Financial System Stability Assessment, Including Reports on the Observance of Standards and Codes on the following topics: Monetary and Financial Policy Transparency, Banking Supervision, and Insurance Regulation

This paper presents key findings of the Financial System Stability Assessment for Gabon, including Reports on the Observance of Standards and Codes on Monetary and Financial Policy Transparency, Banking Supervision, and Insurance Regulation. The assessment reveals that the Gabonese financial sector is dominated by a relatively sound but small banking sector that focuses squarely on the formal sector. The operating environment is characterized by a fixed peg to the euro, heavy dependence on oil exports, and continued government presence in both the enterprise and financial sectors.


This paper presents key findings of the Financial System Stability Assessment for Gabon, including Reports on the Observance of Standards and Codes on Monetary and Financial Policy Transparency, Banking Supervision, and Insurance Regulation. The assessment reveals that the Gabonese financial sector is dominated by a relatively sound but small banking sector that focuses squarely on the formal sector. The operating environment is characterized by a fixed peg to the euro, heavy dependence on oil exports, and continued government presence in both the enterprise and financial sectors.

Section I. Staff Report on Financial Sector Issues

I. Overall Stability Assessment

1. The major macroeconomic and structural factors affecting the short- and medium-term stability of the financial sector include: (1) Gabon’s membership in the Central African Economic and Monetary Community (Communauté Economique et Monétaire de l’ Afrique Centrale, CEMAC) with a common currency fixed to the euro; (2) a production structure based on oil and, to a lesser extent, forestry products and manganese, with oil output projected to decline markedly over the next five years; (3) an overall relatively sound but small banking system focused on the formal sector of the economy; and (4) a strong role of the Government in both the enterprise and financial sectors.

2. Against this background, the major challenges to financial sector stability identified through simulation exercises of possible shocks and through a critical review of the applicable regulations include the following:1

  • Gabon’s banking sector, which dominates financial activity, has been overall resilient and profitable. This notwithstanding, solvency levels in some institutions are close to the forthcoming regulatory minimum of 8 percent (effective in 2004). Stress tests show that even relatively minor changes in macroeconomic variables could put individual institutions at risk. This risk is exacerbated by the banking sector’s portfolio concentration. With few domestic interbank relations there are, however, no indications that there might be contagion across banks. When problems occurred in the past, the authorities have been quick in putting into liquidation banks that required it.

  • Fiscal problems have in the past had direct and indirect negative repercussions on the performance of the financial sector. The continued exposure of banks to public enterprises and to government suppliers indicates that declines in fiscal revenues—for example due to oil price declines and/or from the shrinking output level—can have a negative impact on banks.

  • A high level of liquidity and adequate access to central bank refinancing facilities seem capable of containing banking sector risks in the short term. In the medium-term though, with a shrinking oil economy, pressures are more likely to emerge and will probably require structural adjustment in the banking sector, including through diversification, internationalization, and improvements in risk monitoring.

  • There are significant deviations from best supervisory practices, although the regulatory framework is overall well developed and the COBAC, the regional supervisory agency, is recognized for its efficiency and professionalism. The COBAC’s resources, in particular staffing, remain inadequate, contributing to continued problems in off-site supervision. The prospective increase in the regulatory minimum capital requirements (from 5 to 8 percent by 2004) appears too low, given the operational risks in the economy. Money laundering regulations are also not in place, although the authorities are developing harmonized legislation in this area.

  • Deficiencies in the wider legal and regulatory framework pose a threat to financial sector activities. There is a need to ensure consistency between national and regional laws and regulations. All such laws and regulations, including the OHADA Uniform Acts, must be disseminated more broadly and applied more consistently. Increased efficiency, transparency, and predictability in the disposition of financial sector litigation would reduce risks and costs. These results, however, will require a significant increase in funding for Gabon’s judicial system.

3. Given Gabon’s income level and medium term prospects, the major developmental challenge is to foster a financial sector that contributes to more broad-based economic growth, while allowing an extension of financial services beyond the narrow formal sector currently covered. It will be important though that supervisors are mindful of the risks that could be implied in institutions’ growth strategies and apply adequate monitoring. Important institutional and regulatory issues should also be clarified and supervision improved to promote longer-term savings, e.g., through life insurance, pensions, and capital markets, and to ensure soundness of the institutions concerned. Regarding capital markets, the arrangements currently proposed should be reviewed to assess their economic viability and sustainability.

II. Macroeconomic and Financial Context

4. Gabon is a member of the six-country Central African Economic and Monetary Community (Communauté Economique et Monétaire de l’ Afrique Centrale, CEMAC). The CEMAC members share a common currency, the CFA franc, which is issued by the Bank of Central African States (Banque des Etats de l’ Afrique Central, BEAC), and which is pegged to the euro. Banking supervision in the region is undertaken by a common supervisor, the Central African Banking Commission (Commission Bancaire de l’ Afrique Centrale, COBAC). Fiscal policy is the key instrument at the disposal of the Gabonese authorities, as membership in the monetary union and the requirements implied in maintaining the fixed exchange rate restrict the use of monetary tools. In this framework, fiscal policy slippages tend to manifest themselves in government arrears and in foreign reserve losses.

5. An oil-rich and politically stable country, Gabon has a nominal per capita GDP of about US$4,000, far exceeding the levels of the other CEMAC countries. Nevertheless, Gabon faces serious macroeconomic and structural challenges. Over the past two decades the dependence on oil exports has also led to uneven growth performance and significant macroeconomic instability. Efforts to shield consumption from income losses following oil price declines, along with ambitious infrastructure projects, led to rapid build-up of external public debt over the 1980s and early 1990s. Problems in servicing the external debt have led to the build-up of significant external arrears, with Gabon largely losing access to international capital markets. At the same time, domestic public sector arrears, including to the financial system, have also increased. Gabon’s recent adjustment efforts have been supported by an IMF Stand-By Arrangement.

6. The policy challenges for the future are greatly aggravated by current output projections in the country’s oil industry. Based on known oil stocks, production levels are expected to decline by about 50 percent over the next five years, leading to sharp declines in fiscal revenues and the flow of reserves for all but the most favorable assumptions about oil price developments. Given the lack of a broader economic base, the short-term possibilities to cushion the decline in oil output are limited. In addition to oil, the economy relies on only two other export products, wood and manganese. Although Gabon has vast renewable forestry resources, export growth in this sector, even in light of the ongoing diversification toward final wood products, is unlikely to fully offset the drop in oil exports.

A. Financial Sector Characteristics

7. The financial sector in Gabon is overall profitable and stable, but in relation to the size of the economy and per capita income, it remains relatively underdeveloped (Box 1). The defining characteristics of the sector are:

  • Gabon’s banks—which dominate the financial sector (Table 1)—find their activities and growth potential limited by the size of the non-oil economy, given that financing of the oil sector is largely undertaken outside of the country. Lending restrictions imposed by foreign parent banks also contribute to the institutions’ focus on a relatively narrow segment of business. Commercial banks are cost efficient and liquid, while questions remain about their capitalization.2 There are relatively weak links between banks and other financial institutions, with the exception of finance companies, which, however, tend to be wholly owned subsidiaries of banks (see Table 2).

  • The government retains a strong role in the financial sector, both as owner and as client, either directly or through public enterprises. The government has majority shareholding in two, and significant shareholding in another three banks. In total, banks accounting for more than 85 percent of assets are subject to some government ownership. The possibility of government arrears, either to banks or to suppliers who are bank clients, are an important determinant in portfolio quality.

  • There are few formal financial institutions other than those in the banking sector. Leasing and insurance companies—most of the latter in a precarious financial situation—exist but are not of systemic importance. Microfinance institutions, prevalent in other African economies, are insignificant in Gabon, leaving a large part of the population outside of the formal and informal financial system. Government efforts have not been successful in widening the scope of financial services. Efforts to promote broader access to credit and financial markets—for example through the BNCR and FODEX—have failed.

Table 1.

Gabon: Financial System Structure

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Source: COBAC, Gabonese authorities (DNA), annual reports of finance companies.

Calculated on the basis of a nominal GDP for 2000 of CFAF 3,577 billion.

In 2000: BGD, BGFI, BICIG, BNCR, CITI, UGB. In March 2001, BNCR was put under interim administration; January 2002, it was put into liquidation.

PCC and CEP. Total assets are overstated because (a) CEP has a 7 billion deposit in CCP, and (b) CCP has a suspense account of CFAF 25 billion.

Credit Foncier du Gabon is a government refinancing institution not open to the public.

2000 number as per end of June.

In 2000: SONADIG and BGFI Participation are registered with COBAC. There arc some 10 non-registered and non-supervised security firms with marginal sizes. Assets reported refer to BFGI Participation. Data on SONADTG is not available.


Axa Life Insurance and Ogar Life Insurance. Assets as of December 1999.

ASSINCO, AXA, OGAR, ANG. Assets are as of December 1999 and exclude ANG.

The Social Security fund covers health benefits, family allowances, working injury compensation and pensions. 50 percent of the assets are financial assets. For the purpose of this report, these assets are not included in the financial sector’s total assets.

In 2000 the government had 26.4 percent in BICIG, 28.7 percent in UGB (of which 3.7 through BGD), 25 percent in BGFI (of which 15 percent through BGD), 69.0 percent in BGD and 74.1 percent in BNCR.

In 2000 significant foreign participation were in BICIG (BNP 23.8 percent and SFOM—an affiliate of BNP—22.9 percent), Citibank (100 percent) and UGB (Credit Lyonnais 56.2 percent).

Table 2.

Gabon: Measures of Financial System Interconnectedness

(As of December 31, 2000)

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Source: COBAC

Capital as defined by COBAC.

BICIG accounts for CFAF 29.5 billion, of which CFAF 25.3 billion is a loan to the Government. The government’s share participation in BICIG is 26 percent. Exposure to non-government shareholders in the banking system is marginal and amounts to CFAF 150 million.

Gabon: Main Characteristics of the Financial Sector

The Gabonese financial sector consists of six commercial banks, two savings banks, two securities firms, six finance companies and six insurance companies. There are only minor activities in the microfinance sector.

