Financial Crime World

Maintaining Financial Stability in Algeria: Efforts and Progress

The Governor of the Bank of Algeria recently highlighted the country’s efforts to maintain financial stability and deepen its financial sector reform. This article summarizes key points from the speech, including disinflation, fiscal capacity, credit growth, micro-prudential controls, macro-prudential tools, banking sector stability, stress testing, and regulatory framework.

Disinflation and Monetary Policy

  • The inflation rate has been declining since 2013, with the central bank maintaining a stable real effective exchange rate.
  • This indicates that monetary policy is effectively managing inflation and promoting economic stability.

Fiscal Capacity

  • The government has built significant fiscal capacity, which helped mitigate the impact of the 2009 external shock without crowding out private sector credit expansion.
  • This demonstrates Algeria’s ability to manage fiscal risks and promote economic resilience.

Credit Growth

  • Credit to the economy continued to grow at a higher rate since 2010, driven by medium and long-term credit dynamics.
  • This suggests that Algeria’s financial sector is supporting economic growth through increased lending.

Micro-Prudential Controls

  • The central bank has intensified micro-prudential controls, including anti-money laundering and financing of terrorism mechanisms.
  • These controls help prevent financial instability and promote a safe and sound banking system.

Macro-Prudential Tools

  • A strengthening of macro-prudential tools is underway, with the introduction of new tools enabling horizontal analysis of risks and resilience tests.
  • This indicates Algeria’s commitment to managing systemic risks and promoting financial stability.

Banking Sector Stability

  • The banking sector soundness is anchored to high capital adequacy ratios, high profitability, and liquidity.
  • This demonstrates that Algeria’s banking system is well-positioned to withstand economic shocks.

Stress Testing

  • The central bank has developed stress tests since 2007 and strengthened them in 2013-14.
  • Stress testing helps identify potential risks and vulnerabilities in the financial sector, enabling proactive management of risk.

Regulatory Framework

  • Existing micro-prudential regulation tools have been revisited, and new regulations have been enacted to address potential systemic risks.
  • This indicates Algeria’s commitment to maintaining a robust regulatory framework that promotes financial stability.

Ongoing Efforts to Deepen Financial Sector Reform

In addition to the progress mentioned above, the Governor also highlighted ongoing efforts to deepen the financial sector reform. These include:

Payment Systems Infrastructure

  • The central bank is updating its payment systems infrastructure to align with international standards.
  • This will promote efficiency and convenience in payment transactions.

Credit Bureau Modernization

  • A credit bureau has been established, which will provide a tool for monitoring credit risk as of 2015.
  • This will help lenders make informed decisions about credit allocation.

Risk-Based Supervision

  • The central bank is focusing on banks’ credit allocation processes to avoid the reemergence of credit risk concentration.
  • This indicates Algeria’s commitment to maintaining a safe and sound banking system.