Overview of the Financial Sector

The Bank of Sierra Leone (BSL) operates a floating exchange rate system. Sierra Leone’s financial sector remains shallow and dominated by commercial banks, which accounted for about 82.5% of total financial system assets at the end of 2022. Pension funds came in second with 11.4% of total financial sector assets, while the rest accounted for 6.1%. The number of financial institutions regulated by the Bank of Sierra Leone has risen from 230 in 2021 to 242 in 2022. There are: 14 commercial banks, 5 deposit-taking microfinance institutions (DTMFIs), 60 credit-only microfinance institutions (COMFIs), 17 community banks, 59 financial service associations (FSAs), 2 discount houses, 3 mobile money service providers, 80 foreign exchange bureaus, 12 insurance companies, and 1 pension fund (The National Social Security and Insurance Trust[1]). Total financial system assets increased by 40.8% in 2022, reaching 37.4% of GDP. The increase was broad-based, with contributions from all sectors of the financial system. The credit-only microfinance sector showed asset growth of more than 50%. The banking sector's assets increased by 46.9%, representing 30.8% of GDP.

The Banking Sector

Sierra Leone's banking sector includes 14 commercial banks (two state-owned, two domestic privately-owned, and ten foreign-owned, mainly Nigerian.  In 2022, the banking sector continued to flourish and was appropriately funded, liquid, and profitable. The banking industry accounted for the vast majority of assets and deposits in Sierra Leone's financial system. The amount of credit to the private sector has fallen in recent years to just around 14% of the total banking sector assets and rose to 6.5% of the GDP in 2022. The banking sector's assets have become even more severely concentrated in lending to the government, which made up the largest share of banks' total assets in 2022, overtaking loans to the private sector.

The share of banking sector assets by asset type indicated that claims had the highest percentage in 2022, accounting for 37.6% of total banking sector assets, whereas last year it was investments. This rise is explained by the increase in foreign currency deposits. To manage their exposure to currency risk, banks invested their funds in foreign currencies and held more cash in foreign currencies.

Banking Sector Soundness: Overall, the banking sector of Sierra Leone remained profitable and liquid, with an expanding deposit base, and adequate capital buffers, but is still highly concentrated. The 50 largest borrowers accounted for around 60.0% of total exposure in 2022. The ratio of liquid assets to total assets and the ratio of liquid assets to short-term liabilities remained strong and increased slightly to 78.3% in 2022 and 95.5% in 2022, respectively. The capital adequacy ratio also remained strong at 35%, well above the 15.0% statutory minimum. The banking sector recorded profits with both the return on assets (ROA) and return on equity (ROE) ratios remaining healthy, above the averages for sub-Saharan Africa (SSA), though they have marginally increased in 2022. Relatedly, the BSL has directed commercial banks to increase minimum capital requirements on a phased basis until 2023. The authorities have also made progress in improving the governance and soundness of two state-owned banks. The Bank of Sierra Leone is maintaining the enhanced supervision regime to minimize fiscal risks and restore profitability. Following the completion of the World Bank diagnostic study of the two banks in September 2019, the authorities are now focusing on strengthening internal controls, governance, and credit processes.

Return on assets (ROA) remained constant from 2018 to 2021 and then increased from 5.4% in 2021 to 6.5% in 2022.  Similarly, the return on equity (ROE) fell from 27.3% in 2018 to 24% in 2021 but increased between 2021 and 2022 to 28.2%. On the other side, liquidity ratios such as liquid assets to total assets and liquid assets to short-term liabilities consistently increased from 2018 to 2022. The ratio of nonperforming loans (NPLs) to gross loans deteriorated to 15.2% in 2021 from 12.7% in 2020 but improved in 2022 to reach 12% due to regulatory pressure from the BSL. However, it still exceeds the minimum threshold of 10.0%. At the same time, the capital adequacy ratio and the Tier 1 CAR fell, respectively, from 40.1% in 2020 to 35% in 2022 (but remained well above the BSL regulatory minimum of 15%) and from 34% in 2022 to 27.8% in 2022. This decrease was mainly driven by the increasing share of FX assets, which are riskier than government securities.