The level of financial intermediation in Gabon is low relative to other developing countries. For 1999, credit to the private sector represents 10.7 percent of GDP (or 17.2 percent as a percentage of non-oil GDP), compared with 27 percent in Kenya, 57.5 percent in Mauritius and 69.3 percent in South Africa. Deposits to GDP in Gabon amount to only 12 percent, compared with 36.8 percent in Kenya, 74.2 percent in Mauritius and 55.4 percent in South Africa. It is not clear to what extent the shallow financial system is caused by Gabon’s economic structure, in particular, the large share of (generally foreign-financed) oil exploration. While Gabon and Venezuela do share low levels of private sector credit to GDP (10.1 percent, 10.6 percent), other oil-producing economies including Iran (20.5 percent), Cote d’lvoire (17 percent), Libya (26 percent), Kuwait (55 percent), Qatar (35 percent) and Saudi Arabia (30 percent) do not share the same characteristics.

The banking sector dominates the financial system, with banking sector assets accounting for about 90 percent of total assets. Within the banking sector, the three largest banks, the Banque Internationale pour le Commerce et l’Industrie du Gabon (BICIG), the BGFIBANK (BGFI) and Union Gabonaise de Banque (UGB) together hold more than 80 percent of deposits and loans, with BICIG alone accounting for more than 40 percent. The remaining banks are Citibank N.A. Gabon and Banque Gabonaise de Développement (BGD). The Banque Nationale du Crédit Rural (BNCR) has recently been put under liquidation. The Government has a majority shareholding in BGD and BNCR and significant participation in three other banks. Citibank is a branch of Citibank New York, and 56.2 percent of UGB’s capital is owned by Credit Lyonnais. In BICIG, the Banque Nationale de Paris (BNP) and the Societé Financière d’Outremer (a subsidiary of BNP) together control 46.7 percent of capital. One bank has a branch and a subsidiary abroad. Commercial banks employ about 1,200 people.

Security firms and finance companies together account for 4.8 percent of the system’s total assets. Life and non-life insurance companies account for 7.1 percent of the total assets of the financial system, or 1.9 percent of GDP. There are 13 microfinance institutions, serving about 2,700 clients. This sector as a whole had only about 700 outstanding loans in 2000.

B. Prudential Environment

8. The resilience of a country’s financial sector to shocks depends on its initial soundness, the magnitude of the shocks, as well the quality of the regulatory environment that would assure prompt and appropriate responses to financial sector stress. Gabon’s credit institutions are supervised by the COBAC. While national authorities impose the minimum required paid-in capital, the COBAC sets a minimum risk-weighted capital-asset ratio, and regulates liquidity, risk diversification, and maturity transformation. Recently, it started requiring that interbank lending be risk weighted according to a CAMEL rating system (see Box 2) and government debt to be weighted according to compliance by governments with the four macroeconomic convergence criteria set up under the monetary union. Insurance companies are supervised by the Regional Insurance Supervisory Council (Conseil Régionale de Contrôle des Assurances, CRCA), while insurance intermediaries are supervised by the National Insurance Directorate (Direction Nationale des Assurances, DNA).

9. Soundness and performance indicators, as monitored by the COBAC, show that credit institutions as a whole are relatively healthy. Gross non-performing loans (NPLs) relative to total assets averaged 3.5 percent over the past five years, peaking at 4.4 percent in December 1998.3 As of December 2000, gross NPLs to total assets were 3.6 percent.4 Provisions for doubtful loans were on average 62 percent and range between 35 to 80 percent across banks.

10. In spite of the overall favorable assessment, there are important differences in individual banks’ compliance with prudential ratios. At end-February 2001, out of five fully operating banks, only one complied with all prudential ratios. Two banks were not adequately capitalized,5 three did not meet the risk diversification requirements, and two held (marginally) insufficient liquidity.

CEMAC: Recent and Prospective Changes in Prudential Regulations for the Banking System

The COBAC has recently adopted new regulations with respect to the solvency ratio, provisioning, and connected lending. Other regulations are currently under discussion, in particular, regulations with respect to internal control and audit. The main changes that have been implemented or are still forthcoming include:

  • Solvency Ratio (capital adequacy ratio): Starting in 2001, bank assets are divided into groups of 0,20, 50, 75 and 100 percent of risk weight. Interbank lending will be risk-weighted according to the Sysco rating system (see below). Government debt is weighted according to compliance by governments with the four macroeconomic convergence criteria set up under the monetary union. Furthermore, loans to companies that have obtained a classification agreement from BEAC confirming their financial strength are risk weighted at 50 percent. Under the new regulation, the regulatory solvency ratio will be increased from five to eight percent in annual steps, starting in 2002.

  • Provisioning rules: In 2000, formal provision rules have been introduced. Only required provisions are tax deductible. There are no provisioning requirements for late payments of up to 90 days, but accrued interest cannot be recorded as interest income. Provisioning rules for payments late by 90 days or more arc:

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  • Sysco Rating: In 2000 COBAC introduced a CAMEL rating system for commercial banks. Under this new system (the Sysco rating), capital counts for 30 percent, quality of the portfolio for 20 percent, quality of management and internal control for 20 percent, earnings for 10 percent, and liquidity for 20 percent. Banks are rated into four groups. Rating one stands for solid banks, two for banks with a good financial situation, three for fragile banks and four for banks that are in a critical situation. In 2001, the banks’ scores were communicated to the banks’ management only. In 2002, the scores will be shared amongst all the banks, and in 2003, COBAC intends to make the rating public.

  • Connected lending, large exposure and coverage of fixed assets: Procedures have been established with respect to the granting of loans to the banks’ shareholders, associates, managers and employees. Total connected lending has been limited (as per 1/1/2002) to 15 percent of capital. With respect to large exposure, the limit has been set to 45 percent of capital for an individual client, and 800 percent of capital for the total of large exposures (loans larger than 15 percent of capital). Banks’ fixed assets cannot exceed eligible capital (fonds propres net).

III. Short-Term Vulnerabilities

11. This section reviews the extent to which there are short-term risks to financial sector stability in Gabon. It also reviews whether financial sector developments could pose an immediate threat to macroeconomic stability. The overall findings show that short-term risks exist, especially for specific institutions with relatively low solvency ratios. However, the system as a whole seems capable of withstanding a significant deterioration in interest and exchange rates. Liquidity risks and threats to macroeconomic variables seem contained. Table 3 provides selected financial sector soundness indicators for the banking system; Table 4 contains the aggregate balance sheet of banks.6

Table 3.

Gabon: Financial Sector Soundness Indicators

(In percent)

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Source: COBAC, BEAC.

Until December 31, 2000, all assets were risk-weighted by 100 percent. Since January 1, 2001, a new regulation has been introduced with variable risk weights. Time series only include banks still operating in year 2000. Definition corresponds to COBAC’s ratio de solvabilitè.

Capital as defined by COBAC (fonds propres nets corrigés).

Connected lending excluding loans to the government.

Except for 2000 and 2001, the numbers include outstanding loans of previously closed banks. Data for 2001 are as of December 31, 2001.

Foreign exchange loans include loans from mother company. Total loan include interbank lending.

Gross non-performing loans include the part of the loan that has been provisioned for (equivalent to the following categories of COBAC: Creances douteuses, contentieuses, impayées + provisions).

Total gross loans include the part of NPL that had been provisioned for (equivalent to COBAC’s categories: Crédits á la clientèle + Debiteurs divers + Provisions).

Including management.

Return on average assets is defined as pretax net income of the year as a percentage of average assets of the year (t) and year (t-1).

Return on average equity is defined as pretax net income of the year as a percentage of average equity of the year t and t-1.

This ratio is constructed from balance sheet items and differs from COBAC’s liquidity ratio.

Funding volatility ratio = (volatile liabilities - liquid assets) / illiquid assets.

Excluding interbank deposit.

Net foreign exchange position excludes off-balance sheet items.

Table 4.

Gabon: Aggregate Balance Sheet of the Banking System

(In millions of CFAF and in percentage of total assets; December 31, 2000)

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Source: COBAC.

Capital as defined by COBAC.

Non-performing loans net correspond to gross non-performing loans minus provisions on non-performing loans.

A. Exposure to Interest and Exchange Rate Shocks

12. Interest and exchange rate changes are the macroeconomic variables that generally have the most immediate effect on banks’ balance sheets.

  • In the short run, Gabonese banks’ exposure to interest rate risk appears to be limited as most assets and liabilities have short maturities. A stress test simulating a 100-basis-point increase in interest rates shows that the system as a whole will be able to withstand such an increase (Table 5). An increase in lending and borrowing rates of 100 basis points would result in a cumulative loss of CFAF 4.2 billion and a reduction in the system’s solvency ratio from 13.3 percent to 12.7 percent.7

  • Banks, however, have different exposures to interest rate risk, with at least one bank significantly more exposed. Using the same assumptions, the solvency ratio of the most affected bank would fall by 2.0 percentage points. As this bank’s solvency ratio is around the regulatory minimum, the small increase in interest rate simulated would cause its solvency ratio to fall below the prospective prudential limit. In contrast, the solvency ratio of another bank would make a net gain of 1.5 percentage points.

  • Gabonese banks have at times shown a tendency to expose themselves to significant foreign exchange risk.8 At end-December 2000, four of the five Gabonese banks were maintaining long foreign exchange positions—defined as foreign exchange assets greater than foreign exchange liabilities. The cumulative net long position in non-euro denominated currencies approximates CFAF 45 billion, while the cumulative net long position in euro amounts to close to CFAF 35 billion.

  • An appreciation of the euro vis-à-vis the US dollar and the British pound would have near balanced effects on the banking system as a whole, given that foreign exchange holdings are diversified between the two currency groups. However, the portfolio structure of the least capitalized bank differs significantly from the average, exposing it to the risk of falling below regulatory minimum capital as a result of a return of the US dollar/euro exchange rate to its 1999 level.

Table 5.

