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Fitch: Benefits of Cameroon Bank Reform Will Take Time to Emerge
November 20, 2017 / 3:05 PM / 22 days ago

Fitch: Benefits of Cameroon Bank Reform Will Take Time to Emerge

(The following statement was released by the rating agency) LONDON, November 20 (Fitch) Efforts to strengthen Cameroon's financial sector are beginning to bear fruit, although progress will be slow from a low base and is likely to be outweighed by broader regional challenges for some time, Fitch Ratings says. Cameroon is one of the four members of the six-country Central African Economic and Monetary Community (CEMAC) monetary zone to have agreed IMF programmes to help address the impact of lower oil prices on members' economies, government finances and reserves. We affirmed Cameroon's sovereign rating at 'B'/Stable on 17 November, highlighting the role of the three-year IMF facility in supporting fiscal consolidation, while noting that implementation risks are relatively high. Strengthening the financial sector was one of four aims of a regional strategy outlined by CEMAC members and the IMF last year. Bank regulation and governance in the CEMAC region are generally weak. Implementation of prudential guidelines is lax, reporting of interconnected lending and risk concentrations is poor, and it is not clear that impaired loans are adequately reserved. Nine small and non-systemic banks in the zone are experiencing financial difficulties. IMF-led reforms focus on improving the classification and resolution of impaired loans in the commercial banking sector; improving the process of resolving distressed banks; revising key prudential requirements for related-party lending; risk concentration and governance; and upgrading onsite inspections of all CEMAC banks by the regional supervisor. At the regional level, we see little tangible evidence of advancement in financial sector reform. Implementation and target dates are slipping. A review of risk-weightings applied to CEMAC government exposures scheduled for September 2017 is delayed, and overhauling the deposit insurance fund by end-2017 looks ambitious, for example. This year has seen some progress in efforts to clean up the sector, with the withdrawal of two Gabonese banks' licences and an order for provisional administration of a third bank in that country, while in Cameroon disciplinary procedures were started against one bank. But administration procedures for CEMAC banks are still lengthy and timelines often extended. Liquidation and/or resolution procedures for some banks have been stalled for years. More positively, national level reforms can be quicker than regional changes. IMF programme conditionality should support national level reforms, and Cameroon appears to be making more progress than its CEMAC peers. Cameroon's credit bureau structure, for example, is already up and running. Banks in Cameroon have told us that its five-year data history is proving to be a useful loan underwriting tool. In addition, a centralised register of all guarantees in the country will likely be in place in 2018. This should help prevent a common problem faced by the country's banks: the pledging of one asset as collateral to several different creditors. These are initial steps to ensuring a better run and more transparent banking sector. Sustained reform would be a positive for the sector. But banks' near-term credit metrics will chiefly be driven by the broader macro-economic adjustment in Cameroon and the CEMAC region. As we noted in our affirmation of Cameroon's sovereign rating, the banking sector faces near-term challenges as the regional central bank has tightened monetary conditions and liquidity, by raising interest rates and capping banks' use of sovereign securities as collateral for refinancing. Sector non-performing loan ratios decreased in the year to end-August 2017, but this was due to a one-off improvement at one large bank. Nevertheless, over time, adjustments should support the sector by bolstering the CEMAC monetary arrangement, which has supported macro-economic stability. Contact: Janine Dow Senior Director, Financial Institutions - Banks +44 20 3530 1464 Fitch Ratings Limited 30 North Colonnade London E14 5GN Mark Brown Senior Analyst, Fitch Wire +44 20 3530 1588 The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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