Banking Compliance Challenges Mount as Algeria’s Economy Stumbles Amid Pandemic

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As Covid-19 cases surge in Algeria, the country’s state-dominated banking sector is facing a multitude of challenges. The sharp decline in oil and gas revenues since the pandemic’s onset has exacerbated these issues, leading to low liquidity, under-capitalization, and an increasing number of bad loans.

Challenges Facing the Banking Sector

• Low liquidity: The reduced revenue from oil and gas exports has resulted in a shortage of funds available for lending, making it difficult for banks to meet their obligations.
• Under-capitalization: Many Algerian banks lack sufficient capital to absorb potential losses, leaving them vulnerable to financial instability.
• Increasing bad loans: As the economy struggles, more borrowers are defaulting on their loans, putting additional pressure on the banking sector.

Private Lenders’ Growth

While private lenders have managed to post impressive growth figures by focusing on specific niches of the economy, the sector remains vulnerable. The success of these private banks is largely due to their ability to adapt and innovate in response to changing market conditions.

Uncertainty Surrounding Reforms

The newly-elected government has expressed its commitment to reform and increased private sector involvement in the banking sector. However, optimism regarding the pace and scope of these reforms is waning.

• The central bank, Banque d’Algérie (BdA), has implemented measures to stabilize the sector, but their unwinding could have significant consequences for the economy.
• The government’s commitment to reform is unclear, leaving many in the banking sector uncertain about its future direction.