Banking Sector in Chad: Challenges and Vulnerabilities

Overview of the Banking System

Chad’s financial system has a narrow base, limited depth, and is under-developed. The banking sector is characterized by:

• Limited number of institutions: Eight commercial banks, two insurance companies, two pension funds, and over 200 microfinance institutions (MFIs)
• Low asset-to-GDP ratio: Total assets are only about 12 percent of GDP, making the banking system one of the least developed in the CEMAC region

Financial Products Offered by Commercial Banks

Commercial banks offer a narrow range of financial products, with:

• Short-term loans accounting for about 55 percent of total assets
• Medium-term loans making up around 44 percent of total assets
• Long-term loans representing less than 2 percent of total assets

Challenges Facing the Banking Sector

The banking sector in Chad faces several challenges, including:

Deteriorating Soundness

• The soundness of the banking sector has been deteriorating for several years
• Two state banks are being restructured, and their asset quality continues to decline

Large Exposure Limits and Asset Quality

• Prudent limits to large exposures are rarely respected despite high limits set by COBAC (the Central Bank of Chad)
• Asset quality has declined: the ratio of non-performing loans (NPLs) increased from 10.4 percent in 2009 to 12.1 percent in 2010
• The rate of provisioning for NPLs improved in 2010 but remains at only 73.5 percent

Vulnerabilities of the Banking Sector

The banking sector in Chad is vulnerable to:

Public Sector Exposure and Concentration Risk

• Government and public entities hold roughly a third of banking system deposits, and as much as three-quarters of deposits in some banks
• Bank loans generally fund expenditure by government and large companies in the cotton, sugar, and oil sectors

External Vulnerabilities

• The Libyan crisis is a matter of concern, as Libya holds a 50 percent share in one bank