Commodity Prices Plunge: Congo’s Banking System Under Pressure
KINSHASA, DEMOCRATIC REPUBLIC OF CONGO - Commodity prices have taken a nosedive, dealing a significant blow to the Democratic Republic of Congo’s (DRC) banking system. According to recent data from the International Monetary Fund (IMF) and the DRC’s Banking Commission (BCC), the country’s banks are facing unprecedented challenges.
Asset Returns Plunge
The data shows that returns on assets in the DRC have been consistently negative over the past decade, with net earnings falling significantly since 2017. The banking system’s capital base is also weak, with aggregate capital levels failing to grow in line with activity.
Macrofinancial Vulnerabilities
The IMF has identified five key macrofinancial vulnerabilities affecting the DRC’s banking system:
- Weakness of the banking system’s capital base
- Difficulty in appraising non-performing loans (NPLs) following COVID-19 measures
- Risks related to financial dollarization
- Breakdown of correspondent banking relationships due to de-risking
- Tendency for subsidiaries in the DRC to centralize their liquid assets with parent companies abroad
Capital Adequacy Ratio
The capital adequacy ratio of the DRC’s banking system has plummeted, falling from 14 percent in 2020 to 12.1 percent by end-September 2021. This is well below that of its African peers.
NPLs and Provisioning
The loan portfolio shows a high level of NPLs at 8.5 percent of total loans, with system provisioning moderate at 69.2 percent of NPLs. The mission applied a solvency stress to current capital levels, highlighting the need for urgent corrective action.
Bank Recapitalization Needed
Three banks are currently undercapitalized, with four more facing difficulties in meeting the minimum capital requirement of US$30 million. Eight out of 15 banks have satisfied this requirement, but the sector still faces significant challenges.
The DRC’s banking system is facing a perfect storm of challenges, including weak commodity prices, high operating costs, and macrofinancial vulnerabilities. Recapitalization efforts are urgently needed to stabilize the sector and prevent a wider crisis.