IMF Report Reviews Financial Sector Stability in Guinea
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
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