During the boom days, the industry’s capital adequacy ratio (CAR) was in excess of the minimum requirement and the notoriously dreaded “Non Performing Loan” ratio was modestly growing but largely under check. Fast forward to 2016, the picture doesn’t look quite good and industry insiders are asking, what might have gone wrong. The International Monetary Fund in its latest macroeconomic review blamed the Ebola crisis and the worsening decline in commodity prices as the chief culprit. But further to that, they have concluded the handling of the Central Bank of Liberia hasn’t been quite tidy.
Capitol Insider takes a closer look at recent developments in the banking sector and the implication for the wider Liberian economy. In its last review of the macro-economic environment in Liberia, the International Monetary Fund acknowledged that the financial system was under stress. It said during its fourth review under the Extended Credit Facility Arrangement, the “relaxation of provisioning requirements and restructuring of loans during the [Ebola and commodity] crisis have masked rising vulnerabilities”.
It said “banking system weaknesses have been amplified by weak profitability” but beyond these, operational losses at the Central Bank and stress from the Ebola crisis and the commodity price decline occasioned a decline in the foreign exchange position from “US$280 million in March 2012 to US$179 million at end-2014, and US$161 million at end-September 2015”. The negative trend was due to the operational deficits of the CBL, which directly subtract from foreign reserves under Liberia’s dual currency regime, the IMF said.
These developments coincide with news of a liquidity crisis at a number of commercial banks, with the near collapse of the “First International Bank Liberia” (FIB Liberia), which was said to have been acquired by a Ghanaian firm, “Ghana Growth Fund Company (GGFC). The circumstances surrounding the FIB collapse and the GGFC takeover have been shrouded in secrecy but the warning signs had been so visible with a lot of depositors complaining in the last few years about the Bank’s operations.
The banking sector has largely been poorly supervised. Since 2012, CBL Governor Mills Jones introduced a controversial lending spree, financing a micro-credit scheme that had seen huge supply of the Liberian dollar, one reason financial analysts have blamed for the deteriorating exchange rate. His opponents contend that the program had been poorly handled and largely intended for political ends. But he has fiercely and publicly defended his policies, most times in a political campaign styled event, dominated by recipients of his money in mostly under-privileged communities across the country.
Moving beyond the Banking turmoil, Jones must address the problem with non-performing loans (NPL) in his private loan scheme, as the Legislature continues to pin him down on this program. President Sirleaf had herself been privately seized of the matter but had lacked the biting teeth to deal with a Governor protected by tenure, so she had instead threaded gingerly.
In her most recent State of the Nation Addressed, she sounded upbeat when she said “Measures will also need to be taken to ensure that well intentioned microfinance loans amounting to L$644.1 million (equivalent to US$7.2 million) granted to savings and loans clubs are repaid fully.” And politics aside, President Sirleaf is aware it would be a tall order to recover a good amount of the reported 7.2 million at least not anytime soon as Jones bids farewell to the CBL. But beyond the loan, the Bank’s operational efficiency has now come to public scrutiny as cited in the IMF review and reechoed by President Sirleaf. The operational deficit had long been expected with some controversial procurements and questionable transactions reported in the media.
The Governor, who has for most part ran the Bank via the media, hinted through aides that a quiet feud is brewing between he and President Sirleaf over the timing of his last days in office. “This is ridiculous and as funny as it may seem, these leaks only serve to show how the last few years has been a distraction from the core business of banking since Governor Jones showed his intention for office,” a CBL senior officials who asked not to be named tells Capitol Insider. When the banking politics are settled with Jones’ imminent departure, the Liberian economy will have to brace for more tidal waves, including a worsening commodity price decline that will surely hurt the country’s foreign exchange earnings.
“The problem Liberia faces now is that banks have a problem of liquidity options. Beyond depositors’ money, banks do not have adequate lending space for private sector growth and the Liberia Central Bank over the years has not done a pretty good job with the excess liquidity deriving from reserve requirement and other fees.
Maybe if they had introduced some other non-traditional financial instruments to bolster the money market, this could have translated to something by today,” says Elvis Stephens, an Economist with Trading Economics, who is also well versed with the banking sector in Liberia. Besides financial mismanagement issues, the banking sector has been riddled with controversies including robberies, internal theft and loan defaults.
“Most of the management issues and theft crisis at the commercial banks reflect inadequate supervision and controls from the CBL, and these must be corrected to save the banking sector”, said Stephens. It is clear the sector has been in trouble and the government as a whole must immediately see this as a threat to the overall economic stability of the nation, given the wave of recent developments, especially as Jones prepares for an unceremonious exit. And as if things aren’t bad enough, the tragic passing of one of the industry’s known names, the Managing Director of the Guaranty Trust Bank in Liberia, Mr. Dan Orogun, had brought a moment of sober reflection.
Orogun died on Sunday, January 24, 2016 afternoon in a boating incident at the Barracuda Resort off the Robertsfield Highway. Although police reports have concluded Mr. Orogun died of drowning, the Liberia Ministry of Justice has said, it is awaiting a pathologist findings.