Alexander, William, Tomas Balino, and Charles Enoch, 1995, “The Adoption of Monetary Instruments of Monetary Policy,” IMF Occasional Paper 126 (Washington: International Monetary Fund).
Daumont, R, F. Le Gall, and F. Leroux, 2004, “Banking in Sub-Saharan Africa: What Went Wrong?” IMF Working Paper 04/55 (Washington: International Monetary Fund).
Holden, Paul, and Vassili Prokopenko, 2001, Financial Development and Poverty alleviation: Issues and Policy Implications for Developing and Transition Countries, IMF Working Paper 01/160 (Washington: International Monetary Fund).
Levine Ross, Norman Loayza, and Thorsten Beck, 2000, “Financial Intermediation and Growth: Causality and Causes,” Journal of Monetary Economics, No 46, pp. 31–77.
Prepared by Jakob Christensen and Felix Fischer.
See Holden and Prokopenko (2001) for a review of the literature on the links between financial sector growth, economic growth, and poverty reduction. See also Levine et al. (2000) for an econometric analysis showing the positive link between financial intermediation and growth. The study also confirms that legal and accounting reforms that strengthen creditor rights, contract enforcement, and accounting practices can boost financial development and accelerate growth.
Private oil companies only rely on the domestic banking system to a limited extent. However, given that their production is included in GDP, measures of financial development that are standardized by GDP tend to be lower than in non-oil exporting developing countries. Therefore, in the analysis below, ratios to non-oil GDP are used for comparison with other non-oil producing countries.
Private sector lending in the CEMAC region may be limited because its member countries have smaller private sectors than other African countries. However, the lack of data, particularly on public enterprises, hinders a careful assessment of this issue. One can approximate CEMAC’s private sector lending by comparing its ratio of total expenditures (excluding interest payments) to GDP. According to this measure (which ranges from 11 percent of GDP in the Central African Republic to 21 percent of GDP in Equatorial Guinea), the public sectors of CEMAC countries are actually smaller than the average of 22 percent of GDP for sub-Saharan Africa.
For example, after the oil price plummeted to $10 per barrel in 1997, government deposits in the banking system dropped to 1 percent of GDP in 1997 from an average of 2.5 percent of GDP in the early 1990s.
In 2000, COBAC introduced a CAMEL rating system for commercial banks, under which the Sysco rating, a bank’s capital counts for 30 percent, the quality of its portfolio for 20 percent, the quality of management and internal control for 20 percent, earnings for 10 percent, and liquidity for 20 percent. Banks are consequently divided, by rating, into four groups. A rating of one stands for solid banks; a two rating for banks with a good financial situation; three for fragile banks; and four for banks that are in a critical state.
Since the application of regulations for microfinance adopted in April 2002, COBAC has conducted three evaluation missions to assess the active MFIs in Congo (February-June 2003), Central African Republic (March-May 2004), and Chad (November 2004-February 2005). Similar evaluation missions will be conducted in Cameroon, Gabon, and Equatorial Guinea starting in March 2005. Furthermore, each member state has set up a professional association for MFIs and a department for microfinance issues within the ministry of finance.
COBAC indicated that current shareholders of banks were not willing to inject new capital into them. Given the absence of capital markets, further capital increases need to be made at the rhythm of retained profits. The Basel Accord recommends a minimum of 12 percent for countries with a higher risk profile.