Financial Crime World

Non-Performing Loans Haunt DRC Banks

=============================

Overview

Correspondent accounts play a significant role in the activities of Democratic Republic of Congo (DRC) banks, with over 30% of bank assets and more than 95% of interbank market activity. However, the profitability and profits of these banks are fragile, reflecting high operating and exchange rates.

Banking System

  • The DRC has roughly $3.6 billion in deposits in the banking system, up slightly from 2015.
  • An estimated $10 billion of savings exist outside of banks, with most deposits in the formal system being U.S. dollar-denominated.
  • Despite a slight increase in bank penetration after 2011, the country remains one of the most under-banked nations in the world, with bank penetration at roughly 6%.
  • The overall balance sheet of DRC banks amounts to around $5 billion, with credit volume estimated at more than $2.2 billion.

Credit Volume

  • Credit volume has risen rapidly but remains scarce, short-term, and highly concentrated.
  • From 2012 to 2016, credit reached only 13% of GDP.

Financial Inclusion

  • The Banking Association of Congo (ACB) aims to reach over 20 million bank accounts by 2030.
  • However, few Congolese hold savings in banks, with an estimated 65% of the population that saves, only 4.7% do so through a bank.

Foreign Exchange and Remittances

Official Exchange Rate Policy

  • The DRC has adopted a free-floating exchange rate policy and lifted various restrictions on business transactions, including in the mining sector.
  • Foreign exchange transactions take place freely when sent through local commercial banks, with average declaration requirements and payments taking less than one week to complete.

Informal Foreign Exchange Market

  • The informal foreign exchange market is large and unregulated, offering exchange rates not widely dissimilar from the official rate.
  • The nation’s economy remains highly dollarized, with U.S. banknotes printed after 2008 readily accepted in virtually all transactions.

Non-Performing Loans

  • The DRC has roughly $5 billion of non-performing loans (NPLs), with NPL ratios exceeding 20% for most banks.
  • The country’s financial system is plagued by high levels of bad debt, with many borrowers defaulting on their loans.

Remittance Policies

  • The Democratic Republic of Congo has no legal restriction on converting or transferring funds related to investment.
  • However, new exchange regulations will increase the time for in-country foreigners to repatriate export and re-export income from 30 to 60 days.

Sovereign Wealth Funds

  • The DRC has no reported Sovereign Wealth Funds.