Algeria’s Banking Supervision Under Scrutiny

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A recent comprehensive review of Algeria’s banking supervision has revealed significant shortcomings in the country’s regulatory framework. The assessment, conducted by a joint IMF/World Bank team, found that while some aspects of the system are compliant with international standards, others require major improvements.

Limited Resources Hinder Effective Supervision

The Inspection Department, responsible for overseeing Algeria’s banking sector, faces significant challenges due to limited resources. A major plan is underway to boost staff numbers by quadrupling them over the next five years and establish an off-site surveillance unit. However, this may not be enough to address the current capacity constraints.

• The department’s limited resources hinder its ability to effectively supervise the banking sector.
• A plan is in place to increase staff numbers and establish an off-site surveillance unit.

Information Requirements Need Improvement

The central bank has been receiving monthly accounting statements from banks, but these are primarily used for monetary policy purposes rather than prudential supervision. The assessment recommended that banks calculate their own prudential ratios and that the Research Department estimate capital adequacy ratios based on external audits.

• The central bank’s current information requirements do not meet prudential supervision needs.
• Recommendations include having banks calculate their own prudential ratios and estimating capital adequacy ratios based on external audits.

Formal Powers of Supervisors Need Clarification

While the law grants the Bank of Algeria legal powers to call for remedial action, some aspects of these provisions need clarification. The absence of internal rules mitigating against supervisory forbearance is a major weakness, particularly given government ownership of the larger banks.

• The formal powers of supervisors need clarification to ensure effective enforcement.
• Internal rules are needed to mitigate against supervisory forbearance.

Cross-Border Banking Cooperation Lacks Progress

Algeria has not yet implemented international standards for cross-border banking cooperation, although the Bank of Algeria would have the power to enter into formal agreements with other country supervisors in the future.

• Algeria’s cross-border banking cooperation lacks progress.
• The Bank of Algeria would have the power to enter into formal agreements with other country supervisors in the future.

IMF Technical Assistance Program Underway

To address these shortcomings, an intensive IMF technical assistance program is underway to improve off-site and on-site supervision. The program includes training for on-site personnel, identifying information needs, and streamlining current organization structures.

• An IMF technical assistance program is underway to improve banking supervision.
• The program aims to train on-site personnel, identify information needs, and streamline organization structures.

Summary of Assessment Findings

The assessment found that Algeria’s banking sector faces significant challenges, including weaknesses in public and market infrastructure, limited resources, and inadequate prudential regulations. While some aspects of the system are compliant with international standards, others require major improvements. The country is currently undergoing a comprehensive overhaul of its banking supervision framework to address these shortcomings.

Contact

For more information, please contact:

[Name] IMF Spokesperson

• [Phone number] +[Email address]