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DRC Banking System Faces Fragility, Dollarization and Profitability Concerns

Kinshasa - The Democratic Republic of Congo’s (DRC) banking system is facing significant challenges, including fragility, dollarization, and profitability concerns, according to a recent report by the International Monetary Fund (IMF).

Challenges Facing the DRC Banking System

  • Fragility: The majority of deposits in the DRC are held in current accounts, with 62% of customers preferring to save in foreign currencies.
  • Dollarization: This has led to an extremely high degree of dollarization, which maintains excess liquidity in the banking system.
  • Profitability Concerns: Aggregate capital levels are too low and not growing in line with activity over the past decade. The capital adequacy ratio stands at 14% as of end-2020, well below the average for African peers.

Banking System Performance

  • Capital Adequacy: Three banks are currently undercapitalized, with one undergoing transformation into a microfinance institution and corrective actions being taken at the other two. Four more banks are undercapitalized with a total solvency requirement of 12.5%.
  • Non-Performing Loans (NPLs): The loan portfolio shows a high level of NPLs at 8.5% of total loans, with system provisioning being moderate at 69.2% of NPLs.

Call to Action

“The DRC banking system faces significant challenges that need to be addressed,” said an IMF official. “Improving capital adequacy, reducing dollarization, and increasing profitability are key to ensuring the stability and resilience of the financial sector.”

Weaknesses in Banking Sector

  • Data Quality: There are weaknesses in data quality within the banking sector.
  • Governance: The governance structure of the banking sector is also a concern.
  • Risk Management: Risk management practices need to be strengthened to mitigate potential risks.

Response from DRC Authorities

The DRC authorities have been working to strengthen the banking system, including introducing new regulations and supervision measures. However, more needs to be done to address the underlying issues and ensure a stable and resilient financial sector.

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