{
  "title": "IMF Executive Board Concludes Financial System Stability Assessment with Algeria",
  "publication": "IMF News, October 15, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/10/15/pr20316-algeria-imf-executive-board-concludes-financial-system-stability-assessment",
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  "summary": "The Executive Board concluded the Financial System Stability Assessment (FSSA) with Algeria on Friday, July 31, 2020 without a meeting.",
  "publishDate": "2020-10-15",
  "sections": [
    {
      "heading": "Assessment context and timing",
      "content": "- The Executive Board concluded the Financial System Stability Assessment (FSSA) with Algeria on Friday, July 31, 2020 without a meeting.\n- The FSSA was prepared by an IMF staff team for the Executive Board’s consideration on Friday, July 31.\n- The FSSA reflects discussions with the Algeria authorities in September 2019 and is based on information available at that time.\n- The FSSA summarizes key findings of the Financial Sector Assessment Program (FSAP), a program established in 1999; FSAPs are mandatory for the 29 jurisdictions with systemically important financial sectors."
    },
    {
      "heading": "Main findings on pre-pandemic vulnerabilities",
      "content": "- Prior to the pandemic:\n  - Credit growth in Algeria had been rapid.\n  - Deficit monetization had raised macro risks.\n  - International reserves had fallen substantially.\n- Government interventions in the economy are pervasive and funded by hydrocarbon revenue, rendering Algeria highly vulnerable to exogenous shocks and leaving it with limited policy space to absorb them."
    },
    {
      "heading": "Stress tests and COVID-19 implications",
      "content": "- The stress tests in the report:\n  - Account for the effects of COVID-19 in the baseline outlook.\n  - Include a more adverse scenario that assumes the outbreak lasts longer than currently anticipated.\n- Results indicate:\n  - The COVID-19 shock is likely to leave some banks undercapitalized.\n  - If prolonged, the shock could result in systemwide undercapitalization."
    },
    {
      "heading": "Supervisory, regulatory, and risk management weaknesses",
      "content": "- The Bank of Algeria (BA) has managed reserve requirements to address large liquidity shifts from hydrocarbon prices.\n- Improvements since the last FSAP have been made, but:\n  - Financial supervisors lack independence.\n  - Risk management overall could be improved.\n  - Although supervisory rules appear adequate, a large stock of legacy NPLs was potentially underprovisioned.\n  - Liquidity management is underdeveloped.\n- Subsidies administered via the financial sector create vulnerabilities and should be reformed.\n- Inclusive finance and digital payments are underdeveloped and should be better developed."
    },
    {
      "heading": "Key policy recommendations and reforms",
      "content": "- Supervisory coordination and enforcement:\n  - Supervisors should meet regularly.\n  - The Banking Commission should ensure all banks abide by prudential and AML/CFT regulations, issuing sanctions where warranted.\n- Regulatory strengthening:\n  - Strengthen the regulatory framework, notably on bank governance internal controls, and politically exposed persons (PEPs).\n  - Better credit risk management is needed, and NPL provisioning should be better monitored and enforced.\n- Money market and liquidity:\n  - Interbank rate fluctuations should be limited within a mid-corridor system.\n  - The money market should be better developed.\n- Crisis preparedness and systemic oversight:\n  - A crisis management framework, including a special resolution framework, should be introduced.\n  - Mechanisms for systemic risk oversight should be restarted.\n- Sovereign-bank linkages and corporate governance:\n  - Better corporate governance and reform of subsidy programs, along with better credit risk supervision, would help contain sovereign-bank linkages.\n\nItalic: IMF Communications Department, Press Release No. 20/316, October 15, 2020.\n\n---\n\n\n References\n\n- Algeria and the IMF\n- Financial Sector Assessment Program (FSAP)\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/10/15/pr20316-algeria-imf-executive-board-concludes-financial-system-stability-assessment"
    }
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    "Published: October 15, 2020",
    "The Executive Board concluded the Financial System Stability Assessment (FSSA) with Algeria on Friday, July 31, 2020 without a meeting.",
    "The FSSA was prepared by an IMF staff team for the Executive Board’s consideration on Friday, July 31.",
    "The FSSA reflects discussions with the Algeria authorities in September 2019 and is based on information available at that time.",
    "The FSSA summarizes key findings of the Financial Sector Assessment Program (FSAP), a program established in 1999; FSAPs are mandatory for the 29 jurisdictions with systemically important financial sectors.",
    "Prior to the pandemic:",
    "Government interventions in the economy are pervasive and funded by hydrocarbon revenue, rendering Algeria highly vulnerable to exogenous shocks and leaving it with limited policy space to absorb them.",
    "The stress tests in the report:",
    "Results indicate:",
    "The Bank of Algeria (BA) has managed reserve requirements to address large liquidity shifts from hydrocarbon prices.",
    "Improvements since the last FSAP have been made, but:",
    "Subsidies administered via the financial sector create vulnerabilities and should be reformed.",
    "Inclusive finance and digital payments are underdeveloped and should be better developed.",
    "Supervisory coordination and enforcement:",
    "Regulatory strengthening:",
    "Money market and liquidity:",
    "Crisis preparedness and systemic oversight:",
    "Sovereign-bank linkages and corporate governance:",
    "[Algeria and the IMF](http://www.imf.org/external/country/DZA/index.htm)",
    "[Financial Sector Assessment Program (FSAP)](https://www.imf.org/external/np/fsap/fsap.asp)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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