Gabon: Results of the Stress Tests 1/

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Stress test analysis is based on supervisory (non-consolidated) data solvency ratios (COBAC) for 12/31/00. In some cases, banks do not agree with COBAC calculations of solvency ratios.

Scenario A estimates the impact on banks’ balance sheet of loan portfolio deterioration of 5 percent of loans becoming non performing, assuming that provisions are made of 75 percent for NPLs

Scenario B estimates the increase in NPLs that would lead to Tier I plus Tier ii capital turning negative, assuming provisions are made at 75 percent.

Scenario C estimates the impact on banks’ balance sheet of 40 percent of forestry related credits and 20% of transportation related credits turning non performing, assuming provisions arc made at 75 percent.

Scenario D estimates the impact on solvency of a 40 percent appreciation of the euro (and euro-pegged) currencies vis-à-vis other currencies.

Scenario E estimates the impact on solvency of a 40 percent depreciation of the CFAF vis-à-vis all currencies (including the Euro).

Scenario F estimates the impact on solvency of a 1 percent increase in lending and borrowing rates.

Scenario G estimates the decrease in return on assets (ROA) resulting from the government falling into arrears on commercial bank debt.

Due to limited availability of data, solvency ratios for scenario D and E only comprise four banks. The overall capital-adequacy for these four banks equals 11.3 percent.

B. Liquidity Risk

13. Insufficient liquidity, or the lack of access to liquidity support, could also pose important short-term risks. At present, though, liquidity risk in Gabon seems contained.

  • Liquidity of the banking sector as a whole far exceeds regulatory requirements. In addition supplementary sources—such as the regional interbank market, which Gabonese banks successfully tapped during a liquidity squeeze in 1998, and access to the BEAC money market—are available. Against this background, possible negative liquidity shocks, such as payment delays on Government debt that have occurred would not pose any immediate threats.

  • The noncompliance of two banks with the prudential liquidity ratio (at end February 2001) was more indicative of a lack of regulatory pressure than signaling an inability to comply. Both institutions have since reached the regulatory minimum.

  • For solvent but illiquid institutions, safeguard arrangements are in place. The BEAC has a lender of last resort facility that allows banks to access the money market without collateral. At the discretion of the Governor, lending under this facility can, for a limited time period, exceed the national rediscount ceiling.

C. Risks from Fiscal Developments

14. Given the role of the government in Gabon’s economy, an important macroeconomic risk to financial sector stability lies with the implementation of fiscal policies. In the past, fiscal policy slippages have resulted in government arrears to the banking sector and to banks’ clients.

15. Ongoing adjustment efforts undertaken as part of the Fund program were designed to maintain the room under the statutory ceiling at the central bank at the equivalent of 3 percent of GDP during 2001. In the event, fiscal slippages eroded much of this margin during the year. In this light and of the planned gradual reductions in the BEAC statutory ceiling, there is a need to strengthen public finances and reduce its indebtedness vis-à-vis the banking system, so as to avoid renewed arrears to banks and suppliers, with the attendant direct and indirect effects on banks. Beyond a one-year horizon, important medium term risks persist (see Section IV). The introduction of a sound public debt management strategy, which would include the planned Treasury bills, would help mitigate such risks.

D. Possible Threats to Macroeconomic Stability from Financial Sector Developments

16. Gabon’s membership in a monetary union limits the most immediate short-term macroeconomic risks from financial sector weaknesses. Such risks would generally work through uncontrolled liquidity support for weak financial institutions, which could be reflected in monetary expansion, inflation and/or sharp increases in interest rates. The institutional framework set by the BEAC, while providing adequate lender of last resort facilities, has institutional safeguards in place that prevent uncontrolled liquidity support. Other macroeconomic effects of financial sector weaknesses—such as budgetary costs for bank restructuring, are relevant in Gabon’s case in the medium term, as discussed in the next section.

IV. Assessment of Medium Term Risks

17. This section reviews medium term challenges faced by the Gabonese financial sector. While only a subgroup of the risks is directly quantifiable (see the credit risk scenarios below) other challenges may have equally serious repercussions. Efforts to address all the risks listed below would appear necessary to ensure medium term financial sector stability.

A. Credit Risk

18. In the medium term, the viability of the financial sector critically depends on its ability to withstand swings in credit quality. A series of stress tests was performed to review the systems’ resilience to credit risk.

19. A first approach in stress testing credit risks is to assess the extent to which solvency of the banks is impacted by future provisioning needs, arising from a recession-induced increase in non-performing loans. The following effects appear likely to result from an increase of gross NPLs to total assets of 5 percentage points for all banks (Table 5):

  • For the system as a whole, an increase in gross NPLs from roughly 3 percent (level of December 2000) to 8 percent of total assets will cause the banking system’s solvency ratio to fall from 13.3 percent to 9.2 percent.

  • Given the sharp differences in the solvency ratio of Gabonese banks, under the assumption of a 75 percent provisioning rate, such a shock would lead to three banks falling below the COBAC’s 5 percent required capital adequacy ratio, while it would leave two banks relatively unaffected. The combined impact on the five banks would be a charge against capital of CFAF 28 billion.

20. A second scenario estimates the percentage increase in NPLs that banks would be able to absorb before their net equity (fonds propres nets) would turn negative.

  • The banking system as a whole could absorb an increase of NPLs to total assets of 14.2 percentage points before its net equity turns negative.

  • The net equity of the three most vulnerable banks, however, would become negative with increases in NPLs of between 3 and 8 percentage points of total assets. One bank could absorb an increase in NPLs of close to 13 percent of total assets, while a public sector bank, which is currently extremely highly capitalized, could absorb roughly three quarters of its total assets turning non-performing.

21. Given the large exposure of the banking sector to the forestry sector, a third scenario focuses on the effects of an external demand shock, reducing demand and world prices for Gabon’s forestry output, including for the more diversified final products that increasingly complement the exportation of raw logs. The scenario assumes that 40 percent of forestry-related credits and 20 percent of transportation credits—which largely are subsidiary to forestry production—become non-performing. The effects of such a shock would be as follows:

  • The banking system as a whole would be able to withstand this shock, with overall solvency ratio declining from 13.3 to 10.1 percent. Total non-performing loans in the banking system would increase from 2.9 percent to 6.9 percent of total assets. Non-performing loans for the bank with the largest exposure to forestry-related credits would increase by 7.8 percentage points.

  • However, the above result hinges critically upon one bank, which is currently very heavily capitalized. The solvency ratio of the other four of the five operating banks would fall to or below the 5 percent minimum, thus underscoring the exposure of the sector in this area.

  • To the extent that banks have lent to other financial intermediaries that are exposed to the forestry and transportation sectors (including to leasing companies), deterioration in these sectors is likely to further worsen the position of these banks.

B. Risks Related to Banking Sector Characteristics and Portfolio Structure

22. The following structural features of Gabon’s banking sector could contribute to medium term solvency or growth problems, unless adequate safeguards are put in place:

  • Gabon’s banking sector is highly concentrated. The largest bank accounts for more than 40 percent of loans and deposits, and the largest three banks account for more than 80 percent of all bank loans and deposits.9 While the banking structure and, hence, the degree of concentration is due to the characteristics and size of the economy, the effects of the market structure require monitoring. The main potential risk associated with the high degree of concentration relates to possible inefficiencies and slower innovation arising from the lack of competition as well as the danger of problems in one bank taking on systemic importance. To avoid negative effects from high concentration requires stronger banking supervision and adequate consumer protection laws.

  • The banking sector’s loan portfolio is non-diversified. At end-February 2001, three out of the five operating banks did not meet prudential ratios on risk diversification, leaving the sector as a whole exposed to a small number of enterprises. Furthermore, sectoral loan concentration—an equally significant problem given Gabon’s narrow economic base—is insufficiently monitored by banks.

  • The Government continues to play a dominant role in the banking sector, with all but one bank in partial or full state ownership. This, together with a pervasive role of the Government as a bank customer—both directly as well as through state owned enterprises—creates moral hazard due to widespread belief in implicit state guarantees. Also, past banking crises in the region have in most cases been caused by government interference in loan decisions.10

C. Challenges Related to the Decline in Oil Revenue

23. The projected decline in oil production in Gabon is likely to have a profound impact on the economy. While some of the effect might be cushioned by favorable changes in oil prices and/or the euro/US dollar exchange rate, an overall trend of a declining oil income is likely. Possible financial sector effects include the following:

  • Government revenues and spending might decline, causing a downward trend in the economy. Unless compensated by growth in non-oil sectors, for example through increased domestic activity following privatization of state enterprises, this depression of activity could lead to system-wide problems in servicing loans.

  • A fiscal scenario in which government expenditure reductions would fall short of what would be implied by the shrinking economy points to the risk of reemergence of significant government payments arrears. While these might affect the banks directly, for example through non-payments on interest due on rescheduled government debt, the main effects are likely to be indirect, as suppliers and other government creditors default on bank debt, after not having been paid by the government. In such a scenario, particularly public enterprises and banks might suffer, as they would be less well prepared to cut relations with the government as a result of non-payment.

  • Foreign interest attracted to Gabon as a result of oil exploration might wane. This could include expatriate workers, which tend to be an important presence in the formal financial sector, as well as foreign institutions that have come to the country to provide specific services related to the oil economy. Financial institutions—while not directly lending to the oil sector—might be indirectly affected, and could reduce their business interests in the country as a result.

  • The decline in the oil industry, through public finances or other channels, may also lead to pressure on foreign reserves in the context of a fixed exchange rate regime, with the attendant effects on credibility and other indirect effects on financial sector stability.

D. Regulatory and Supervisory Risks

24. The COBAC is a successful supervisor with a recognized track record in analyzing banking sector problems and taking corrective measures in the case of failing institutions. Its supervisory effectiveness has first been assessed in the context of the 2000 Cameroon FSAP. Based on the results of this first assessment, the COBAC has proposed new draft regulations and made other changes to adapt its supervisory practices (Box 2).

