Finance expert urges Cameroon financial institutions to Switch to Mc Donough ratio

Apr 14, 2011

A seminar on the Bâle II reform, which has regulated the banking sector in Cameroon since 2007, was held in Douala on April 7th.

Octave Jokung, a finance expert, spoke about banking risks and what is, according to him, slowing down the growth of credit institutions in he country, Le Potentiel newspaper reports.

The difficulties encountered by these firms would be linked to operational risks, fraud and system failure.

"A bank has to follow a prudential ratio. When you lend money, you have to have a guarantee fund," he explained.

This guarantee fund is called the Cooke ratio - the banks' stockholders' equity divided by the credit commitments have to be superior to eight per cent.

Mr Jokung wishes to increase banker's awareness of the necessity to leave the Cooke ratio for the Mc Donough ratio, as recommended by the Bâle II reform, in order to strengthen their position on the market.

The McDonough ratio uses the probability of default and the expected loss from default to assign varying weights to assets in the denominator.

It sets its benchmark at the same percentage value as the Cooke ratio, but latter does not give different weights to borrowers of differing quality.