South Sudan’s Banking Sector Growth Raises Questions

The banking sector in South Sudan has experienced rapid growth since the country gained independence, with the number of licensed banks increasing from four to 28 between 2005 and 2013. However, a closer look at the data reveals that this growth has not been matched by a strong asset base or financial access for the population.

Asset Base and Financial Access

According to figures released by the Central Bank of South Sudan, the country’s banking sector assets as of December 2013 were significantly lower than those in neighboring Kenya and Uganda. The total assets of banks in South Sudan stood at $400 million, compared to $8 billion in Kenya and $6 billion in Uganda.

Loan-to-Deposit Ratio

The loan-to-deposit ratio in South Sudan was also alarmingly low, at just 15%, compared to 72% in Uganda and 66% in Kenya. This suggests that loans were not a significant source of revenue for banks in South Sudan, leading some to question what drove the growth of the sector.

Factors Contributing to Growth

Experts point to an arbitrage opportunity created by the fixed exchange rate regime in place at the time as a possible factor. Under this system, foreign currency was being traded at a fixed rate, allowing banks to profit from the difference between the official and market rates.

Regulatory Concerns

The regulator, the Bank of South Sudan, has been criticized for allowing the establishment of under-capitalized banks that provide little financial access to the population. As of October 2013, only 3% of the population had access to financial products in South Sudan, compared to 42% in Kenya and 20% in Uganda.

Concentration of Assets

The banking sector’s assets in South Sudan are also heavily concentrated, with 70% held by the Bank of South Sudan and other government-controlled institutions. This has raised concerns about the impact on liquidity in the sector, as banks hold large amounts of cash and do not lend it out to the economy.

Liquidity Crisis

The current liquidity crisis in the banking sector is seen by some as a result of the government’s failure to make available part or all of the 70% of banks’ assets under its control. The situation has raised questions about the governance and regulation of the banking sector in South Sudan, and whether it is serving the needs of the population.

Conclusion

As the debate continues, one thing is clear: the rapid growth of the banking sector in South Sudan has not been matched by a corresponding increase in financial access or economic activity. The issues raised by this situation highlight the need for a more robust regulatory framework and greater transparency in the banking sector to ensure that it serves the needs of the population.