IMF published a report on the financial sector stability review (FSSR) of Guinea. The report presents the main observations and the recommendations for improvements to supervisory and regulatory framework for the banking sector. The review recommends that, as a first priority, on- and off-site supervision and the availability and quality of data on the banking sector should be significantly improved while the regulatory framework for banks should be modernized. This will provide a good basis for developing financial stability function of the Central Bank of the Republic of Guinea (BCRG) and establishing a framework for financial stability surveillance in the country.
The financial sector in the country is dominated by banks, 16 commercial banks, 21 nonbank deposit institutions, and 12 insurance companies at the end of 2018. All commercial banks are subsidiaries of foreign groups, with the top three banks representing approximately 57.4% of the total assets of the banking sector. Two of the three largest banks belong to French international groups, 13 banks are part of pan-African or regional groups, and 1 bank belongs to a Malaysian financial group.
The review shows that the financial soundness indicators suggest growing vulnerabilities and possibly some idiosyncratic stress in the banking sector. The capital adequacy ratio of the banking sector declined over the past four years, from 16.8 at end-2015, to 15.2 at the end of 2018. This decline results from a combination of growth of the loan portfolio and an increase in nonperforming loans (NPLs). NPLs have increased steadily over the past four years, from 6.1% to 12.2%, respectively. Notably, the ratio of NPLs net of specific provisions to capital suggests growing vulnerability as this ratio has increased from 6.7% to 37.5%, though a significant variation exists between ratios of different banks. The key FSSR recommendations are to improve:
- Bank regulation and supervision—Enhance risk-based supervision and the reporting system, improve BCRG mandate in the Banking Law, implement the relevant parts of the Basel II/III capital framework, revise the regulations on large exposures and related parties, complete the cross-border cooperation agreements for all banks, implement the relevant parts of the Basel II/III liquidity framework, enhance the regulations on governance and risk management, and introduce requirements for Interest Rate Risk in the Banking Book (IRRBB) and country and transfer risks.
- Crisis management and bank resolution—Enhance the legal and regulatory framework for deposit insurance; strengthen, in the law, the early intervention powers and tools for BCRG, including requirements for and capacity to review recovery plans; enhance the resolution related provisions in the Banking Law; increase capacity on resolution and deposit insurance; and establish a body for the coordination of crisis measures
- Systemic liquidity assessment—Implement the past recommendations on liquidity management, establish a structured and ranked collateral framework, and establish an operational framework for the emergency liquidity assistance
- Financial stability oversight—Reconcile data discrepancies, increase data coverage, and ensure data quality; create and operationalize a financial stability surveillance unit; clarify the macro-prudential mandate in the BCRG Statute; and establish an institutional framework for macro-prudential policy.
Related Link: Report on FSSR
Keywords: Middle East and Africa, Guinea, Banking, NPLs, Banking Supervision, BCRG, FSSR, Resolution Framework, WAEMU, Liquidity Risk, Basel III, IRRBB, Large Exposures, IMF
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.