Overview of the Financial Sector

Congo’s financial sector comprised 10 banks, 47 microfinance institutions (MFIs) and 9 insurance companies in 2022. Two mobile network operators offer mobile money services and some banks are authorized to provide payment, issuance and management services of electronic money via a mobile solution. Total assets of the Congolese financial system amounted to XAF 3485 billion (USD 5.5 billion) in 2022 or 35% of GDP, of which 73% belongs to the banking sector. Banking, microfinance and payment activities are supervised at the sub-regional level by the Central Bank of East African States (BEAC) and the Banking Commission of Central African States (COBAC). Insurance companies operate under the control of the Inter-African Conference on Insurance Markets (CIMA). Congo has access to the unified CEMAC financial market, which is the outcome of successive mergers of: (i) two regulators (COSUMAF and CMF) since March 2019, (ii) three central securities depositories (BVMAC, CAA and CRCT) in June 2019, and (iii) two stock exchanges (BVMAC and DSX), in July 2019. The CEMAC financial market now has only one regulator, COSUMAF, based in Libreville (Gabon), a single stock exchange, BVMAC, headquartered in Douala (Cameroon), and one central securities depository, the BEAC, for a transitional period. The AML/CFT framework is being improved, with a recently adopted law (N0 28-2021 of May 12, 2021) on the legal regime for freezing assets related to terrorism and its financing. This aims to align the country with the Financial Action Task Force (FATF) standards. In addition, the country’s financial intelligence unit, ANIF, is operational. The ANIF’s goal includes, among other things, the reception, analysis and processing of financial information that could be transmitted to the judicial authorities for prosecution in case of money laundering and terrorism financing.

Banking Sector

Congo’s banking sector includes 10 banks. The banking sector is booming, with assets up 30% over 2017/22 and a total of assets worth XAF 2515.5 billion (USD 4 billion) in 2022. Loans and deposits in the banking sector On the asset side of the balance sheet, the sector recorded a slight 3% rise in the credit to the economy, from XAF 1236.5 billion (USD 1.86 billion) in 2021 to XAF 1273.4 billion (USD 1.92 billion) in 2022. Credit to the economy accounted for 65.8% of deposits in 2022 against 76.7% in 2021. Bank credit to the private sector GDP decreased since 2020 due to the COVID crisis and the drop in economic activity. However, between 2022 and 2023, it increased by one percentage point. On the liability side of the sector’s balance sheet, client’s deposits grew by 7%, from XAF 1687.2 billion (USD 2.1 billion) in 2021 to XAF 1821.9 billion (USD 2.6 million) in 2022.

Banking sector soundness
Overall, the Congolese banking industry remains sound, but is under stress because of the presence of vulnerabilities caused by high levels of non-performing loans (NPLs). Efforts to gradually reduce them are performed, among which is the clearance of domestic arrears to the private sector. The ratio of non-performing loans (NPLs) to total gross loans is generally very high, and still remains above 5%. However, the repayment of domestic arrears by the government offset the economic slowdown and helped reduce the banking sector's vulnerability. As a result, the sector recorded an overall drop in NPLs from 27.5% to 21% between 2019 and 2020. From 2021 to 2023, NPLs only decreased, highlighting an improvement in the banking sector's procedures. Bank provisions for NPLs rose from 35.9% in 2019 to 65.5% in 2023.

The solvency ratios declined between 2019 and 2023. The ratio of regulatory capital to total riskweighted assets fell from 29.6% in 2019 to 17.4% in 2023, reflecting increased risk-weighted assets and reduced bank capital due to higher provisioning. Similarly, regulatory Tier 1 capital to riskweighted assets dropped from 26.5% to 15.8% over the same period, but remained above the statutory minimum of 7.5%, suggesting overall soundness of the sector. Two non-systemic banks in distress were recapitalized, and the COBAC withdrew the license of a small, undercapitalized bank in September 2020. The liquidity of the banking system, as measured by the ratio of liquid assets to short-term liabilities, increased, from 152% to 195% between 2019 and 2023, well above the statutory minimum of 100%.

