Announcement puts the DRC in line with
Central Banks in developed markets, which are governed by the Basel Committee
on Banking Supervision
KINSHASA, Dem. Rep. of Congo (DRC)
June 9, 2015/ -- At a press
conference held in Kinshasa, Mr. Jules Bondombe Assango, Vice Governor of the
Central Bank of the Democratic Republic of Congo (DRC) made a ground breaking
announcement that will bring a competitive advantage to their banking industry.
In partnership with the African Trade Insurance Agency (ATI) (http://www.ati-aca.org),
the Vice Governor announced that banks would receive up to 50% capital relief
on any transaction that is secured with a credit risk guarantee supplied by
ATI.
The announcement also places ATI in the
unique position of being the first multilateral of its kind to be granted this
standing based largely on the strength of its credit rating. ATI has been in
discussions with the COMESA Central Banks, including the DRC, for several years
and this is the first significant outcome of those discussions. ATI is hopeful
that the move by the DRC’s Central Bank will pave the way for others in the
region to follow.
Within most African countries, central
banks require commercial banks to reserve a prescribed minimum capital in
proportion to their loans and advances to cushion against default by their
customers. This is known as the regulatory capital reserve ratio, which can be
higher than 12% in some markets.
For example, in some African countries
central banks require that local banks maintain a total capital to total risk
weighted assets ratio of around 12%. This means that if the bank was to advance
a loan facility of $500,000 they would have to set aside an equivalent of 12%
of the bank’s total capital to cushion the lending.
In the case of DRC, the regulatory
capital to risk weighted assets is currently 24.5%. Under the new legislation
and with ATI’s insurance cover, a bank will only be required to set aside
12.25% worth of capital reserve if the transaction meets all eligibility
criteria.
In developed markets, central banks
require lower ratios for transactions covered by strongly rated credit
insurance companies. This frees up banks’ capital enabling them to lend more.
In Africa, with the now recent exception of DRC, central banks have not adopted
this policy.
“This restriction has historically placed
African banks at a disadvantage when competing with international banks.
Without capital relief, local banks face a tighter fiscal environment and
cannot lend at the same levels as their better capitalized international
counterparts,” notes Jef Vincent, ATI’s Chief Underwriting Officer.
Today’s announcement puts the DRC in line
with Central Banks in developed markets, which are governed by the Basel
Committee on Banking Supervision. The Basel Framework established reforms to
improve the sector’s risk management, governance, transparency and ability to
absorb shocks from financial and economic stress.
The Framework recognises certain risk
mitigation tools against which lower risk weightings may be applied to give
banks some capital relief. These include guarantees by corporates, sovereigns,
central banks and other official entities. The Framework also recognises claims
against certain Multilateral Development Financial institutions as qualifying
for zero risk weighting. These institutions are recognized for their strong
financial standing as well as the strength of their shareholders.
Under the current Basel Framework, the
following international institutions are recognized for their zero weighting:
1.
African Development Bank – AfDB
2.
Asian Development Bank – ADB
3.
Caribbean Development Bank – CDB
4.
Council of Europe Development Bank – CEDB
5.
European Investment Bank – EIB
6.
European Investment Fund – EIF
7.
European Bank for Reconstruction and Development – EBRD
8.
Inter-American Development Bank – IADB
9.
International Bank for Reconstruction and Development – IBRD
10.
International Finance Corporation – IFC
11.
Islamic Development Bank – IDB
12.
Nordic Investment Bank – NDB
The World Bank’s Multilateral Investment
Guarantee Agency (MIGA), despite not being a development, bank is now included
in Basel’s list of multilateral development banks. ATI’s advantage to its
African member countries is that while MIGA only offers political risk and
sovereign default guarantees, its scope of cover in Africa is much more
relevant to bank risks as it includes credit risk cover on corporate borrowers.
In the DRC, ATI is currently working on a
multi-million dollar pipeline of transactions in various sectors that will
benefit from this new capital relief guideline.
ATI had two representatives participating
in the press event. Jef Vincent, ATI’s Chief Underwriting Officerand Attaty
Kodjo, who is responsible for developing ATI’s business in Francophone member
countries, have been the chief drivers of the ATI-led central bank initiative.
Distributed by APO (African Press
Organization) on behalf of the African Trade Insurance Agency (ATI).
Press
Contact:
(In Kenya) Kodjo.attaty@ati-aca.org,
mob.+254 728 606 257
(In DRC) Emmanuel mania – manyvon@yahoo.fr
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