-listing) with other financial markets, particularly those in western Africa or South Africa. - While awaiting merger agreement, halt any new investments that would duplicate resources. ### Basel Core Principles and supervisory environment (summary findings) - Assessment context - BCP assessment conducted in accordance with “The Basel Core Principles for Effective Banking Supervision” (1997) and the “Core Principles Methodology” (1999). - Assessments based on laws, regulations, policies, practices, self-assessments by supervisory authorities, documentation review, and interviews. Assessments carried out during a visit to the CEMAC in January 2006. - Financial sector composition and conditions - Three types of credit institution (CI) in CEMAC: 33 banks, 17 financial institutions, and over 1,000 microfinance institutions (MFI). - Banks alone account for almost 90 percent of total CI assets and deposits. - Economic environment: preponderance of the primary sector, which accounts for over half its GDP and much of its volatility. - Recent increase in oil prices translated into a strong increase in bank deposits; high interest on deposits, limited perceived lending opportunities, and low remuneration of required reserves contributed to a decline in credit institutions’ profitability in 2005. - Legal, judicial, and accounting constraints - Legal and judicial environment constrains banking development: underfunding of the justice system, insufficient training for judges, lack of specialization, and, in some cases, corruption. - OHADA accounting framework in force; outside auditor profession still incipient, reflected in poor quality of some auditors’ work. - Deposit insurance (FOGADAC) - Idea dates to 1996; CEMAC regulation adopted in 2004 but not yet implemented. - Effective implementation depends on correcting prudential framework weaknesses and defining operation methods (guarantee ceilings, financing methods, determination of risk-based premia, intervention criteria, and COBAC monitoring). - Regulatory and supervisory gaps - Core prudential regulations (capital adequacy ratio, large exposures, and provisioning) are still much less demanding than international standards. - Compliance with certain regulations is weak, notably capital adequacy ratio, large exposures, and internal control. - COBAC does not fully enforce implementation of regulations; sanctions are sometimes imposed too late with serious breaches persisting for several years (negative equity, or risk on a single borrower equivalent to two or three times an institution’s own funds). - Growing gap between COBAC’s mandates and its resources; preponderance of national finance ministry representatives undermines independence. - Basel 2 implementation plans and caution - In 2003, COBAC decided to gradually implement Basel 2, assuming full compliance with the BCP by end 2004 and introducing simplified standardized approach in 2008 and other credit risk approaches by 2013. - COBAC engaged in initial steps, including staff training, although Basel 2 is unlikely to begin being introduced by 2008 as initially planned. - Correcting prudential and institutional shortcomings is a prerequisite for implementing Basel 2 provisions; focus should remain on urgent supervisory actions until COBAC can perform core functions satisfactorily. - Licensing and structure - Three types of licenses: national license to operate as a credit institution, national license as a micro-finance institution, and the single license for the CEMAC created in 2000 (no request for the single CEMAC license submitted to COBAC as of the assessment). - National finance