Measures undertaken by the monetary authorities at an early stage of the pandemic have helped provide the sector with the needed liquidity buffers. These measures include, among other things, the resumption of liquidity injections by the central bank and the lowering of the capital conservation buffer from 2.5% to 1.5% (resolution n0 17/COBAC/SO.2/2020 of July 30, 2020). Moreover, the mechanism for domestic arrears repayment performed through the Club de Brazzaville includes some benefits, such as reduced liquidity pressures for the government and improved private sector liquidity, which facilitate repayment of overdue loans and NPL reduction and provide more liquidity at the disposal of the banking sector. Furthermore, the deposit-to-loan ratio, which rose from 109% in 2019 to 137.7% in 2022, suggests that loans granted by the banks were sufficiently covered by the clients' deposits, reflecting rather comfortable liquidity buffers. However, this could also reveal the prevailing liquidity excess that characterizes the Congolese banking system. Returns on assets (ROA) and return on equity (ROE) followed a constant growth between 2019 and 2023. ROA increased from 0.6% to 3.1%, and ROE, likewise, from 1.2 % to 19.8%.

Foreign Exchange risk
The XAF appreciated steadily against the US dollar from 2018 to 2021, then depreciated somewhat in 2022. Analysis of the net open position as a percentage of the capital of deposit financial institutions sharp variations. Between 2020 and 2023, the NOP decreased to -6.2% of financial institution capital. This negative net open position means that the foreign currency assets of Congo's deposit-taking financial institutions are less than their liabilities, and the gap is around 6% of their capital. These institutions are therefore highly exposed to foreign exchange risk, as the franc has tended to depreciate sharply against the dollar in recent years.

Capital Market

The establishment of sub-regional financial market institutions mainly marks the capital market development. In the context of the crisis, the authorities implemented measures to curb the longterm effects of the Covid-19 pandemic and oil price shock. These include increased refinancing of the banking system through the resumption of liquidity injections, including the reactivation of those with longer maturities, to provide banks with stable resources needed to cover their medium- and long-term liabilities. Other measures adopted by the Monetary Policy Committee (cpm) include: (i) the increase in BEAC's main money market intervention rates, (ii) the fall in the volume of liquidity injections under the main operation, (iii) the increase in the Central Bank's outstanding liquidity drawings, (iv) the discontinuation of long-maturity liquidity injection operations and (v) the increase in the volume of interbank transactions.

Fixed Income Securities, Equity and Debts
Between 2019 and 2023, the issuance of fungible T-Bills increased in value from XAF 23.7 billion (USD 40.5 million) to XAF 161.7 billion (USD 266.73 million). Similarly, the issuance of fungible TBonds rose from XAF 8 billion (USD 13.7 million) to XAF 445 billion (USD 734.05 million) . Over the period 2020/22, outstanding fungible T-Bonds more than tripled from XAF 96.1 billion (USD 167.05 million) to XAF 334.8 billion (USD 536.62 million).

Microfinance

COBAC is the prudential supervisor of microfinance activities at the sub-regional level. Its role is to ensure not only better security of savers' deposits, but also better financial soundness of the sector. IMFs in the CEMAC zone are classified into three categories: deposit-taking MFIs, which collect savings either from their members in order to grant loans exclusively to them (category 1), or from third parties to whom loans are granted (category 2), and MFIs that grant loans to third parties without collecting deposits (category 3). The microfinance sector includes 47 MFIs. Between 2019 and 2023, the size of the sector’s balance sheet decreased by 19%, to XAF 515.4 billion (USD 907 million), or 14.7% of financial sector’s total assets, making it the second important component of the country’s financial system, after the banking sector. A regulatory reform initiated in 2017 dealt with the recapitalization of several institutions, including the raise of the minimum share capita for second-category MFIs, from XAF 50 million (USD 86200) to XAF 300 million (USD 517500). In terms of contribution to financial inclusion, MFIs performed quite well, given the number of clients and members that has steadily increased between 2019 and 2023. Similarly, the number of deposit accounts has gradually risen over almost the same period. The number of branches and counters has decreased drastically since 2019. Some constraints still prevail in the sector, among which high interest spreads resulting from high lending rates compared to near-zero deposit rates, limited amounts of loans mainly focused on the short term, limited client segmentation and product offering. Furthermore, authorities should strengthen their supervision in the sector, given some MFIs’ failure to comply with the prudential standards and the recent swindle that took place in the sector.

Financial Inclusion and Digital Finance

Financial Inclusion has progressively improved in Congo. According to the World Bank Global Findex, the proportion of the adult population holding any type of account has gradually increased between 2011 and 2021, from 10% to 47%, but this level remains below the 2021 sub-Saharan average Progress in electronic money activities has helped strengthen financial inclusion in the country. Emoney transactions increased in both volume and value, highlighting a buoyant sector, despite the economic downturn caused by the oil price shocks and the COVID-19 pandemic. In terms of volume, e-money volume was 10.8 million of transactions with a value of XAF 45.4 billion in 2022. However, there is still much to do in terms of strategies to promote financial inclusion. The financial inclusion rate of the rural population, estimated at 37%, remains low with a limited bank coverage. Over 80% of the country’s bank branches are concentrated in the main cities, Brazzaville and Pointe-Noire. This limited coverage is due to the high rate of poverty and the importance of the informal sector. Furthermore, while several government payments streams has been digitized (mainly wages), many Congolese still receive wages and public payments in cash, which translates into higher costs for both the government and large companies. Lastly, it is worth noting that the limited financial capacity of less educated and poor households hamper financial inclusion in the country.

