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Central Africa |
ECONOMY
In spite of banks having plenty of cash, they’re reluctant to lend money. Why?
In central Africa, access to credit is a hit and miss affair. Nevertheless, banks are performing well, having plenty of cash reserves. That’s the conclusion of a survey made public in July 2001 by the Bank of Central African States (BEAC).
The economic crisis which hit central Africa’s banks during the years 1985-1993, is over. Now the situation is much brighter. Banks operating within the BEAC zone have ample assets. The BEAC says that deposits collected by banks operating within the Economic and Monetary Community of Central Africa (CEMAC) have even increased by 43%. Indeed, the safety factor regarding the banks’ assets has increased from 79.4% in April 1999 to 106.3% in April 2001.
Boom in oil revenue
There are two reasons why the banks are doing so well: The fact that revenue from oil exports is regularly paid, and that there’s been a decline in the amount of credit accorded. So, the increase in the price of oil plus the rise in the value of the dollar, has considerably stimulated what the central African countries are getting from their petroleum products. Banks’ assets have tripled in a year. They reached record levels of 161.5 billion CFA francs in July 2000, as against 49.9 billion CFA francs in the previous year.
We’ve already stated that deposits collected by banks within the CEMAC zone have increased by 43%, but such is not the same for loans given by banks. These have only increased at the rate of 14.4%. Bankers are reluctant to finance new investments. Past unfortunate experiences when it comes to lending money has forced them to take care in granting loans.
When it comes to trying to call in bad debts, the law is not very helpful. Bankers complain about the lengthy legal procedures involved when attempting to recover bad debts. Guarantees offered by the borrower can develop into a very hit and miss affair — in fact, they can mean very little. And when the judge decides against bankrupt customers, it’s not easy for the bank to get its hands on the money owed. Why? Because there are powers behind the scene and all sorts of pressure in play. Banks mostly lose their lawsuits against bankrupt customers who have «friends in high places».
Bankers explain why not many loans are given out. It appears that most of the projects for which extra credit is needed, are not viable. They’re presented on very shaky ground. So, banks within the CEMAC opted to invest their assets in the central bank. It’s a safe bet, even if interest rates are not attractive. Furthermore, there is preference for short-term loans (60% of credits are of this kind), rather than taking out a long-term loan at usurious rates. In Cameroon for example, interest rates vary between 19.47% and 21.72%.
Which solutions?
It seems to be all-important to establish banking institutions specialized in long-term financing. Most of the banks we’ve been discussing are there for immediate business. Their resources are not really of the kind whereby credit/loans can be granted. More specialised lending institutions would be welcome.
Venture capital companies already exist. These are commercial undertakings characterized by a risk of loss as well as opportunities for profit. They make their profits when they sell their shares in a particular venture. Also, things are looking good for the Development Bank of Central African States (BDEAC), for a long time in the doldrums, but now everyone’s hope in the CEMAC zone.
In the meantime, small and medium-sized businesses in central Africa continue to suffer because they can’t get the necessary finance. The last resort left open to them is the «tontine» i.e. a mutual solidarity custom. (Editor’s note: For example, in Africa a group of people agree to give most of their monthly income to one of their number to enable him/herself set up a business. The next month, it’s someone else’s turn)
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