25. The updated assessment of the COBAC’s compliance with the “Core Principles for Efficient Banking Supervision” undertaken in conjunction with the present FSAP for Gabon confirms a high degree of professionalism for the supervisor and a significant degree of compliance with the Core Principles.11 Notwithstanding the overall positive assessment, the review reveals the following concerns with possible effects for the Gabonese financial sector:

  • An overriding problem for the COBAC, impacting on its ability to comply with a number of core principles, relates to insufficient staffing of the institution. In the past, the lack of staff has contributed to weaknesses in off-site supervision. Unless adequately addressed, other improvements in the regulatory framework are not likely to lead to the desired outcome. The lack of resources should be addressed before the institution is given new tasks, such as, for example, the supervision of microfinance.

  • A weakness in the present supervisory framework relates to the insufficiently developed framework for off-site supervision that is only partially compensated by adjustments made during on-site inspections. In this area, the COBAC has recently started preparing draft regulation on internal and external audit. While these regulations are welcomed, there is a risk that, in the absence of a global increase in resources for the COBAC, the improvements in off-site supervision might be achieved at the cost of less stringent on-site control.

  • There is currently no specific control over market and foreign exchange risks. Given that Gabonese banks are internationally active and most engage in foreign exchange operations, risks in these areas exist. While a regulation of foreign exchange positions is planned in the near future, no specific plans exist yet regarding the regulation of market risk.

  • The required solvency ratio will increase stepwise from 2002 to 2004 from 5 to 8 percent, but even the new ratio will not make any allowance for operational risks. Such risks, as for example inefficiencies in Gabon’s judicial system, are prevalent and would suggest higher capital requirements than the minimum suggested by the Basel Committee. The production structure of the economy—which allows for little portfolio diversification—also increases the risk of shocks, with potentially significant negative effects on banks.

  • There are no regulations pertaining to money laundering and banks have not yet been given guidance with respect to identifying suspicious customers and transactions. As part of the licensing process, the COBAC is to verify the sources of funds for new banks, but this requirement falls short of supervising the operations of existing institutions. Inadequate attention to money laundering would leave the region open for potentially serious reputational risks. As a first step, the authorities have set up a working group to develop harmonized anti-money laundering legislation and regulations for the CEMAC region.

  • There is limited transparency of banks’ operations, given that they are not subject to well-defined disclosure requirements. The authority to require this currently rests with the BEAC, but should be transferred to the COBAC to allow the supervisor to regulate the information flow from banks to the public, which is part of the overall supervisory framework.

26. The main conclusions of the assessment of the IAIS Core Supervisory Principles are the following: 12

  • Insurance regulation is of high quality. However, several issues have been identified and should be addressed in the short to medium term. Most companies pertaining to the region of the Inter-African Conference of Insurance Markets (Conférence Interafricaine des Marches d’Assurances, CIMA) have limited retention capacity and have serious difficulties in respecting the regulation on coverage of policy liabilities. The CRCA should quickly be put in the position to supervise reinsurance activity while companies should be allowed to invest in liquid and tradable assets abroad. This should be tied to implementation of appropriate requirements on foreign exchange matching.

  • The effectiveness of insurance supervision in the region is limited because of an acute lack of resources in terms of budget, personnel, skills, and information technology, both at the CRCA and national (DNA) levels. This is compounded by problems of conflict of interests and excessive political pressure inherent to the specific composition of the CRCA and the Council’s technical committee. The CRCA should develop a more transparent and formal supervisory process with automatic triggers to impose sanctions. At the national level, the Gabonese DNA should abandon paper-based information and develop appropriate information technology to conduct off-site supervision. Finally, it should be authorized to supervise the commercial relationship between companies and brokers with the aim at reducing the occurrence of premium arrears.

E. The Legal and Regulatory Infrastructure

Legislative framework

27. Good progress has been made in putting in place a regional legislative and regulatory framework that is broadly appropriate for the establishment and operation of commercial banks, other financial institutions and insurance companies in Gabon. References to these frameworks and the observance of standards and principles for supervision of banks, financial institutions and insurance companies were made in the preceding section.

28. In addition, the OHADA Uniform Acts have replaced a number of fragmented laws in Gabon and now govern essential features of financial and commercial transactions and contracts. Issues identified with respect to this legislative framework are: (a) a limited knowledge and understanding of the OHADA Uniform Acts among concerned parties, compounded by an absence of dissemination and training; and (b) a lack of clarity in the definition of a number of terms and concepts used in several texts (e.g., the security law and the bankruptcy law).

Judicial system

29. Gabon faces deficiencies in its judicial system, enhancing risks and costs of doing business, including for the financial sector. The following are among numerous problems regularly aired in respect of the judicial sector: (i) the absence of specialized training in matters of commercial, banking and insurance law results in lack of magistrate expertise in adjudicating on these matters; (ii) permitted procedural measures, automatic rights of appeal and significant backlogs of cases in all courts create long delays, such that foreclosing on mortgages, for example, can take up to five years; (iii) lack of published jurisprudence and of learned commentary results in courts rendering inconsistent decisions in dealing with similar factual evidence, thereby bringing the law into disrepute; (iv) budgetary resources allocated to the judicial system are inadequate, resulting in poor infrastructure and working conditions; (v) as of July 2001, strikes in the courts of Gabon had been ongoing for four months resulting in the postponement of litigation and the registration of documents with Court Clerks in respect of secured interests; and (vi) allegations of favoritism and corruption are voiced throughout the public sector.

F. Financial Safety Nets and Crisis Management

30. Crisis management procedures for both liquidity and solvency crises in the CEMAC region seem adequate. However, with respect to solvency the COBAC follows a case-by-case approach with no fixed rules defined. The existence of such rules would increase the transparency of the process and protect supervisors from political interference.

31. With respect to liquidity, banks have, in addition to the regular refinancing from BEAC against collateral, access to additional funds from BEAC in a crisis situation (see also Section II). These arrangements are well documented and provide the BEAC with the possibility to support solvent but illiquid banks. Contact with the COBAC in such a case would ensure the solvency of the institution, as well as steps towards improvement in liquidity management in the bank in question to prevent reoccurrence of the liquidity problems.

32. There is at present no deposit insurance in the CEMAC region. A draft proposal has only been ratified by two countries. With significant banking sector problems continuing in at least one member country of the region, indications are that the introduction of the system will not proceed for a while.

33. Notwithstanding the absence of formal deposit insurance, the four liquidations of banks in Gabon since 1997 have not led to pronounced spillover effects to the remainder of the system. The authorities have usually moved swiftly to put banks in liquidation when the financial situation warranted it. BNCR, which was insolvent and had a large nonperforming portfolio, was put under liquidation in January 2002. However, authorities have not shown the same diligence in closing long-running liquidations (BGL, BPGC and BCCI).

34. Abstracting from a recent voluntary liquidation, and the liquidation of the housing bank (CREFOGA), all other liquidations implied some depositor losses. The procedure followed to compensate depositors—generally the smallest depositors were reimbursed in full while larger depositors were compensated out of recovered assets—seems adequate and it would appear to have contributed to minimizing the possibility of contagion to other banks. The effect of deposit losses for large depositors was also contained by the fact that these were generally not deposits of individuals, but most often of public enterprises.

V. Potential Longer-Term Risks and Necessary Supervisory Response

35. The notion that effectively functioning financial systems generate economic growth is now broadly accepted and supported by solid empirical research. In addition to the transfer of funds in exchange for goods, services and promises of future return, financial institutions (broadly defined) perform several key economic functions that contribute to long-term growth primarily by improving factor productivity. Increasing financial depth, therefore, is a desirable objective. At the same time, it should be recognized that financial growth strategies could carry the seeds for future instability. Adequate forward-looking supervisory action is needed to provide the appropriate prudential framework for durable growth.

36. One of the major problems of commercial banks in Gabon is the shallowness of the market and their difficulty to expand domestically. This prevents adequate risk diversification within the current market framework and could pose problems over time for financial sector stability if banks were to pursue excessively risky growth strategies. Two avenues for expansion are open to the banks: (a) diversifying domestically by entering into unserved markets; and (b) proceeding with cross-border expansion. Two banks have given some weight to the first approach by spinning off subsidiaries. But, like their parents, these subsidiaries to date focus on selected segments of the population. Other banks have developed debit cards to give access to some limited financial services to a larger part of the population. Three banks either have expanded, or are in the process of expanding, outside Gabon while remaining within the CEMAC region. An alternative to opening a subsidiary abroad is to syndicate loans with foreign banks. These trends should be closely followed by supervisory authorities.

37. The payments system does not by itself pose any systemic risk owing to its small size and the reliance on cash transactions, despite the antiquated clearing system. However, in its present stage it imposes large inefficiency costs on the economy and requires urgent modernization. BEAC has taken the lead in developing a new architecture based on three main pillars: (a) a settlement system in real time (RTGS) for large transactions; (b) a teleclearing system for mass payments; and (c) the development of debit and credit cards. The full implementation of the new payments architecture should greatly improve the efficiency of national and regional banking operations.

38. The insurance sector in Gabon is small and of shallow penetration yet constrained in growth by the overall size of the market. It is essentially linked to economic activity directly or indirectly related to the oil industry, a factor that introduces a long-term risk for the viability of the insurance sector. The insurance market, however, represented only about 7.1 percent of total financial assets in 1999 and it does not constitute a cause of systemic risk to the rest of the financial system.13

39. Nevertheless, long-term stability of insurance activity would be elusive if the prudential and operating framework of insurance companies did not allow for improved viability, including through: (i) updating the CIMA code to authorize the supervisory authority to monitor the reinsurance activity of companies; (ii) increasing profitability; (iii) allowing a portion of the reserves, with a ceiling of, say, 20 percent, to be held outside the CIMA region, provided that companies engage in adequate currency matching; and (iv) improve companies’ lax recovery practices for premium arrears and poor services provided by local brokers.

40. Pensions are embedded in the social security system in Gabon, which is at present experiencing serious financial difficulties and is in need of reform. The present approach is a “pay-as-you-go” system, which does not contribute to long-term savings, and could pose a long-term threat to financial sector stability through deteriorating public finances. A comprehensive reform towards a fully funded system based on defined contributions and accompanied by prudential supervision and oversight would be needed to overcome the current shortcomings and assure stability in the growth process.

