By Timothy T. Seaklon
Of the nine banks operating in the country, seven showed declines in deposits, loans and assets, while eight experienced declines in capital during the period July to September 2014 as result of the Ebola outbreak.
According to the Central Bank of Liberia (CBL) Financial and Economic Bulletin, volume 15 No. 3 though the banking system continued to be well capitalized and liquid which reflects continuous confidence in the system, increased financial deepening and economic activities; however, profitability still remains a challenge due to poor asset quality of a number of banks on account of weak credit administration and the relatively high operating expenses, among others.
The CBL revealed that developments in the banking sector at end-September, 2014 showed significant declines in key balance sheet items, triggered by the outbreak of the Ebola Virus Disease (EVD) which caused slow-down in normal economic activities during the review quarter.
Expanding further on the banking sector, the CBL disclosed that during the review quarter, balance sheet items, in terms of total assets, declined by 6.0 percent to L$70.6 billion, below the amount recorded in the previous quarter.
“When compared with the corresponding period in 2013, balance sheet items increased by 10.0 percent. Similarly, total loans and advances declined by 7.0 percent to L$27.9 billion when compared to the preceding quarter,” the Central bank said.
Accordingly, to the CBL Financial and Economic Bulletin said however, they grew by 9.0 percent when matched against the corresponding period in 2013. The Central Bank indicated that the total capital also declined by 4.0 percent to LS10.2 billion compared with the previous quarter, but experienced 18.0 percent growth over the corresponding period in 2013.
“Deposits, the dominant source of financing of the banks’ asset base, similarly recorded a decline of 6.0 percent to L$43.8 billion at end-September, 2014 when matched against the previous quarter and 3.0 percent over the corresponding period in 2013,” the Bulletin disclosed.
The CBL also revealed that the industry’s Capital Adequacy Ratio (CAR) increased, from 20.7 percent at end-June, 2014 to 24.0 percent at the end of the review quarter.
“All of the nine banks were in excess of the minimum requirement of 10.0 percent. However, with respect to the requirement of net worth, three banks fell below the minimum of US$10.0 million,” the CBL said.
Touching on non-performing loans, the CBL said the industry’s ratio of non-performing loans to total loans (NPL ratio) increased slightly by 0.8 percentage points to 16.3 percent, from 15.5 percent recorded at end-June, 2014.
CBL which is the regulator of the banking sector said, “However, compared to the corresponding quarter of 2013, non-performing loans to total loans improved by 4.4 percentage points. In absolute terms, non-performing loans deteriorated by 2.0 percent to L$4.6 billion as at end-September, 2014. Compared with the same period of2013, NPLs measured in absolute term, similarly deteriorated by 4.0 percent.”
The CBL said only three of the nine banks reported NPL ratios within the regulatory and permissible limit of 10.0 percent while the remaining six banks were above the limit.
The CBL observed that weak credit underwriting processes, coupled with inadequate monitoring of loans continue to be the main factors adversely affecting asset quality.
The CBL also pointed out that the industry recorded gross earnings of L$5.7 billion and an operating profit of L$1.4 billion (before loan loss provisions and taxes) at end-September, 2014, representing growths of 45.0 percent and 32.0 percent, respectively, with 51.5 percent of earnings coming from noninterest sources.
Like the two previous quarters of 2014, the CBL said the industry sustained a net loss position in the review quarter, which stood at L342.4 million, five of the banks recorded profits, while the remaining four reported net loss positions.
The Central Bank said the banking system continues to maintain a strong liquidity position, recording a liquidity ratio of 45.9 percent at the end of the review quarter.