Financial Sector Overview
Central African Republic (CAR) is a country with a long history of political instability and occasional conflicts that have adversely affected the financial sector. In March 2013, a coup triggered arguably the worst political, economic, and humanitarian crisis since independence in 1960. 1 The election of a new President in February 2016 marked a major step towards recovery and is expected to create a favourable environment for the emergence of strong financial institutions.
At end-December 2014, the CAR's financial system comprised four commercial banks with 22 branches, 2 insurance companies, and 24 microfinance institutions. There is no stock exchange, but the country has access to the regional stock exchange for Central African states (BVMAC) based in Gabon, as well as to the Douala Stock Exchange (DSE) in Cameroon.
As a member of the Central African Economic and Monetary Community (CEMAC), CAR shares a common Central Bank– the Bank of Central African States (BEAC) – and a common bank and microfinance regulatory and supervisory authority – the Central African Banking Commission (COBAC) – with the other five CEMAC countries (Cameroon,Chad, the Republic of Congo, Equatorial Guinea, and Gabon).
Table 1: Number of Main Financial Institutions in CAR, 2010-2015
Source: Bank of Central African States (BEAC). *Financial Access Surveys (FAS), 2015.
Financial depth in CAR is relatively shallow, particularly in terms of deposit mobilisation. According to the World Bank’s Global Financial Development Data (GFDD, 2016), the share of financial system deposits as a ratio of the country's GDP was 12.1 per cent in 2013, the second-lowest in Africa after Chad, and less than half sub-Saharan Africa's median of 24.6 per cent.
Also, CAR's total bank assets were 18.4 per cent of GDP in 2013, close to five percentage points below the sub Saharan Africa median; and its ratio of private credit to GDP was 15.7 per cent, compared with the sub-continental median of 17 per cent.
Note however that financial depth increased between 2010 and 2013: the ratios of deposit money banks' assets and bank private credit to GDP both doubled, and the ratio of financial system deposits to GDP increased by almost one half.Data are currently unavailable for the period since 2013 (see Table 2).
Table 2: Depth of Financial Institutions and Markets in CAR, 2010-2013
Source: Global Financial Development Database, 2015. *Developing countries only.
Domestic credit grew at an annual rate above 20 per cent between 2010 and 2012, and then dropped by 16.6 per cent between 2012 and 2013, probably as the result of the crisis triggered by the coup. However, domestic credit has recovered in the years since, exceeding its pre-crisis levels in 2015 (see Chart 1).
At end 2015, total bank credit stood at 159 430 million F CFA (264 million USD), from 154 724 million F CFA in 2012 (256 million USD), and 129 083 million F CFA (213.7 million USD) in 2013. The recovery of bank credit after 2013 was mainly driven by increases in credit to State, which has more than doubled in volume between 2013 and 2015, from 17009 million F CFA to 39 765 million F CFA (from 28 million USD to 65.8 million USD). Credits to the economy grew by only 7 per cent over the same period. Nonetheless, they still accounted for the largest part of total bank credit (75 per cent in 2015).
The bulk of total credit to the economy is short term (see Chart 2). In 2015, short term credit accounted for 68.5 per cent of the total; medium term credit accounted for 22 per cent and long term credit for 9.5 per cent. Note however that the shares of short-term credit and medium-term credit were down from 71 per cent and 27 per cent, respectively, in 2014. In contrast, the share of long-term credit in 2015 was up by almost 8 percentage points (nearly a sixfold increase) compared to the previous year.
Chart 1 : Total bank Credit
Source: MFW4A. Data from BEAC.
Chart 2: Bank credit to the economy
Source: MFW4A. Data from BEAC.
For the allocation of credit to the various sectors of the economy, recent data are unavailable. A 2012 IMF report 2 indicated that the share of loans to various economic sectors was roughly 20 per cent to trade and commerce, 16 per cent to transport and communication, 12 per cent to forestry, and 28 per cent to other services. Only 4 per cent of bank credit in CAR was disbursed to the agriculture sector.
Bank lending and deposits rates
Since the financial liberalization in the 1990s and until the 2008/09 fiscal year, the regional Central Bank (BEAC) imposed a maximum lending rate and a minimum deposit rate.
The maximum lending rate was 22 per cent between 1995 and 2001, 18 per cent between 2002 and 2005, 17 per cent in 2006, and 15 per cent over the following period until it was removed in October 2008.