Financial Inclusion

Mobile money is getting increasingly popular. In 2021, around 29% of the population had an account, either a mobile money account or an account with a financial institution against 20% in 2017 (Global Findex data). Telecommunications providers are modernizing in order to improve mobile money services and e-commerce in particular. The number of mobile money agents has increased from 3,772 in 2021 to 48,087 in 2022. However, less than 30% of people have made or received a digital payment, and these figures are lower when it comes to using a mobile phone or the internet to access financial accounts. The country’s digital finance sector is largely being driven by financial technology companies (Fintechs), the country’s central bank, payment institutions and banks. The use of mobile payment in SL is growing but still fall short of compared to its peers in the ECOWAS sub-region. Concerning gender, only 25% of females 15 years or older owned accounts at a financial institution or with a mobile-money service provider in 2021. This compares unfavourably to 33% for their male counterparts.

Despite having 17 banks, only 16% of adults in Sierra Leone had a financial institution account in 2021 even if this number has grown from 12% in 2017. The Bank of Sierra Leone is also implementing a "national payment switch" to enable communication across different banks' electronic systems. Most financial institutions in Sierra Leone are located in the capital, Freetown, and secondary metropolitan centres such as Kenema and Bo, thus cutting off the country's rest of the population from the financial system. The high running costs of institutions serving rural and underserved sections of the country are reasons. Institutions have also struggled to develop a business case and a long-term strategy for expanding into rural areas. The adoption and use of mobile money services will help bridge the financial inclusion gap between rural and urban areas. However, users incur a high cost of service fees when undertaking such transactions that can impede financial inclusion.

SME Financing

The government of Sierra Leone has recognized SME finance as a priority through demonstrated efforts such as the establishment of SMEDA, the SME Policy, and the more recent deployment of the MUNAFA fund, the effectiveness of these efforts has been called into question due to a lack of targeting and splintering of efforts (World Bank, 2022). These initiatives must be thoroughly evaluated for efficacy to ensure that the present loan sizes and on-lending pricing caps have the intended reach and market impact on SMEs.

Insurance Sector

Sierra Leone's insurance industry is growing gradually supported by the life insurance segment. In 2022, premium of GDP was at 0.37%. In 2022, the total assets of the insurance industry expanded by 5% from 2021. With a population of over 8 million and an insurance penetration of 0.37%, there is still a large market for insurance that is unmet. This growth potential makes the industry look promising to new entrants as well as to local players to expand their reach. 

Capital Market

The Sierra Leone stock exchange was established on July 17th, 2009 to provide an avenue for enterprise formation and a place for the trading of stocks and bonds. The stock exchange began trading with Rokel Commercial Bank and three brokerage firms that act as agents for trading securities. As of November 18, 2020, there were three companies listed on the stock exchange market (Rokel Commercial Bank, First Discount House, and HFC Mortgage). Establishing the stock market has to do with the privatization program in Sierra Leone to speed up development. However, Sierra Leone's stock exchange has been in operation for almost a decade but is currently dormant. The number of listings and participation in the stock market remains minimal and small.

Social Security System

In 2022, pension plan assets were in second place, accounting for 11.4% of total financial sector assets, although this figure was down on the 13.9% recorded in 2021. In 2022, the NASSIT pension program enlarged. Total pension fund assets stood at Le 3196 billion (US$ 169 billion) at the end of 2022, up by 15.5% from Le 2,776 billion (US$ 246 billion) in 2021 (USD values did not increase because of exchange rates fluctuations). The fund pursued enough funds to suit the needs of its customers where contribution income rose by 18.8% slower than payments that increased by 36.7% in 2022 while investment income increased by 40.9%. An investment surplus was generated as a result of income from investments exceeding the trust's total expenditure.

Contact details Information of Banks Operating in Sierra Leone