41. A feasibility study for a regional financial market conducted in 1999 concluded that a stock exchange encompassing all six CEMAC countries would be viable after five years.14 However, no unanimous agreement was reached on the location of the exchange, even though five countries favored locating the exchange in Libreville. Since then another CEMAC member has set up its own exchange, which could attract a large part of the business in the region. Legitimate concerns arise on the viability of any exchange in the CEMAC region that 13 Only four non-life insurance companies and two life companies comprise the sector, with total market penetration of just 1.3 percent, of which only 0.18 corresponds to life insurance, i.e., could be counted as long-term savings. The market has two leaders (AXA and OGAR), which are also the only two companies selling life insurance. While this translates into a high level of market concentration, the small population and reduced (and concentrated) economic activity are not deemed capable of sustaining more insurance companies in Gabon, does not include all six countries, jeopardizing stable growth in this segment of the financial sector.

Section II. Financial Sector Summary Assessments

  • This section contains the summary assessments of the standards and codes that were performed in the context of the Gabon FSAP. The standards that were assessed were (i) the Basel Core Principles for Effective Banking Supervision (BCP); (ii) the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies (MFP Transparency Code); and (iii) IAIS Core Principles for Insurance Supervision (ICP). These assessments were used in the formulation of the overall assessments of financial stability.

  • The assessments were prepared by Alain Laurin (World Bank) and Marcel Maes (formerly Belgian Banking Commission)—Basel Core Principles for Effective Banking Supervision ; Gregorio Impavido (World Bank)—IAIS Core Principles for Insurance Supervision, and MFP Transparency—Insurance Supervision; and Karl Driessen (IMF)—MFP Transparency Code, on the basis of information provided by the authorities and subsequent discussion.

  • Since Gabon belongs to regional organizations that are responsible for monetary policy (BEAC), banking supervision (COBAC), and insurance supervision (CRCA), the assessments evaluated the practices of these agencies as they apply to Gabon. Overall, the transparency practices are observed to satisfactory degree, however, the authorities recognize there is room for improvement, and are working to upgrade practices in most areas in which shortcomings were observed.

I. Core Principles for Effective Banking Supervision

A. General

42. This assessment of the adherence of prudential and banking supervisory standards applicable in Gabon to the Twenty-Five Core Principles for Effective Banking Supervision established by the Basel Committee was carried out from February 7 to 17, 2000 and updated in May-June 2001. It falls within the framework of Financial Sector Assessment Program jointly conducted by the International Monetary Fund and the World Bank. The Central African Banking Commission (COBAC) and its Secretariat General (SGCB) were the main counterparty agencies for this assessment.

43. The assessment is primarily based on published laws and regulations, as well as information obtained in discussions with banking supervisors and COBAC commissioners. It is important to note that the mission also had access to all information, internal memoranda, inspection reports and manuals of procedures, with no restrictions whatsoever, under the terms of professional confidentiality to which SGCB agents are bound. The Secretary General of COBAC and his collaborators expressed their views in a spirit of openness and transparency, which, by all accounts, allowed the mission to examine the entire nexus of problems faced by COBAC and its secretariat.

44. The assessment of compliance with each of the Core Principles follows a qualitative approach. The assessment method consists of examining the degree of compliance with each of a principle’s relevant criteria.

45. The legal and regulatory framework and the actual implementation of banking controls appear to comply, either specifically or on the whole, with the Core Principles. The COBAC instituted a program to modernize the supervisory system after the first appraisal mission. Several regulations were amended at this time, including regulations on creditworthiness and exposure diversification. Among regulations currently in the pipeline, the draft regulations on internal controls and the role of auditors are of particular interest. Actual implementation of these two regulations will clearly have a positive effect on the internal operations of banks and thereby on the security of bank transactions within CEMAC. However, given the delays in implementing these regulations, it should be emphasized that the current assessment does not exclusively reflect major efforts to modernize the supervisory system. Notwithstanding the difficulty of implementing the regulation on internal controls, both for banks and for supervisors, particularly insofar as SGCB staffing has not been upgraded as much as needed, it is clear that SGCB and COBAC will endeavor to verify actual implementation of this regulation with their customary rigor. All things considered, a future updating of this report, for example in connection with an FSAP for another member country of CEMAC, should logically reflect full compliance with several principles.

B. Institutional Setting—Overview

46. COBAC is the institution responsible for prudential supervision of banks, based on on-site and off-site controls, and is also charged with defining the regulatory framework. Established in 1992 at a time when many banking systems in the subregion were in deep crisis, COBAC was handed most of the responsibilities earlier held by governments, whose role was thus significantly reduced. Although COBAC is an independent institution in the legal sense, its secretariat has almost no administrative autonomy. Indeed, the Bank of Central African States (BEAC) provides all of COBAC’s physical resources, a situation which has not proven favorable to COBAC insofar as its current staffing is inadequate to meet the scope of its mission.

C. Main Findings

47. The most striking weaknesses of the supervisory system relate to off-site controls, which are insufficiently developed, and human resources, which are in a state of decline in relation to COBAC’s needs. Inadequate staffing, a persistent problem for several years despite a recent build-up, is likely to undercut the effectiveness of the supervisory system, particularly insofar as reforms that are now being introduced (internal bank ratings, regulations on internal controls and auditors, etc.) will require more intensive monitoring by supervisors.

48. Despite the progress yet to be made in order to raise the quality of the supervisory system to the level required for full compliance with the Basel standards, COBAC and its secretariat (SGCB) possess a number of strengths. First, their staff is well qualified and their management team is eager to modernize the supervisory system in accordance with international standards and follow the example of the best practices in effect in other jurisdictions. Second, COBAC is a respected institution that is capable, as a result of its supranational status, of resisting pressures to which the Union’s individual member countries maybe subjected.

49. The banking crises that have plagued many countries of the subregion in recent years have had the effect of absorbing a major share of SGCB’s resources and attention. Despite the extra efforts required to manage these crises, SGCB has attempted to modernize its oversight tools and the regulatory framework. Thus, SGCB has upgraded the information system that banks must follow, has instituted internal bank ratings and has succeeded in shortening the interval of routine, on-site audits to two years. However, the additional staffing recently approved by the Bank of Central African States (BEAC) remains inadequate for maintaining the quality of oversight of banking organizations alone. It is quite obvious that SGCB staffing needs to be further strengthened if COBAC’s scope of responsibilities is to include, on an ongoing basis, oversight of microfinance activities (see below).

50. Implementation of the regulations on internal controls and auditors, as well as the plan to publish the ratings assigned to banks, will place heightened responsibilities on SGCB. First of all, these initiatives will significantly increase the workload of supervisors, particularly in view of the numerous actions that banks must accomplish in order to comply with the very stringent regulation on internal controls. In addition, the greater involvement of auditors in the supervisory system will require closer and more frequent contact with this profession. Finally, publishing the banks’ ratings and making the supervisors’ work more transparent will require that SGCB and COBAC formalize their analyses and decision-making process. If greater transparency - in itself a laudable objective - is not accompanied by efforts to streamline internal procedures, then the credibility and even the impartiality of COBAC’s decisions could be called into question.

Objectives, Autonomy, Powers, and Resources (CPI 1)

51. Regarding clear responsibilities and objectives of bank supervision agencies (CP 1.1), the laws and regulations are satisfactory in this regard. Nevertheless, there is no mechanism for periodically assessing the way in which COBAC and SGCB carry out their activities, to provide an independent judgment of the quality of oversight and the adequacy of resources.

52. Despite the recent staff build-up, the inadequate material resources available to COBAC are likely to compromise efforts to meet the objectives assigned to banking supervisors, hence not meeting principle 1.2 of “adequate resources”. This situation is likely to deteriorate further as new responsibilities in the area of oversight over microfinance activities are handed to COBAC.

Licensing and Structure (CPs 2–5)

53. Some institutions that specialize in microfinance activities collect deposits without receiving a license (CP 2). The laws and current practices are consistent with the requirements of CP 3, except with respect to the licensing of members of boards of directors, and processing delays. Beyond the regulatory dimension, it can be strongly argued that COBAC does not pay sufficient attention to how institutions are governed. It is regrettable that the composition of a bank’s board of directors and the presence of independent board members should be considered as secondary matters. Nevertheless, the regulations on internal controls, which will involve profound changes in the internal operations of banks, should go a long way toward rectifying these weaknesses.

Prudential Regulations and Requirements (CPs 6–15)

54. On the whole, the prudential system of risk coverage has been substantially improved and the new regulation should have the effect of strengthening the capital adequacy of banks (CP 6). In addition, the weightings that have been assigned are intended to more accurately reflect the scope of the risks faced by banking organizations, based on the quality of the bank’s counterparts and the nature of its operations. Also, a prudent decision was made to retain a weighting of the public debt that takes into account the macroeconomic position of member countries, as well as differentiation of the risks facing banking organizations based on their internal ratings. However, time limits imposed on banks for compliance with the new capital rules are relatively long. It can also be argued that the capital ratio level is insufficient in view of the broad range of risks that banks face, including operational risk, and risk of concentration (“granularity”).

55. There is a lack of required formalization of loan distribution and monitoring practices and procedures (CP 7), which is only partially offset by the on-site work of inspectors. Given COBAC’s limited resources and the resulting insufficient frequency of inspections, it would be prudent to correct this deficiency, which should happen through enforcement of the regulation on internal controls. Yet verifying implementation of the regulation on controls will significantly increase the workload of SGCB, whose staff is already stretched thin.

56. COBAC has reduced the maximum limit for risk concentration (CP 9) from 75 percent to 45 percent, and has made transparent the conditions under which COBAC may grant exemptions. Although the regulations in effect deviate somewhat from international practices in this area, it should be recognized that, in the case of CEMAC banking systems, excessive concentration of exposures is simply a reflection of insufficiently diversified economies.

57. Draft regulations on internal controls are not sufficiently specific about the need for loans to related parties (CP 10) to be granted only at arm’s-length with respect to interest rate terms.

