The CBL also observed that weak credit administration and the relatively high amortization (repayment) of pre-operating expenses for the new banks are also contributing factors to the issue of profitability of the sector. The Central Bank of Liberia, however, recorded in its 4th Quarter Financial &Economic Bulletin for 2011 that the sector registered improved growth in total assets, loans, and deposits-continuing to be capitalized and liquid.
It reports that the industry’s aggregate balance sheet expanded, noting that loans and advances, balances with the CBL and bank balances, accounted for 31.30 percent, 23.8 percent, and 16.37 percent of the total assets, respectively. Customers’ deposits continue to be the primary source of funding for the banking industry, accounting for 81.14 percent of total liabilities, the CBL added.
The industry recorded a growth of 4.4 percent, compared with the preceding quarter and 29.9 percent over the amount recorded during the corresponding quarter in 2010. According to the CBL, total capital of the industry declined by 0.63 percent above the previous quarter.
However, the industry’s capital position surged by 14.3 percent above the same quarter of 2010, largely due to the commencement of banking activities by Afriland First Bank. In its Bulletin, the CBL attributed the overall growth in the industry primarily to rising public confidence in the banking sector and increased economic activities. The industry’s capital adequacy ratio (CAR) increased during the review quarters mainly due to a decline in off-balance sheet exposures by 26.14 percent to L$2.9 billion, from L$3.9 billion reported in the previous quarter, 2011.
Non-performing loans (NPL), as a ratio of total loans in the industry, slightly increased to 20.8 percent at end-December, 2011, from 19.1 percent recorded during the preceding quarter and improved by 4.3 percentage points over the same period in 2010. The rise from the third to fourth quarters of 2011 was on account of the re-classification of several loan facilities at a number of banks.
The CBL reiterated that profitability in the banking industry remains a challenge largely on account of high amortization expenses of new banks, high loan loss provisions due to poor asset quality, and high operating costs, respectively. The profitability of most of the leading banks was also threatened by wave of armed robberies and thief by unknown persons and employees of the banks.
Most of these cases are still being tried by local courts while some of the armed robbers are being pursued by state security forces. As in previous quarters however, the banking industry posted strong liquidity position in the quarter ending December 31, 2011, recording liquidity ratio of 44 percent. According to the CBL, all of the banks were above the minimum required liquidity ratio of 15.0 percent.
The total liquid assets of the industry at the end of December, 2011 was L$15.78 billion, comprising L$4.95 billion or 18.7 percent as vault cash; L$8.46 billion or 53.6 percent as foreign bank balances, and L$4.38 billion or 27.7 percent as current account balances with the CBL.
The Central Bank reports that all of the banks were found to be within its regulatory compliance concerning placement of funds abroad. Loan to deposit ratio for the sector was below 60 percent, indicative of the comfortable liquidity position of the banking industry to meet the liquidity needs of their customers and other contingent liabilities.
Most rural communities in Liberia remain unbanked due to a number of reasons that range from lack of access to those communities (lack of road), cost of doing business, and security challenge amongst others. Despite these challenges however, 10 of Liberia’s 15 counties have bank facilities.