ministries play a central role in granting and withdrawal of national licenses; appeals by finance ministries can automatically suspend COBAC-imposed sanctions. - Specific prudential comparisons with international standards - Capital adequacy: minimum ratio gradually moved to 8 percent but does not reflect existing levels of risk in CEMAC. - Large exposures: institutions can lend up to 45 percent of their own funds to a single borrower, and up to 90 percent to companies recognized by COBAC as of national importance; Basel Committee recommended ceiling is 25 percent. - Provisioning rules: do not contemplate 100 percent principal provisioning until a loan has been nonperforming for three to four years. *Source: Excerpt from IMF staff report contained in the provided PDF content.* ### 78. COBAC does not fully enforce the existing regulations, which alters its credibility ### 78. COBAC does not fully enforce the existing regulations, which alters its credibility ### Enforcement and credibility - COBAC does not fully enforce existing regulations, which alters its credibility and effectiveness. - Examples of enforcement and implementation weaknesses: - Difficulties drafting rules governing implementation of regulations (consolidation of accounting and prudential standards, thresholds above which external auditors are required to perform additional verifications). - Controls are too infrequent outside crisis situations: - On-site inspections carried out only once every two to four years. - Only exceptional opportunities for in-depth dialogue between the Ongoing Supervision Directorate and the credit institutions. - Too limited verification of the quality of accounting and prudential statements. ### Resources, staffing, and mandates - Growing gap between COBAC’s mandates and its resources. - Current staffing and departures: - COBAC employs 39 officers, including 4 engaged in ongoing supervision and 11 in on-site inspections. - 5 experienced staff members have recently left COBAC. - The slight increase in staff since 2001 does not match COBAC’s lack of resources nor the expansion of mandates (supervision of a large number of MFI, internal control, prevention of money laundering, and combating the financing of terrorism). - Recommended staffing goal: - "An ambitious plan to boost staff levels over the medium term is indispensable; a reasonable goal might be to double the number of officers currently assigned to COBAC." ### Regulatory implementation and supervisory powers - COBAC is in charge of setting accounting standards for CI, largely transposing OHADA rules; some regulations are not implemented for lack of necessary instructions which COBAC has to issue. - Regulations place large responsibilities on CI’s external auditors, but COBAC does not yet efficiently use its powers to ensure auditors properly discharge their duties. - Compliance weaknesses (early 2006 / end-November 2005): - "Nearly a quarter of the banks were in breach of the minimum capital adequacy ratio at end-November 2005." - "Nearly three quarters were not complying with large exposures rules." - Regulation on internal control in effect since 2003 was still very unevenly applied in early 2006. ### Remedial measures and sanctions - COBAC generally has adequate powers to impose sanctions, but: - It often resorts to sanctions too late, after failure of numerous restructuring plans. - No disciplinary license withdrawal has been called for since 1999, although five CI posted negative equity at the time of the mission. - This late or absent use of sanctions: - Alters conditions of competition among CI and hence the stability of