58. SGCB is of the opinion that it is not necessary to develop a specific system that focuses on market risks (CP 12), since banks are not exposed to market risk at this point. However, in the view of the assessors, regulations on internal controls should be sufficient to effectively address all banking risks to which banks operating in the CEMAC countries are exposed, including foreign exchange risk.

59. Given the high levels of operational and macroeconomic risk, against which it is currently not required to hold capital (CP 13), and in the absence of any mechanism for accurately calculating the risks that result from operational risk (fraud, weak management, judicial rulings, etc.), prudence would suggest that the capital ratio should be raised by several points over the standard of 8 percent which the Basel Committee views as a minimum.

60. The draft regulation on internal controls (CP 14) imposes very stringent requirements with respect to technical matters (measuring and monitoring of risks, security, information systems, etc.), business management (involvement of directors and managers) and relations with auditors and supervisors.

61. No laws or regulations have been enacted in the area of “know your customer” and money laundering (CP 15). No recommendations have been given to banks concerning accurate identification of their clients and any abnormal transactions, nor concerning statements they could make if they should become suspicious about the nature of transactions performed for clients.

Methods of Ongoing Supervision (CPs 16–20)

62. Most of COBAC’s resources are allocated to oversight of banks that are experiencing difficulties, hence its focus on on-site supervision. As a consequence, COBAC has not been able to develop off-site supervision of the same quality as its on-site supervision, nor a system to monitor comments or injunctions with the necessary intensity. COBAC has no programs or procedures for maintaining contact with bank management outside on-site supervision. The spacing of on-site supervisory missions and the deficiencies in ongoing supervision mean that COBAC is not always able to monitor developments in banking operations as they occur, particularly insofar as its jurisdiction encompasses a large geographic zone. Current practices in the area of collecting, reviewing and analyzing prudential reports and statistical returns are good, particularly in the wake of recent improvements in the banks’ reporting system. In addition, COBAC has tightened its approach toward institutions that submit their data late, and is quick to impose monetary sanctions. Currently, COBAC does not rely on external auditors to validate supervisory information. However, SGCB has developed a specific draft regulation on the activities of external auditors in order to increase their contribution to the supervisory system.

Information Requirement (CP 21)

63. Current weaknesses on obtaining a true and fair view of the financial condition of the bank are being addressed in new draft regulations, principally by increasing the role of external auditors in this regard. COBAC has no role in setting banks’ publishing requirements. As a result, banks publish information that is inconsistent and that fails to meet international standards.

64. This is all the more necessary because banks may have a tendency to build up minimum provisions whereas the actual circumstances of their debtors might justify additional efforts.

Formal Powers of Supervisors (CP 22)

65. Although the regulations are in general compliance with the requirements of Principle 22, in practice, however, COBAC has been lenient in situations where an institution’s financial condition or management methods might have justified more vigorous action, particularly in the event of repeated or even intentional violations of laws and regulations and basic professional standards. In addition, COBAC does not always take timely action in imposing necessary corrective steps; the deadlines set for corrective action by COBAC may appear excessively long.

Cross-Border Banking (CPs 23–25)

66. Most principles in these areas are not applicable. However, COBAC intends to conclude agreements with supervisory authorities of other countries that are similar to the one signed with France.

Medium-term challenges

67. Among the main medium-term challenges, the following can be highlighted:

  • SGCB’s staffing resources are inadequate. Even though the restructuring of banking systems is well under way, this should not be an argument for refusing to upgrade SGCB personnel, thereby compromising the preventive mission on which COBAC must now concentrate. Approval and subsequent implementation of several regulations of a qualitative nature over the coming months (internal controls, auditors, etc.) will make it necessary to strengthen both the controls themselves and the monitoring of controls. In particular, it will be advisable for SGCB to focus its efforts on strengthening ongoing off-site supervision.

  • COBAC’s authority is likely to be extended to include oversight of certain microfinance institutions in the subregion. In light of the staffing problem mentioned above, it is of critical importance that COBAC not be weakened by having the scope of its activities expanded without the necessary additional resources being allocated.

  • While reducing the interval for on-site audits (two years instead of three) is laudatory, COBAC should make every effort, given its limited resources, to tailor its on-site audits more effectively to the risk profile of banks. Progress in the area of internal controls and better cooperation with auditors should translate into gains in productivity.

  • Achieving greater market discipline requires that COBAC pursue a policy of gradual tightening of controls over entities in breach of the regulations, after an initial period of educational outreach. The decision to publicize COBAC’s rulings as widely as possible is highly commendable, especially insofar as few countries around the world have taken the initiative to provide detailed information on subjects deemed sensitive.

D. Recommended Next Steps

68. Table 6 summarizes some of the principal recommendations that would increase compliance with the Basel Core Principles.

Table 6.

Recommended Action Plan to Improve Compliance of the Basel Core Principles

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E. Authorities’ Response

69. The authorities were in broad agreement with the assessment. Some of the shortcomings the assessors had found were based on the fact that although new regulations had been adopted, they were still in implementation phase. It was hoped that at a future date these principles would receive a more favorable evaluation. They noted they had recently adopted several measures that materially addressed other important issues raised in the assessment, which would increase compliance with the Core Principles.

II. Code of Good Practices on Transparency in Monetary and Financial Policies

A. Banking Supervision


70. This assessment of the transparency practices in the area of banking supervision was performed in the context of the FSAP for Gabon. It is based on an earlier assessment performed in the context of the Cameroon FSAP (February/March 2000), and on discussions with the authorities. The assessment was based on the Code of Good Practices on Transparency in Monetary and Financial Policies (MFP Transparency Code).

Institutional and market structure—overview

71. The regional banking commission COBAC (Commission bancaire de I’ Afrique centrale) is one of the principal institutions of the Central African Economic and Monetary Community (CEMAC—Communauté Economique et Monétaire de l’ Afrique Centrale), which was established by treaty in 1998. COBAC was created in 1990 by moving and strengthening the banking supervision functions performed until that time by the central bank BEAC; it is currently located in Yaoundé (Cameroon), but its move to Libreville (Gabon) has been approved. The main regulatory authority is contained in a 1992 convention harmonizing bank regulation in the region. There are over 30 active banks under COBAC’s jurisdiction, operating in six countries. In addition, COBAC is involved in the liquidation of several banks.

Main findings—summary

72. For the four broad areas covered in the Code of Good Practices on Transparency in Monetary and Financial Policies (clarity of roles, responsibilities, and objectives; the process for formulating and reporting of policy decisions; public availability of information; and accountability and assurances of integrity), COBAC overall demonstrates a fairly high degree of transparency. Since the MFPT assessment performed in the context of the Cameroon FSAP, COBAC has continued extensive consultation with the financial profession on proposed regulations; in addition, the Secretary General is now also invited to participate in meetings of Heads of State.

73. Clarity of roles, responsibilities and objectives: The roles, responsibilities and objectives of the COBAC are clearly defined in its founding convention. Paramount is the task of ensuring that credit institutions observe the relevant legislative and regulatory provisions, and applying the relevant penalties for nonobservance. In addition, the COBAC oversees the operating conditions for credit institutions, their financial soundness, and the code of ethics for the industry. In addition, the relationships with associated agencies—the central bank and national authorities—is clear.

74. Open process for formulating and reporting of policies: Similarly, COBAC has an open process for formulating and reporting financial policy decisions. The current practice of organizing consultations prior to substantive technical changes in the structure of financial regulations, which has been used among others to develop new licensing, capitalization and provisions regulations, could be formalized.

75. Public availability of information on financial policies: COBAC has an appropriate range of publications. However, some of these publications have been issued with lengthy delays, and thus have not been very useful as a means of providing the public with timely information. To avoid unnecessary delays, COBAC should establish firm deadlines for its bulletin and annual report. The upcoming move to new headquarters could provide an opportunity to improve its public information services. Also, the prompt introduction of its internet site, envisaged to be hosted by the BEAC, has the potential to upgrade transparency practices greatly.

76. Accountability and assurances of integrity by financial agencies: COBAC displays overall observance of the Code with regard to accountability and public assurances of integrity. Its president, who is also Governor of the BEAC, is accountable to the Board of Directors of BEAC and the Council of Ministers of the CEMAC. Codes of conduct regarding financial affairs of staffs are made public. COBAC currently does not maintain separate accounts from BEAC.

77. The medium-term challenges for transparency hinge crucially on harnessing the efficiency of internet technology in the distribution of information, given the telecommunications and budget constraints of the region. Also, the COBAC is well-positioned to play an exemplary role in the area of transparency, thus furthering good corporate governance practices in the region, in particular with respect to financial institutions.

Recommended next steps

78. Recommended next steps include the following: (i) practice 6.4: to formalize the current consultation procedure; (ii) practice 7.3: COBAC could ask liquidators to disclose publicly the results of their operations on an annual basis; practice 7.4: the COBAC budget should provide for ongoing public information services; practice 7.5: to make regulatory texts available to the public on the Internet, to minimize lags and keep down costs.

Authorities’ response

79. The authorities were in broad agreement with the assessment, and were conscious of the unfinished agenda ahead. Specifically, COBAC argued that although they did not dispose of a separate public information service (practice 7.4), they were able to address all requests for information from the public in an adequate manner, and that the practice was observed.

B. Monetary Policy


80. This assessment of the transparency practices in the area of monetary policy was performed in the context of the FSAP for Gabon. It is based on an earlier assessment performed in the context of the Cameroon FSAP (February/March 2000), and on discussions with the authorities. The assessment was based on the Code of Good Practices on Transparency in Monetary and Financial Policies (MFP Transparency Code).

Legal framework, institutions, and market structure—overview

81. The regional central bank BEAC (Banque des Etats de l’ Afrique Centrale) is one of the principal institutions of the Central African Economic and Monetary Community (CEMAC—Communauté Economique et Monétaire de l’ Afrique Centrale), which was established by treaty ratified in 1999. A new charter for the BEAC was approved in 1999. Monetary policy, anchored by a fixed peg to the Euro, is conducted at a regional level, in which over 30 banks are active in six different countries.

