Bank’s 2-Year-Old Loans to be Written Off, Removed from Books
Regulators Clean Up Banking Sector with New Guidelines
In an effort to strengthen banking supervision in The Gambia, regulators have issued new guidelines ordering banks to write off and remove all loans older than two years from their balance sheets.
Loan Provisioning Requirements
- Loans restructured for more than 2 years require a 5% provision until they are transferred to a performing status.
- A 1% provision is required against the remainder of the portfolio to account for foreseen but undetected losses.
Alternative Provisioning Methods
Bank management is not bound by these benchmarks and may choose alternative provisioning methods if deemed necessary. However, during an examination, if the bank’s allowance is found to be significantly lower than the benchmark amount, management will be required to provide evidence justifying the disparity.
Strengthening Banking Supervision in The Gambia
The move is part of a broader effort to ensure that banks maintain:
- Adequate capital adequacy
- Asset quality
- And do not over-expose themselves to single borrowers or sectors
New Guidelines on Lending and Credit Concentration Limits
Banks are now required to impose prudential credit limits to control exposure to:
- Single borrowers (capped at 25% of primary capital)
- Related groups
- Geographical or economic sectors
The statutory single large credit limit is 25% of primary capital, while aggregate large credit limits are capped at 50%.
Risk Profile Development and CAMEL Ratings
Examiners will develop a bank’s risk profile to determine the scope and nature of supervisory activities. Banks will also be assigned a numerical rating based on their:
- Capital Adequacy
- Asset Quality
- Management
- Earnings
- Liquidity (CAMEL) ratings
Emphasis on Risk Controls and Effective Risk Management
Regulators have emphasized that banks must demonstrate adequate policies, procedures, and risk controls in place to manage risks effectively. The move is seen as a step towards strengthening the banking sector and ensuring stability in the financial system.