the banking system. - Strongly impairs the credibility of COBAC’s actions. - Recommendation excerpt: - "Ensure that COBAC’s powers to impose sanctions on CI, senior management and external auditors are effectively used when serious breaches are detected. Examine the advisability of adopting a more “automatic” license withdrawal procedure when a CI’s condition remains critical for too long." ### Cross-border coordination - A large fraction of the banking system consists of subsidiaries of foreign banking groups, most of them French. - COBAC has established very close cooperation ties with the French Banking Commission (exchanges of individual pieces of information, training in France for certain officers...). - Few CEMAC banks have operations abroad. ### Recommended Action Plan to Improve Compliance with the Basel Core Principles (selected items from table) - Principle 1 (Objectives, Autonomy, Powers, and Resources): - "Significantly strengthen the staff of COBAC, preferably doubling the number of personnel over the medium term. Strengthen COBAC’s independence and diversify the origin of its commissioners. Introduce rules for the winding-up of CI." - Principle 3 (Licensing criteria): - "Review conditions for licensing applications for credit institutions, senior management and external auditors (especially concerning the role of the national finance ministries in the granting and withdrawal of licenses)." - Principle 6 (Capital adequacy): - "Increase gradually the minimum capital adequacy ratio above 8 percent. Update the regime (i.e., risk weights) to comply with Basel Committee recommendations." - Principle 9 (Large exposures): - "Reduce the large exposure limit from 45 percent to 25 percent, as recommended by the Basel Committee. Eliminate the provisions which increase the limit to 90 percent for certain companies recognized as strategic." - Principle 14 (Internal control): - "Conduct the internal control inspections scheduled for 2006 and ensure that the follow-up guarantees that all institutions effectively implement current regulations." - Principle 18 (Supervision on solo and consolidated basis): - "Issue the instructions required to implement existing regulations on a solo and on a consolidated basis." - Principle 22 (Remedial measures): - "Ensure that COBAC’s powers to impose sanctions on CI, senior management and external auditors are effectively used when serious breaches are detected. Examine the advisability of adopting a more 'automatic' license withdrawal procedure when a CI’s condition remains critical for too long." ### Authorities’ response (CEMAC authorities) - Planned key measures in response: - "(i) some of the staff recruited at end-2005 by BEAC will be assigned to COBAC;" - "(ii) amendments to the capital adequacy ratio and large exposure regulations may be contemplated after discussion with the industry, while updated regulations would in most cases not start being implemented before 2008;" - "(iii) instructions required to implement existing regulations will be issued by end-2006;" - "(iv) generally speaking, the 'underdevelopment of the banking system and the impact of the withdrawal of bank licenses on economic agents, particularly in the absence of an operational mechanism of deposit insurance, calls for some caution in withdrawing licenses.'" - Points of disagreement stated by authorities: - Regarding issuance and withdrawal of licenses, ministers of finance are considered to have no discretionary power, although plans are being made to amend texts to reflect the assessment’s recommendations. - Minimum mandatory provisioning times are considered appropriate