Comoros: Financial Sector Profile

A small archipelago state, the Union of the Comoros is emerging from a long period of political instability. Controversial elections in 2007 led to military intervention by the African Union in March 2008. Political stability has since improved following a referendum on constitutional amendments in May 2009 and the formation of a consensus national unity cabinet in May 2010.

Agricultural production dominates the economy, accounting for 44 percent of the GDP while the contribution from the secondary sector remains limited, accounting for only 10 percent of the GDP.

After expanding by 4.2 percent in 2005, economic growth has been low, averaging 0.9 percent a year between 2006 and 2008. GDP growth increased to 1.8 percent in 2009, up from 1 percent in 2008, despite delays in foreign direct investments, and declines in official aid and remittance inflows stemming from the global economic and financial crisis. A more stable political environment, combined with growth in tourism, fishing, agriculture and construction has contributed to boost economic performance in 2010 and 2011, with GDP growth registered at 2.1 and 2.2 percent in 2010 and 2011 with projected growth of 2.5 and 3.5 in 2012 and 2013 respectively.

Comoros has a relatively small and underdeveloped financial sector . Financial intermediation and credit to the private sector, while still low, have been expanding in recent years following the entry of two foreign commercial banks. However, the further development of credit markets remains constrained by poorly defined land ownership rights and weak enforcement of collateral guarantees. At present, the country's financial system comprises four commercial banks, financing around 60 percent of the economy, a development bank which also engages in commercial banking activities, a National Savings Fund, a postal savings bank, and two networks of microfinance institutions (MFIs). Under current regulatory frameworks, financial institutions can independently set their own credit and lending policies, though commercial bank interest rates and loans to consumers and businesses are partly regulated, with upper and lower bounds set at 14 percent and 7 percent respectively.

Banking system soundness appears to be improving. Profitability and quality of risk have increased in the latest years, while the ratio of non-performing loans to total outstanding loans decreased from 15.7 percent to 12 percent in 2012. Bank lending activities tend to be concentrated in short-term loans, mostly directed towards financing trade activities.

In recent years authorities have undertaken several measures to enhance financial intermediation and strengthen the country's banking and financial sectors. Such efforts include the facilitation of entry for foreign banks, reforms to the investment code in 2007 and the establishment of a National Agency for Investment Promotion. The country's authorities have recently concluded agreements with the Central Bank of Tanzania, the Central African Banking Commission (COBAC) and the French Prudential supervisory authority to strengthen regulatory and supervisory frameworks, expand the scope of prudential regulations, and increase the effectiveness of control procedures.

Financial inclusion remains an issue with very low penetration rates. Compared to the regional average even mobile phone subscription is extremely low, at 14 percent.

There is currently no stock market present in the country, nor are there primary or secondary fixed income markets for government or commercial debt. Government financing is mostly undertaken in the form of direct credit from domestic commercial banks, and liquidity levels are controlled through the modification of reserve requirements only. As of March 2013, Comoros received no sovereign rating from any of the three major credit rating agencies.

Remittances, which represented an estimated equivalent of 20.7 percent of GDP in 2009, constitute an important source of inflows for the Comorian economy.