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DRC Banking System Faces Major Challenges, Report Reveals

The Democratic Republic of Congo’s (DRC) banking system has been hit by a series of challenges, with foreign currency deposits making up the majority of customer accounts and profitability indicators showing fragility.

Deposit Structure

According to a recent report, current accounts hold 62% of deposits in the DRC, while households make up the “Other” sector. In September 2021, foreign currency deposits accounted for a staggering 85% of total deposits.

Capital Base and Adequacy Ratio

The report also revealed that the banking system’s capital base is weak, with aggregate capital levels too low and not growing in line with activity over the past decade. The capital adequacy ratio has plummeted since mid-2017, falling from 14% to 12.1% as of end-September 2021.

Undercapitalized Banks

Furthermore, three banks are currently undercapitalized, with one in the process of being transformed into a microfinance institution and corrective actions underway at two others. Four more banks are undercapitalized, with eight out of 15 banks failing to meet the current minimum capital requirement of $30 million.

Loan Portfolio

The loan portfolio also shows high levels of non-performing loans (NPLs), with NPLs making up 8.5% of total loans. System provisioning is moderate at 69.2% of NPLs, and a solvency stress test applied to current capital levels revealed significant vulnerabilities in the system.

Weaknesses and Concerns

The report highlighted weaknesses in data quality, poor governance, and risk management within the banking sector as major concerns. The financial system also suffers from insufficient data quality and poor governance, which has led to a lack of transparency and accountability.

Recommendations

To address these challenges, we recommend:

  • Strengthening capital requirements to improve solvency and reduce risk
  • Enhancing data quality, governance, and risk management within the banking sector
  • Improving transparency and accountability in financial reporting
  • Implementing measures to address high levels of NPLs and strengthen provisioning
  • Supporting microfinance institutions to increase access to finance for small businesses and individuals

Key Findings

  • Foreign currency deposits account for 85% of total deposits
  • Current accounts hold 62% of deposits
  • Aggregate capital levels are too low and not growing in line with activity
  • Capital adequacy ratio has plummeted since mid-2017, falling from 14% to 12.1%
  • Three banks are undercapitalized, with one in the process of being transformed into a microfinance institution
  • Four more banks are undercapitalized
  • NPLs make up 8.5% of total loans
  • System provisioning is moderate at 69.2% of NPLs

By implementing these reforms and strengthening capital requirements, data quality, and risk management, the DRC’s banking system can be improved and made more resilient to economic shocks.