Democratic Republic of the Congo: Financial System Stability Assessment

IMF Staff Country Reports, October 22, 2014

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The Congolese financial sector has recovered from the crisis of 2009 but is "at a crossroads."
The system remains shallow, highly dollarized, and characterized by balance sheet fragilities.
The authorities have announced a de-dollarization process; however, greater progress on reforms to strengthen the financial system is needed to support financial deepening and economic growth.
The team’s analysis suggests that the financial system remains vulnerable.
Resilience to shocks is undermined by:
- Lack of risk-based supervision.
- Lax regulation and weak enforcement of existing regulations.
- Low profitability.
- Excessive reliance on sight deposits.
Assessments of bank-specific and systemic soundness are severely handicapped by weak supervisory data and other information gaps.
There are significant weaknesses in accounting and auditing practices.
Even if indicators suggest high capitalization levels, a more detailed analysis suggests banks are under-provisioned, partly owing to lax definitions of nonperforming loans and provisioning rules.

Critical need to implement risk-based supervision for individual banks; described as "a critical prerequisite for effective crisis prevention."
Steps are needed to improve capacity for microprudential and macroprudential supervision.
Weak supervisory data and information gaps severely limit bank-specific and systemic soundness assessments.
Lax definitions of nonperforming loans and provisioning rules contribute to under-provisioning despite superficially high capitalization indicators.

Shallow financial system limiting intermediation and financial deepening.
High degree of dollarization in the financial system.
Banking sector fragilities are linked to balance sheet weaknesses and funding model concentration (excessive reliance on sight deposits).

Advance reforms to strengthen the financial system to support financial deepening and economic growth.
Implement and operationalize risk-based supervision for individual banks to improve crisis prevention.
Strengthen regulation and enforcement of existing regulations to address lax regulatory practices.
Enhance supervisory data quality and close information gaps to enable accurate assessments of bank soundness.
Improve accounting and auditing practices to ensure financial statements reflect true balance sheet conditions.
Tighten definitions of nonperforming loans and provisioning rules to correct under-provisioning.
Build capacity for both microprudential and macroprudential supervision.
Progress on the announced de-dollarization process to reduce currency mismatches and enhance monetary policy effectiveness.