The minimum deposit rate was 5.5 per cent in 1995, 5 per cent between 1996 and 2004, 4.75 per cent in 2005/2006, 4.25 per cent in 2007, and 3.25 per cent the following years until 2013. It is now set at 2.45 per cent.
Recent data on CAR's bank lending and deposits rates or its bank lending spreads are not available.
Access to formal financial services in CAR is extremely low compared with other sub-Saharan African countries. According to the most recent applicable data- from the 2011 Global Findex Survey, CAR recorded the second-lowest proportion of adults with an account at a formal financial institution, 3.3 per cent, after Niger at 1.7 per cent. The average for the 39 sub-Saharan African countries in the survey was 24.1 per cent.
CAR had the lowest share of adults who had borrowed from a financial institution: 0.9 per cent compared to the average of 4.7 per cent in sub-Saharan Africa (developing only). Equally, only 2.5 per cent of adults in CAR held savings at a formal financial institution, compared with the 14.2 per cent average for the sub-region (see Table 3).
Source: Global Findex Database (2012). *Developing only.
CAR’s banking sector comprised four commercial banks by 2014 2 , the fewest in the CEMAC group. It also has the second-lowest number of banks per capita after Cameroon, but note that 30 per cent of CEMAC's total assets lie in Cameroon's banking system, compared with 1 per cent in CAR's.
While CAR has the same number of banks today as it had in 2007, the number of bank branches has increased fourfold, from 5 in 2007 to 22 by 2013, although more than half of these are concentrated in the country's three largest cities.
Three of the four commercial banks in CAR are majority foreign-owned: Ecobank, Banque Populaire Maroco-Centrafricaine, and Banque Sahélo-Saharienne pour l’Investissement et le Commerce Centrafrique. The Government holds a 5 per cent minority stake in Ecobank, and a 37.5 per cent minority stake in Banque Populaire Maroco-Centrafricaine. The state owns the majority of shares – 57.4 per cent – in the Commercial Bank Centrafrique, the fourth bank in the country.
Assets and liabilities
After years of continuous growth, total bank assets declined in 2013, ending the year 11.7 per cent lower than in 2012, probably as the result of the political and security crisis that erupted in March 2013. Total deposits and gross loans declined by 14.8 per cent and 16.6 per cent respectively between 2012 and 2013.
However, growth in banks assets recovered in 2014 and 2015 to about 7.5 per cent and 5.6 per cent respectively. Also, banks loans grew with a rate of 16.6 per cent in 2014 and 5.9 per cent in 2015. And banks deposits grew with a rate of 17.8 per cent in 2014 and 14.9 per cent in 2015.
Source: MFW4A. Data from BEAC.
Deposits constitute the banks' main source of funding, and up to 90 per cent of those deposits over the past decade were from the public. The remainder was made up of Government deposits. Demand deposits made between 58 per cent and 65 per cent of the total deposits from the public.
Net loan-to-deposit ratio is high at more than 100 per cent since 2010, with a peak at 130 per cent in 2012. High net loan-to-deposit ratios exposes CAR's banking system to liquidity problems where banks may not be liquid enough to face withdrawals.
CAR's banking system is broadly sound. Only one commercial bank –accounting for 17 per cent total deposits – failed to meet liquidity requirements in the three years to 2013. In 2012 and 2013, all four banks complied with the prudential capital adequacy ratio, but two were under-capitalised and missed the minimum capital prudential requirements.
Non-performing loans (NPL) remain high, and above the average for CEMAC countries, although the ratio of NPL to gross loans fell by 10 percentage points between 2009 and 2012, from 21.3 per cent to 11.3 per cent. The ratio subsequently increased to 31.7 per cent in mid-2013, again most likely as a result of the political and security crisis.
Banks' profitability, measured by return on assets (ROA) and return on equity (ROE), has contracted considerably since 2011, becoming negative by the end of 2013. ROA dropped from 1.7 per cent to -1 per cent between 2011 and 2012, while ROE went from 23.2 per cent to -6 per cent. The ratio of banks' non-interest income compared to total income has remained high, at 40 per cent in 2013, compared with 47 per cent two years earlier.
Chart 4: % of NPL in gross loans in CAR
Source: MFW4A. Raw data from BEAC.
Chart 5 : Profitability of banks in CAR
Source: MFW4A. Data from Global Financial Develop-ment Database, 2015.
Table of selected financial access indicators, CAR, 2010- 2013*
Source: IMF Financial Access Survey, 2015. *Data unavailable after 2013.