Main findings—summary

82. Overall, monetary policy in the CEMAC is rather transparent—a situation that is to some extent the result of institutional arrangements prevailing in the economic and monetary union. Such arrangements would be impossible to implement to the satisfaction of all countries involved without a large degree of transparency. There has not been significant progress in the area of transparency practices since the assessment performed in the context of the Cameroon FSAP.

83. Clarity of roles, responsibilities and objectives: Objectives, institutional framework, relationship between monetary and fiscal operations, and agency roles are clearly defined in the charter of the BEAC and in the international treaties on the Central African Monetary Union. Transparency will be further enhanced by the decision that the Governor will be accountable to an inter-parliamentary commission, which will be established in 2004. However, internal rules that details how the BEAC contracts outside goods and services are not made public (Practice 1.2.4). The authorities could also consider developing the transparency practices underlying the soon-to-be-introduced government securities auctions.

84. Open process for formulating and reporting of policies: The monetary policy framework and decision making process are defined in broad terms in the charter of the BEAC. Policy changes are promptly communicated and clearly explained. Fundamental modifications are, in practice if not in law, preceded by consultations with the parties concerned. Progress has been made in explaining the monetary policy framework in the 1999/2000 annual report. However, there is a tendency to limit the communication of policy measures to affected parties, instead of to the public at large. The BEAC internet site is still under development, and its operation would substantially improve outreach. Publication of monetary policy procedures and practices (Practice 2.1.1) would further improve transparency in that area.

85. Public availability of information on financial policies: To improve the quality of data, the BEAC is implementing the GDDS. The BEAC has a broad range of publications as well as a network of local branches to inform the public. However, emergency assistance to clients (Practice 3.2.3)—if rare—is kept secret, even after any concerns for financial stability have dissipated. Also, some publications continue to suffer from long production delays; plans to separate research papers from the “Etudes et Statistiques” would allow the more time-sensitive statistics to be circulated more promptly.

86. Accountability and assurances of integrity by financial agencies: The Governor is accountable to the Board, the Interministerial Committee and the Heads of State of the CEMAC. Since last year, financial statements are audited by external auditors. Parts of the code of conduct for BEAC staff is published in the BEAC charter; a more detailed version remains an internal BEAC document, and could be considered for publication to enhance transparency in this domain.

Recommended next steps

87. Recommended next steps in the area of clarity of roles responsibilities and objectives include the publication of its internal regulations (practice 1.2.4), and assuring that the texts governing issues of government securities include best transparency practices (practice 1.3.2).

88. In the area of open process for formulating and reporting decisions, the recommendations include (i) to provide a brief assessment of progress toward achieving its monetary policy objectives in the monthly Bulletin (practice 2.4); (ii) to make public consultations obligatory for substantive changes (practice 2.5); and (iii) to broaden distribution of regulations (practice 2.6). The BEAC’s Internet site could be used for this purpose.

89. In the area of public availability of information, recommended next steps include (i) the publication of the BEAC chart of accounts (including accounting standards), with the exception of confidential sections (practice 3.2.1); (ii) to establish fixed dates for the publication of this information and adhere to them (practice 3.2.2); and (iii) to introduce regular information meetings with member states’ parliaments, emphasizing the close link between monetary and fiscal policy (practice 3.3.2).

90. Regarding accountability and assurances of integrity, the following recommendations and next steps are considered: (i) to publish internal regulations, with the exception of those parts that could impact the security of its operations (practice 4.2.2); (ii) under the new audit procedure, the overall financial position approved by the external auditors, as well as their opinion and relevant comments, are to be published in the annual report (practice 4.3); and (iii) publication of the standards and rules for the conduct of personal financial affairs of officials and staff would enhance the BEAC’s credibility by reassuring the public that officials and staff are subject to strict standards (practice 4.4).

Authorities’ response

91. The authorities were in broad agreement with the overall assessment, and were conscious of the unfinished agenda ahead. They indicated that transparency practices continued to be upgraded. On practice 2.1.1 (the procedures and practices governing monetary policy instruments and operations) the BEAC noted that the parties involved (banks) have access to these procedures and practices. However, the wider public did not; this would be reviewed in the context of the website of the BEAC. Regarding practice 2.5 (presumption of public consultations), the BEAC will consider formalizing the procedure in its charter. On practice 3.2.3 (aggregate information on emergency financial support), the BEAC indicated that the Board was informed of any emergency lending, but that the public was not informed in light of the sensitive nature of the operation. Regarding practice 3.3.2 (explanation of objective(s) and performance to the public): the BEAC noted in this context that the Governor also is asked to explain monetary policy implementation annually to the Heads of State.

C. Insurance Regulation and Supervision


92. This is an assessment of the observance of the Code of Good Practices on Transparency of Monetary and Financial Policies in the area of insurance supervision, undertaken as part of the Financial Sector Assessment Program (FSAP) mission for Gabon.

Institutional and market structure—overview

93. The CIMA Treaty governing insurance supervision in Gabon and other countries was signed by 14 countries.15 Among other bodies, the treaty instituted a Counsel of Insurance Ministers (CMA) with governing powers and policy-making responsibilities, a Regional Supervisory Commission (CRCA) with supervisory and regulatory responsibilities, and a Secretariat of the CRCA, the only permanent body of the CIMA. The CRCA publishes an annual report on market activity for the region as a whole, with individual country synopses. The Secretariat is staffed by a Secretary General, two deputies, and five inspectors.

94. hi the region, some 98 companies are licensed to operate and currently active.16 In 1999, life business represented 23 percent of total gross premium income (GPI) with non-life representing 77 percent.

Main findings—summary

95. For the four broad areas covered in the Code of Good Practices on Transparency in Monetary and Financial Policies (clarity of roles, responsibilities, and objectives; the process for formulating and reporting of policy decisions; public availability of information; and accountability and assurances of integrity), CRCA overall demonstrates a fairly high degree of transparency, certainly when contrasted with the small size of the organization. However, this does not translate automatically to insurance sector soundness, in part owing to serious staff shortages and reliance on national supervisory agencies.

96. Clarity of roles, responsibilities and objectives: The roles, responsibilities and objectives of the CRCA are clearly defined in the CIMA Treaty, and explained in publications that are widely accessible.

97. Open process for formulating and reporting of policies:: Similarly, the CRCA has an open process for formulating and reporting financial policy decisions. However, the current practice of organizing consultations prior to substantive technical changes in the structure of financial regulations could be formalized. Also, a more formal and transparent regulatory ladder linking regulatory stages with supervisory pressure would help organizing the work of the CRCA more effectively. Finally, the Secretariat should publish an annual report of all its activities, which focuses on inspections, types of violations, and sanctions imposed. Such a publication would not only improve transparency of its supervisory and regulatory activity, but it would also serve as a means for the CRCA to market its services to the industry and strengthen partnership between the supervisor and the supervised. This could be an abridged version of the activity reports currently prepared for the CMA.

98. Public availability of information on financial policies:: CRCA has a rather limited range of publications. However, the regional insurance association, FANAF, publishes all texts relevant for the insurance community and the public at large. The prompt introduction of an internet site—programmed for end-July—has the potential to upgrade transparency practices greatly. Audited financial statements, including a balance sheet and expenses and revenues, could be made public on a pre-announced schedule.

99. Accountability and assurances of integrity by financial agencies: CRCA displays overall observance of the Code with regard to accountability and public assurances of integrity. Its Secretary General is accountable to the Council of Ministers. Codes of conduct for staff are made public. However, financial statements, including on operating expenses and revenues, are currently not disclosed.

100. The medium-term challenges for transparency hinge crucially on harnessing the efficiency of internet technology in the distribution of information, given the telecommunications and budget constraints of the region. Also, as a multinational agency with a well-trained and professional staff, the CRCA is well positioned to play an exemplary role in the area of transparency, thus furthering good corporate governance practices in the region, in particular with respect to insurance companies.

Recommended next steps

101. Recommended next steps include (i) to publicly disclose the conventions and memoranda of understanding signed with other financial agencies (practice 6.1.5); (ii) to formalize the current consultation procedure (practice 6.2); (iii) to make public a summary of its semi-annual report to the CMA (practice 6.3); (iv) to publish its balance sheet on a pre-announced schedule (practice 7.3); (v) to publicly disclose its the audited financial statements (practice 8.2); to disclose information on accounting policies and any qualification to the financial statements (practice 8.2.1); and to disclose publicly information on operating expenses and revenues (practice 8.3).

Authorities’ response

102. The authorities were in broad agreement with the assessment, and would consider formalizing the consultation procedure. They also stood ready to disclose requested information upon request, to the extent confidentiality considerations permitted.

III. IAIS Core Principles

A. General

103. This is an assessment of the observance of the core supervision principles developed by the International Association of Insurance Supervisors (IAIS) undertaken as part of the Financial Sector Assessment Program (FSAP) mission for Gabon. This assessment is based in part on assessments previously prepared for the FSAP missions of Cameroon and Senegal.

B. Regional Market Structure—Overview

104. The Inter-African Conference of Insurance Markets (Conference Interafricaine des Marchés d’Assurances, CIMA) region comprises 14 countries in Africa (see footnote 15). Although the CIMA Treaty was signed by 14 countries, the Republic of Comores has not yet ratified it. Hence, supervision is carried out on the remaining 13 countries only. In the region some 98 companies are licensed to operate and currently active.17 The CIMA publishes an annual report on market activity for the region as a whole and with individual country synopsis. In this section data from the year 2000 report are summarized.

105. In 1999, life business represented 23 percent of total gross premium income (GPI) with non-life 77 percent. Activity is not evenly distributed among the 14 countries: life insurance accounts for more than 10 percent of GPI in only four countries: Côte d’Ivoire (40 percent), Cameroon (16 percent), Gabon (13 percent), and Senegal (12 percent).

106. Table 7 reports summary statistics of the structure and penetration of insurance activity in the region.

Table 7.

CIMA Insurance Market Structure and Penetration

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Source: CIMA.