to the CEMAC legal environment. - Authorities consider it unnecessary for credit institutions and States to be included among possible connected parties. ### IMF’s Transparency Code — transparency of banking supervision (principal conclusions) - Availability and publication: - All treaties, conventions, and regulations affecting the community are posted on the Internet, but not all COBAC regulations. - BEAC’s annual report and that of COBAC are published with a two-year lag. - The COBAC bulletin has not been published since September 2003. - Presentation and timeliness: - Presentation of data regarding policies and implementation of banking supervision is ineffective due to publication lags. - Delays in publishing annual reports alter the credibility of the bodies and impair transparency. - Recommended transparency actions: - Post all banking supervision regulations on the Internet website. - Clarify procedures governing renewal of the terms of office of the governor and deputy governor and the criteria for removing members of COBAC. - Publish the information exchange agreements between COBAC and similar supervisory agencies in foreign countries. - Restore publication of BEAC and COBAC annual reports with a reasonable time lag, and publication of COBAC’s periodic bulletin. - Include in BEAC’s annual report data on changes in the payment system and on risk management policy in relation to it. - Authorities’ response: The CEMAC authorities were in broad agreement with the evaluation. ### Stress tests methodology and selected results - Tests conducted at end-December 2005 on individual data (33 banks) for the entire CEMAC, for each country, and for three groups of banks: foreign banks (55 percent of assets), local banks, and local bank groups (26 percent of assets). - Credit risk provisioning rate assumptions (Provisioning Rate): - 1. Default of largest corporate borrower — 75% - 2. 25% of loans to oil and gas sectors become doubtful — 75% - 3. 40% of loans to forestry sector and 20% of loans to transport sector become doubtful — 75% - 4. Migration from unpaid to doubtful loans — 75% Overall credit risk - 5. 50% increase in doubtful loans — COBAC rate over 3-years - 6. Deterioration of convergence criteria — 1/ none - 7. Government default on bank loans — 15% - 8. Government default on bank loans and securities — 15% - 9. Shock (8) + 20% of loans to public enterprises become doubtful + indirect effects of government arrears on wages affecting half of civil servants that are bank customers — 15% - Note: 1/ The weight on banks’ loans to governments rises from 75 percent to 100 percent for Congo; from 50 percent to 75 percent for Cameroon, Gabon, and Chad; and from 20 percent to 50 percent for Equatorial Guinea. - Exchange risk sensitivity tests: - (i) 40 percent depreciation of the CFA relative to the euro; - (ii) 20 percent appreciation of the CFA relative to the euro; - (iii) 40 percent depreciation of the euro relative to the U.S. dollar; - (iv) 40 percent appreciation of the euro relative to the U.S. dollar. - Liquidity risk tests: - (i) 25 percent drop in deposits; - (ii) 50 percent decline in term deposits of the central government and a decline in all of the central government’s demand deposits. - Interest rate risk: - Yield curve shock: + 500 basis points. - Selected capital adequacy ratios (pre-shock and after shocks) — CEMAC aggregate values preserved from table: - Capital adequacy ratio (pre-shock) — 14.8 (CEMAC) - Capital adequacy ratio after shocks (selected scenarios, CEMAC): - Default largest individual risk — 6.6 - Petroleum and gas sector — 14.7 - Reclassification