SME finance
Congo, like other CEMAC countries, is faced with the challenging situation of Small and Medium-Sized Enterprises (SMEs) financing. According to the World Bank Enterprise Surveys, only 12.8% of Congolese firms, of which 7.6% of small and 16.9% of medium firms benefit from a bank loans or line of credit. This level remains below the average for Sub-Sahara Africa (SSA) or lower middleincome (LMI) countries. In addition, only 4% of bank finance for investment is made available for Congolese firms, of which 6.2% for small and 1.2% for medium enterprises. Moreover, more than 50% of the loan amount is required from medium firms as collateral need for loan. This level remain high, although below the average for SSA and LMI countries. The lack of understanding of the risk associated with the SMEs partly explains the credit rationing they face in banks’ lending activities. Interest rates remain high, on average between 17-25 percent for SMEs, hindering them from requesting financing from banks. In this context, thenabsence of development banks committed to helping SMEs seems to be prejudicial for them. Furthermore, the issue of domestic debt arrears accumulated by the government has put many SMEs under pressure, hampering their development.

Insurance Sector

Insurance companies in the Republic of Congo operate under the supervision of the Inter-African Conference on Insurance Markets (CIMA). Congo is also member of the Federation of African National Insurance Companies (FANAF). There are nine companies in the sector. The assets of the insurance sector decrease from XAF 64 billion (USD 109.27 million) in 2019 to XAF 61 billion (USD 97.8 million) in 2022. However, the volume of the sector's gross premium increased from XAF 60.2 billion (USD 102.7 million) to XAF 72.1 (USD 115.6 million) over the same period. The investment portfolio is poorly diversified, which leads to a concentration risk, resulting from the lack of dynamism of the capital markets, coupled with the absence of a real investment policy. Insurers’ investment return has been positive since 2020 but it is still low, suggesting that life insurance companies, which remunerate policyholders directly from income generated from these investments, are most likely to be affected by the risk of concentration. The merger of the CEMAC capital markets could provide opportunities for diversification of insurance companies’ investment portfolios.

The insurance penetration rate in Congo reached 0.9% of GDP in 2019, from a gradual fall since 2015. Insurance penetration rate remains at a relatively low level, compared to countries like South Africa (13.4% of GDP). Insurance density, measured as the ratio of gross premium to GDP, was worth XAF 12,956 (USD 22.4) in 2019, well above the FANAF median (XAF 6,292 or USD 10.8). Furthermore, there is a need to improve the quality of the reporting system in the sector, which remains poor. Likewise, the modernization of tools for controlling information provided by insurance companies remains a need.

Social Security System

Social security in Congo is provided by the National Social Security Fund (CNSS), which covers the private sector workers, and the Civil Servant Pension Fund (CRF), dedicated to covering government employees. These two social security schemes work through a contributory regime based on the beneficiaries' wages. The range of services offered includes (i) health care, (ii) family benefits, (iii) work accidents and occupational diseases, and (iv) disability, old age and death. Social security organizations (SSOs) operate under the authority of the Inter-African Conference on Social Security (CIPRES). Between 2019 and 2022 , the volume of assets in the sector increased by almost 33%, to XAF 393.6 billion (USD 630.86 million), or 11.3% of the financial system’s total assets. Over the same period, benefits paid increased from XAF 58.4 billion (USD 99.7 million) to XAF 63.4 billion (USD 101.6 million).

Congo’s social security system has low coverage, only 0.9 percent of the Congolese population benefits from social protection, compared to 22.3 percent in SSA (IMF, 2021). The social protection system covers only employees in the formal sector (around 173,700 workers in the public and private sectors), excluding, many self-employed workers, particularly those in the informal sector, who are not covered by any kind of social protection scheme. The irregularity of benefits provided to pensioners has led to the accumulation of arrears. Sixteen quarters of pension arrears were accumulated between 1997 and 2004. This irregularity in the payment of pensions is due to the decrease in social contributions, exacerbated by the oil crises and the COVID-19 pandemic. Social security remains underfunded in Congo, representing only 0.5% of GDP in 2021 and 6.9% of social spending.

Contact details Information of Banks operating in the Republic of Congo