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Congolese Banking System Struggles with High Dollarization, Low Profitability

KINSHASA, CONGO - A recent study by the Bank’s Supervisory Commission (BCC) has revealed that the Congolese banking system is plagued by high dollarization and low profitability.

High Dollarization and Low Profitability

According to the report, 62% of deposits are held in current accounts, with a significant portion being foreign currency deposits. The study found that the banking sector is highly dependent on foreign currencies, with 85% of total deposits being held in dollars at the end of September 2021. This high level of dollarization makes the system vulnerable to external shocks and exchange rate fluctuations.

Weaknesses in the Financial System

The report highlighted several other weaknesses in the financial system, including:

  • Insufficient data quality
  • Poor governance
  • Risk management within the banking sector
  • Three banks were found to be undercapitalized, with corrective actions underway at two of them

Loan Portfolio and Non-Performing Loans

The loan portfolio was also found to have a high level of non-performing loans (NPLs), standing at 8.5% of total loans. System provisioning was moderate at 69.2% of NPLs, and the report applied a solvency stress test to current capital levels.

Recommendations

The findings of the study suggest that the Congolese banking system requires significant reforms to improve its resilience and profitability. The government and regulatory authorities are expected to take swift action to address these weaknesses and ensure the stability of the financial sector.

Key Findings

  • 62% of deposits held in current accounts
  • 85% of total deposits in foreign currencies (dollars)
  • Aggregate capital levels too low, not growing with activity over past decade
  • Capital adequacy ratio at 14% in 2020, well below African peers
  • Three banks undercapitalized, two undergoing corrective actions
  • Loan portfolio has high level of non-performing loans (8.5%)
  • System provisioning moderate at 69.2% of NPLs

Recommendations

  • Implement reforms to reduce dollarization and increase use of local currency
  • Improve capital adequacy ratios through increased regulatory requirements
  • Enhance governance, risk management, and data quality within the banking sector
  • Address non-performing loans and improve provisioning practices