Financial Crime World

DR Congo’s Banking System Faces Fragility and Vulnerabilities

The Democratic Republic of Congo (DRC) is facing significant challenges in its banking system, according to a recent report by the World Bank. The sector is characterized by high levels of foreign currency deposits, non-performing loans, and weaknesses in data quality, governance, and risk management.

Foreign Currency Deposits

  • 85% of total deposits are held in foreign currencies as of September 2021.
  • A whopping 62% of these deposits are held in current accounts, with most customers preferring to save in foreign currencies.

Loan Portfolio

  • The sector’s loan portfolio shows a high level of non-performing loans (NPLs) at 8.5% of total loans.

Capital Adequacy

  • Aggregate capital levels are too low and failing to grow in line with activity over the past decade.
  • The solvency ratio has plummeted since mid-2017, and three banks are currently undercapitalized, with four more struggling to meet a higher solvency requirement of 12.5%.

Weaknesses in Banking Sector

  • Weaknesses in data quality, governance, and risk management within the banking sector.
  • The sovereign bank nexus is not an issue, as only 4% of total bank loans are lent to the central government.

Recommendations for Improvement

To address these challenges, the DRC authorities must take decisive action to:

  • Strengthen the banking sector’s capital base
  • Improve its risk management practices
  • Enhance its governance and transparency
  • Improve data quality and regulation to mitigate the risks associated with dollarization

The World Bank report urges policymakers to prioritize reforms aimed at increasing the sector’s resilience and stability, including:

  • Strengthening supervision and regulation
  • Improving corporate governance
  • Enhancing risk management practices

Key Findings

  • 85% of deposits held in foreign currencies
  • 62% of deposits held in current accounts
  • High level of non-performing loans (NPLs) at 8.5% of total loans
  • Aggregate capital levels too low and failing to grow with activity
  • Three banks currently undercapitalized, with four more struggling to meet higher solvency requirement
  • Weaknesses in data quality, governance, and risk management within the banking sector