107. When this table was prepared, figures for Cote d’lvoire and Cameroon were flagged as partially complete.

108. Figure 1 reports the distribution of insurance activity (life and non-life) by line of business. The four largest lines of business (accounting for 72 percent of total 1999 GPI) are: car, personal accidents, fire, and term life.

Figure 1.
Figure 1.

Insurance Lines of Business, Share of GPI (1999)

Citation: IMF Staff Country Reports 2002, 098; 10.5089/9781451813920.002.A001

Source: CIMA.

109. The vast majority of companies are in precarious financial conditions. The most important problems related to the adequate coverage of liabilities, whilst a few companies do not pass the solvency test. For the region as a whole, reserve adequacy has increased in the last years: a coverage deficit of 0.2 percent was reported in 1999, down from 8 percent in 1998, 14 percent in 1997, and 18 percent in 1996. For the region as a whole, the capital base used in the solvency margin was 270 percent of the minimum solvency margin. However, concentration is very high, and the CRCA has 80 percent of all companies under a rehabilitation plan, i.e., companies that have had either a deficit in the coverage of liabilities or did not pass the solvency test.

C. General Preconditions for Effective Insurance Supervision

110. A successful insurance market requires strong enforceable legal rights, low inflation (unless indexed assets are available), and wide and liquid investment markets.

111. The principal responsibility of the supervisory authority is to ensure the financial solvency of the companies operating within the jurisdiction. The process of supervision should include a heavy emphasis on disclosure of information. In all countries, the consumer of insurance is at a considerable disadvantage vis-à-vis the insurance company, since the company can and does request a considerable amount of information from the applicant for insurance, while the consumer often has a difficult time in gathering useful information about the financial condition and claims-handling practices of the insurance companies. It is also the work of the supervisor to remove or at least minimize this information gap. Additional responsibilities of the supervisory authority are to promote public and international confidence in the quality and soundness of financial institutions, and enabling insurers to fulfill their role in the spreading of risk, thereby protecting invested capital and facilitating the growth of businesses, as well as providing the public with high quality investment vehicles and life insurance for estate planning and other purposes.

112. Several preconditions are needed for effective supervision and growth of the private sector insurance market. In order to play its economic and financial role, the insurance sector requires a framework of stable and liberal regulation that provides adequate incentives for efficiency and allows individual companies to innovate. Insurance regulation must aim at creating a contestable market that is open to new entry by qualified companies and facilitates the exit of insolvent firms. It must also aim at safeguarding the stability of the sector and the solvency of individual companies and at protecting the interests of policyholders. A strong and consistent legal framework is needed for effective supervision; a stable macroeconomic environment and the existence of strong governance mechanisms promote the development of the industry and the confidence of business. Ultimately, the growth in per-capita income and an improvement in a more even income distribution are major determinants of the growth of insurance demand in all countries.

113. These preconditions are not all met in the CIMA region. Although the CMA Code is an excellent piece of legislation, the effectiveness of supervision is seriously limited mainly for the following reasons: (i) the CIMA Secretariat suffers from acute shortage of resources (both financial and human capital); (ii) the membership of the CRCA includes CICA-Re, which has shares in many insurance companies—this creates a situation of potential conflict of interest; (iii) the annual frequency of financial reporting from companies to the supervisory authority does not allow for the conduct of effective off-site supervision; (iv) information disclosure to consumers is also limited as national insurance federations are not active in the development of standards for market conduct. Although the activity of supervision is aimed at ensuring consumer protection, local DNAs do not have an office dealing with consumers’ complaints. In practice complaints can be addressed to and are processed by local DNAs but no dedicated regulation governs this activity. This is of high important for the CIMA region, as insurance culture is not developed.

D. Main Findings

114. The introduction of the CIMA Code has required many companies to adapt their affairs to comply with the new regulation. Changes haven’t been gradual and many companies have exited the market. After more than five years companies are still in a “transition phase” and many companies do not yet comply with regulation on the coverage of policy obligation. A few companies do not meet the new solvency margin. Higher capital requirements have been introduced and existing companies were given a “grace” period of three years to comply. As meanwhile most of the companies have gone through a recapitalization plan because of serious solvency problems, it is safe to say that very few companies do not meet the new minimum capital requirements.

115. Regulation is of high standards although important deficiencies have been found, notably in the area of reinsurance and prudential rules (mainly investment regulations). The effectiveness of supervision is limited due to acute shortage of resources (both financial and human capital) and because of some conflict of interest inherent to the particular membership structure of the CRCA. Table 8 summarizes the main findings of this assessment.

Table 8.

Summary of Main Findings of Assessment of Observance of the IAIS Insurance Supervisory Principles

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E. Recommended Next Steps

116. The following are some of the principal recommended actions to be taken in order to increase compliance with the IAIS core supervisory principles.

  • Regarding the organization of an insurance supervisor (CP 1): (i) redesign the membership structure of the expert committee and CRCA to eliminate situations of conflict of interests and increase CRCA’s independence from political influence; (ii) increase CRCA’s budget; (iii) explore alternative source of funding for the regional supervisor and resolve the issue of outstanding balances; and (iv) introduce a formal legal protection scheme for CRCA staff.

  • Regarding licensing and changes in control (CPs 2–3): (i) abolish the multi-license requirement to operate in more than one country in the region; (ii) require local DNAs to control the source of funds in the licensing process; (iii) harmonize the regulation on licensing and changes in controls as far as fit and proper test of owners is concerned; and (iv) relax the two month period limitation for processing a license application.

  • Regarding corporate governance (CP 4): (i) consider requiring companies to use independent advisors; and (ii) consider requiring companies to hire internal comptrollers with reporting duties to directors and supervisory authorities.

  • Regarding internal controls (CP 5): consider requiring the production and use of “manuels de procédure”.

  • Regarding prudential rules (CPs 6 - 10): (i) introduce maturity matching requirements between assets and liabilities; (ii) allow companies to freely market products in foreign currency; (iii) allow companies to cover liabilities with foreign (non CIMA region) assets; (iv) assure that technical provisions prudently reflect the present actuarial evaluations of future risk covered minus future premiums; (v) abolish compulsory cession requirements; (vi) authorize the CRCA to supervise reinsurance companies; (vii) authorize the CRCA to supervise the reinsurance activity of companies; and (viii) develop standards for screening foreign reinsurance companies.

  • Regarding market conduct (CP 11): (i) require local DNAs to monitor commercial relations between companies and brokers with the aim of reducing premium arrears; and (ii) give consideration to developing of market conduct codes by local federations.

  • Regarding monitoring, inspection and sanctions (CPs 12 - 14): (i) increase frequency of financial reporting; (ii) give consideration to developing a more formal regulatory ladder and a more detailed inspection manual; (iii) introduce automatic triggers for the imposition of sanctions; and (iv) develop a manual for the imposition of monetary sanctions.

F. Authorities’ Response

117. The regional authorities were satisfied with the general assessment as well as specific recommendations made.


The analysis in the report is for the most part based on data for end-2000 or February 2001, the latest data made available by the authorities. Information on important structural developments and on the recapitalization of a bank previously below minimum capital is reflected in the report.


At the time of the mission, one bank (BNCR) was under interim administration. It is currently under liquidation. Since this report discusses the 2000-01 situation, statistics include the BNCR as a state-owned bank.


For the purpose of the analysis, non-performing loans are defined as guaranteed and non–guaranteed loans for which payment has not been made for a 90 day period, and correspond to the COBAC’s classifications of créances douteuses, litigieuses et contentieuses.


One bank currently has NPLs in the range of 23 percent of total assets; however, part of these was acquired at a discount from a failed institution.


The capital adequacy ratio of one bank was below 5 percent, and of another bank below 8 percent; these banks subsequently increased their capital to around 8 percent.


Although the oil sector plays an important role in the Gabonese economy, there are few direct linkages with the financial sector, since production and exploration are financed from abroad. Indirect effects in the medium term, through sustained oil revenue declines, are discussed in Section IV.C.


Stress tests are conducted to simulate possible shocks, but they are not meant to be forecasts. The interest rate stress test quantifies the potential loss (or gain) banks may face on the present value of their interest sensitive assets and liabilities because of an increase (or decrease) in the prevailing interest rate as a result of their inability to re–price assets and liabilities instantaneously.


There are no prudential regulations limiting open positions. However, banks are only permitted to hold foreign exchange balances for current operations on behalf of clientele. The calculations of the net open position are based on the on–balance sheet exposures only.


In a forthcoming IMF study on financial sector consolidation covering 105 countries, the mean three–bank concentration ratio was found to be 51 percent (of assets). The top three banks had a market share of greater than 80 percent of assets in less than 10 countries.


In contrast to other countries in the region, liquidations of banks in Gabon did imply some depositor losses.


See Section II.I for a Financial Sector Summary Assessment of the Basel Core Principles.


Only four non–life insurance companies and two life companies comprise the sector, with total market penetration of just 1.3 percent, of which only 0.18 corresponds to life insurance, i.e., could be counted as long–term savings. The market has two leaders (AXA and OGAR), which are also the only two companies selling life insurance. While this translates into a high level of market concentration, the small population and reduced (and concentrated) economic activity are not deemed capable of sustaining more insurance companies in Gabon.


Questions, however, remain with respect to the fulfillment of minimum preconditions for well–functioning securities markets (including a transparent and fair environment, well–developed accounting, auditing and disclosure standards, corporate rights including rights of minority shareholders vis à vis management and majority shareholders, and the efficient enforcement of these rights).


These are: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, the Comoros, Congo, Côte d’lvoire, Equitorial Guinea, Gabon, Mali, Niger, Senegal, and Togo. Although the CIMA Treaty was signed by 14 countries, the Comoros has not yet ratified it. Hence, supervision is carried out on the remaining 13 countries only.


The license is withdrawn if a company is not active for at least one year.


A license is withdrawn if a company is not active for at least one year.

Gabon: Financial System Stability Assessment, Including Reports on the Observance of Standards and Codes on the following topics: Monetary and Financial Policy Transparency, Banking Supervision, and Insurance Regulation
Author: International Monetary Fund