of loans in one category — 13.9 - 50% increase in NPLs — 10.8 - Deterioration convergence criteria — 14.7 - Default on govt. loans — 14.0 - Default on govt. loans and securities — 12.7 - Default on govt. + salary arrears — 12.6 - 40% depreciation against the euro — 24.9 - 20% appreciation against the euro — 9.8 - 40% depreciation against the dollar — 17.6 - 40% appreciation against the dollar — 12.8 - Yield curve: + 500 basis points — 11.3 - Liquidity ratio (pre-shock) — 82.7 (CEMAC) - 25% withdrawal on all deposits — 76.9 (CEMAC) - 50% reduction of public sector deposits — 81.6 (CEMAC) - Combination: Interest rate + govt. default — 9.3 (CEMAC) - Combination: USD appreciation + oil + govt. default — 11.9 (CEMAC) - Combination: Interest rate + increase in NPLs — 7.4 (CEMAC) - Combination: Increase in NPLs + govt. default — 10.0 (CEMAC) - Source of stress test data: COBAC and mission estimates. - Note: Liquidity ratio defined as "Ratio of assets and liabilities with remaining term of less than one month calculated by COBAC." *Source: _cr06321 - 78. COBAC does not fully enforce the existing regulations, which alters its credibility* ### Appendix Table 2. Capital Shortfall in Percent of GDP ### Appendix Table 2. Capital Shortfall in Percent of GDP ### Capital shortfall: Default and Largest Individual Risk (Appreciation of 20 Percent of Currency Against Euro) - Cameroon - Capital Shortfall (Default): 0.35 - Deposits of Banks with Negative Capital (Default): 4.6 - Capital Shortfall (Appreciation): 0.43 - Deposits of Banks with Negative Capital (Appreciation): 4.6 - CRA - Capital Shortfall (Default): 0.57 - Deposits of Banks with Negative Capital (Default): 2.5 - Capital Shortfall (Appreciation): 0.43 - Deposits of Banks with Negative Capital (Appreciation): 2.5 - Congo - Capital Shortfall (Default): 0.05 - Deposits of Banks with Negative Capital (Default): 5.1 - Capital Shortfall (Appreciation): 0.40 - Deposits of Banks with Negative Capital (Appreciation): 7.0 - Gabon - Capital Shortfall (Default): - - Deposits of Banks with Negative Capital (Default): - - Capital Shortfall (Appreciation): 1.23 - Deposits of Banks with Negative Capital (Appreciation): 13.6 - Equatorial Guinea - Capital Shortfall (Default): 0.33 - Deposits of Banks with Negative Capital (Default): 10.6 - Capital Shortfall (Appreciation): 0.06 - Deposits of Banks with Negative Capital (Appreciation): 1.7 - Chad - Capital Shortfall (Default): 0.18 - Deposits of Banks with Negative Capital (Default): 2.3 - Capital Shortfall (Appreciation): 0.11 - Deposits of Banks with Negative Capital (Appreciation): 0.9 - CEMAC (aggregate) - Capital Shortfall (Default): 0.24 - Deposits of Banks with Negative Capital (Default): 4.5 - Capital Shortfall (Appreciation): 0.41 - Deposits of Banks with Negative Capital (Appreciation): 4.3 ### Selected Economic and Financial Indicators, 2000–05 (annual percentage change or percent of GDP as labeled) - National income and prices - GDP at current prices (2000–2005): 20.3, 4.8, 6.0, 4.4, 14.1, 16.3 - GDP at constant prices (2000–2005): 3.3, 8.1, 4.8, 4.6, 8.4, 4.3 - Oil GDP 1/ (2000–2005): -0.3, 12.1, 5.1, 5.4, 17.1, 4.3 - Non-oil GDP 1/ (2000–2005): 4.8, 6.4, 4.7, 4.2, 4.4, 4.2 - Consumer prices (average) (2000–2005): 1.2, 3.7, 4.6, 1.8, 1.0, 3.8 - Terms of trade (2000–2005): 26.2, -5.6, 2.9, 4.9, 0.9, 15.8 - Nominal effective exchange rate (2000–2005): -5.2, 0.7, 2.4, 5.8, 2.9, -0.2 - Real effective exchange rate (annual changes): -7.5, 3.0, 4.0, 5.2, 1.8, 1.4 - Money and credit (annual changes in percent of beginning-of-period broad money) - Net foreign assets (2000–2005): 38.4, -11.3, 10.3, -1.4, 26.4, 50.4 - Net domestic assets (2000–2005): -15.4, 18.6, 4.2, 3.1, -16.1, -32.6 - Broad money (2000–2005): 23.0, 7.2, 14.4, 1.7, 10.3, 17.8 - National accounts (percent of GDP) - Gross domestic savings (2000–2005): 37.7, 36.1, 26.2, 37.0, 39.4, 47.2 - Gross domestic investment (2000–2005): 21.6, 27.8, 25.2, 27.3, 24.2, 22.6 - Government financial operations (percent of GDP) - Total revenue, excluding grants (2000–2005): 21.4, 22.9, 20.9, 20.5, 21.1, 25.8 - Government expenditure (2000–2005): 18.6, 21.3, 21.2, 20.3, 19.3, 17.9 - Primary basic fiscal balance 2/ (2000–2005): 9.9, 9.7, 6.2, 7.0, 7.2, 13.7 - Basic fiscal balance 3/ (2000–2005): 5.6, 5.1, 2.4, 2.7, 4.3, 10.1 - Overall fiscal balance, excluding grants (2000–2005): 2.8, 1.6, -0.3, 0.2, 1.8, 7.9 - Non-oil overall fiscal balance, excluding grants 4/ (2000–2005): -12.0, -13.6, -14.6, -13.3, -14.3, -12.1 - Overall fiscal balance, including grants (2000–2005): 3.4, 2.3, 0.9, 1.3, 2.5, 8.5 - External sector (percent of GDP) - Exports of goods and nonfactor services (2000–2005): 49.6, 45.7, 43.3, 43.3, 49.7, 58.4 - Imports of goods and nonfactor services (2000–2005): 34.2, 38.1, 40.8, 36.8, 37.3, 35.6 - Balance on goods and nonfactor services (2000–2005): 15.4, 7.7, 2.5, 6.5, 12.5, 22.8 - Current account, including grants (2000–2005): 3.2, -6.6, -10.5, -7.0, -3.1, 2.7 - External public debt (2000–2005): 84.6, 82.7, 71.2, 68.2, 59.8, 40.6 - Gross official reserves (end of period, in millions of U.S. dollars) (2000–2005): 1,318.9, 1,143.3, 1,678.2, 1,908.3, 3,188.7, 5,315.7 - In months of imports of goods and services (2000–2005): 1.9, 1.4, 1.8, 1.6, 2.4, 3.9 - Memorandum items - Nominal GDP (in billions of CFA francs) (2000–2005): 15,030, 15,756, 16,700, 17,431, 19,895, 23,140 - CFA francs per U.S. dollar, average (2000–2005): 712.0, 733.0, 697.0, 581.2, 528.3, 526.6 - Oil prices (in U.S. dollars per barrel) (2000–2005): 28.2, 24.3, 25.0, 28.9, 37.8, 53.4 - Oil prices (in CFA francs per barrel) (2000–2005): 20,103, 17,835, 17,390, 16,793, 19,947, 28,096 ### Margins on Total Earning Assets (TEA), 2002–04 (percent unless otherwise indicated) - TEA (billion)1/ (2002, 2004) - Cameroon: 1,063, 1,201 - CAR: 58, 65 - Congo: 175, 153 - Gabon: 735, 743 - Equatorial Guinea: 124, 118 - Guinea: 104, 132 - Chad: 2,259, 2,411 - Gross margin (2002, 2004) - Cameroon: 8.4, 8.0 - CAR: 11.1, 8.3 - Congo: 11.2, 9.3 - Gabon: 9.1, 8.6 - Eq. Guinea: 13.4, 10.0 - Guinea: 12.6, 9.6 - Chad: 9.8, 8.5 - NPLs provisioning (2002, 2004) - Cameroon: 0.9, 0.8 - CAR: 2.2, 2.4 - Congo: 0.0, 0.1 - Gabon: 0.6, 0.8 - Eq. Guinea: 0.3, 0.8 - Guinea: 1.3, 1.1 - Chad: 0.8, 0.8 - Net margin (2002, 2004) - Cameroon: 7.5, 7.1 - CAR: 8.9, 5.9 - Congo: 11.2, 9.2 - Gabon: 8.5, 7.8 - Eq. Guinea: 13.1, 9.2 - Guinea: 11.3, 8.5 - Chad: 9.1, 7.7 - Other income net 3/ (2002, 2004) - Cameroon: 5.5, 9.5 - CAR: 10.3, 9.2 - Congo: 10.2, 9.1 - Gabon: 10.4, 9.3 - Eq. Guinea: 9.5, 14.6 - Guinea: 13.4, 13.0 - Chad: 8.2, 9.9 - Total margin (2002, 2004) - Cameroon: 13.0, 16.7 - CAR: 19.2, 15.1 - Congo: 21.4, 18.3 - Gabon: 19.0, 17.2 - Eq. Guinea: 22.7, 23.8 - Guinea: 24.7, 21.5 - Chad: 17.2, 17.6 - Overhead expenses (2002, 2004) - Cameroon: 1.8, 2.9 - CAR: 3.1, 3.1 - Congo: 3.3, 3.3 - Gabon: 2.4, 2.6 - Eq. Guinea: 3.2, 4.6 - Guinea: 4.7, 5.1 - Chad: 2.4, 3.0 - Personnel expenses (2002, 2004) - Cameroon: 1.4, 2.3 - CAR: 2.1, 2.0 - Congo: 2.5, 2.7 - Gabon: 2.8, 3.2 - Eq. Guinea: 1.5, 2.0 - Guinea: 3.2, 3.5 - Chad: 2.0, 2.6 - Margin before taxes (2002, 2004) - Cameroon: 9.8, 11.5 - CAR: 14.0, 9.9 - Congo: 15.7, 12.2 - Gabon: 13.8, 11.4 - Eq. Guinea: 18.0, 17.2 - Guinea: 16.8, 12.8 - Chad: 12.8, 11.9 - Taxes (2002, 2004) - Cameroon: 0.4, 1.2 - CAR: 0.2, 0.4 - Congo: 0.6, 0.7 - Gabon: 0.8, 1.5 - Eq. Guinea: 0.4, 0.7 - Guinea: 0.7, 1.1 - Chad: 0.6, 1.2 - Margin after taxes (2002, 2004) - Cameroon: 9.4, 10.3 - CAR: 13.8, 9.5 - Congo: 15.1, 11.6 - Gabon: 13.0, 9.9 - Eq. Guinea: 17.6, 16.5 - Guinea: 16.1, 11.7 - Chad: 12.3, 10.7 - Return on assets-ROA (2002, 2004) - Cameroon: 1.3, 1.2 - CAR: 3.0, 2.8 - Congo: 1.9, 2.1 - Gabon: 3.7, 2.9 - Eq. Guinea: 2.1, 1.1 - Guinea: 2.8, 2.0 - Chad: 2.2, 1.8 - Return on equity-ROE (2002, 2004) - Cameroon: 18.9, 13.9 - CAR: 20.1, 19.9 - Congo: 42.7, 27.0 - Gabon: 20.2, 17.9 - Eq. Guinea: 29.0, 16.2 - Guinea: 22.0, 17.2 - Chad: 21.0, 16.9 ### Selected Financial Soundness Indicators, 2002–05 (In percent) - Capital adequacy ratio (Weighted ratio 1/, 2002, 2005) - Cameroon: 9.3, 9.3 - CRA: 7.1, 12.1 - Congo: 4.3, 6.4 - Gabon: 18.9, 14.3 - Eq. Guinea: 3.9, 12.0 - Guinea: 8.7, 11.9 - Chad: 11.4, 10.8 - Capital adequacy ratio (Weighted ratio 2/ since 2005) - Cameroon: ... , 11.2 - CRA: ... , 12.4 - Congo: ... , 15.9 - Gabon: ... , 23.3 - Eq. Guinea: ... , 13.0 - Guinea: ... , 15.3 - Chad: ... , 14.8 - Capital/assets (2002, 2005) - Cameroon: 7.1, 8.7 - CRA: 14.8, 14.2 - Congo: 4.4, 8.0 - Gabon: 18.1, 16.4 - Eq. Guinea: 7.2, 7.0 - Guinea: 12.8, 11.6 - Chad: 10.5, 10.8 - Asset quality, profitability and liquidity (selected indicators, 2002, 2005) - Gross NPL/gross loans: Cameroon 15.8, 12.6; CRA 31.0, 34.2; Congo 1.1, 3.4; Gabon 11.3, 14.3; Eq. Guinea 8.7, 17.2; Guinea 19.6, 13.7; Chad 13.9, 13.7 - Net NPLs/gross loans: Cameroon 3.0, 1.8; CRA 7.8, 7.5; Congo 0.9, 0.5; Gabon 3.8, 2.9; Eq. Guinea 2.3, 5.7; Guinea 4.2, 2.9; Chad 3.4, 2.6 - Net NPLs/capital: Cameroon 23.0, 11.8; CRA 45.2, 50.8; Congo 7.8, 1.9; Gabon 14.2, 8.1; Eq. Guinea 13.0, 24.0; Guinea 19.6, 16.8; Chad 18.2, 11.6 - Assets return (ROA): Cameroon 1.3, 1.2; CRA 3.0, 2.8; Congo 1.9, 2.1; Gabon 3.7, 2.9; Eq. Guinea 2.1, 1.1; Guinea 2.8, 2.0; Chad 2.2, 1.8 - Equity return (ROE): Cameroon 18.9, 13.9; CRA 20.1, 19.9; Congo 42.7, 27.0; Gabon 20.2, 17.9; Eq. Guinea 29.0, 16.2; Guinea 22.0, 17.2; Chad 21.0, 16.9 - Liquid assets/total assets: Cameroon 22.1, 18.9; CRA 2.7, 7.0; Congo 13.6, 51.2; Gabon 6.3, 14.2; Eq. Guinea 14.8, 39.2; Guinea 22.4, 15.3; Chad 16.0, 22.1 - Liquid assets/demand deposits: Cameroon 35.8, 33.4; CRA 6.7, 13.1; Congo 33.7, 74.0; Gabon 35.0, 32.4; Eq. Guinea 22.2, 44.2; Guinea 10.8, 26.9; Chad 29.3, 38.5 ### Changes in Banks’ Ratings, 2001–05 (number of banks 1/) - Cameroon (2001, 2005) - Solid: 0, 3 - Good: 5, 4 - Slightly Fragile: 1, 1 - Moderately Fragile: 1, 1 - Very Fragile: 1, 0 - Critical: 1, 2 - CRA (2001, 2005) - Solid: 0, 1 - Good: 1, 1 - Slightly Fragile: 0, 0 - Moderately Fragile: 2, 0 - Very Fragile: 0, 0 - Critical: 0, 1 - Congo (2001, 2005) - Solid: 0, 0 - Good: 1, 3 - Slightly Fragile: 0, 0 - Moderately Fragile: 0, 0 - Very Fragile: 0, 0 - Critical: 0, 1 - Gabon (2001, 2005) - Solid: 0, 2 - Good: 5, 4 - Slightly Fragile: 0, 0 - Moderately Fragile: 0, 0 - Very Fragile: 0, 0 - Critical: 0, 0 - Equatorial Guinea (2001, 2005) - Solid: 1, 0 - Good: 1, 2 - Slightly Fragile: 0, 0 - Moderately Fragile: 0, 1 - Very Fragile: 0, 0 - Critical: 0, 0 - Chad (2001, 2005) - Solid: 0, 0 - Good: 2, 2 - Slightly Fragile: 1, 1 - Moderately Fragile: 2, 1 - Very Fragile: 0, 2 - Critical: 0, 0 - CEMAC (2001, 2005) - Solid: 1, 6 - Good: 15, 16 - Slightly Fragile: 2, 2 - Moderately Fragile: 5, 3 - Very Fragile: 1, 2 - Critical: 1, 4 *Source: COBAC; IMF staff estimates and projections as presented in the source document.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06321.pdf_