Although the banking sector remains adequately capitalised, following a two-step increase in the minimum capital requirement implemented at end-2010 and end-2012, non-performing loans have remained high, the International Monetary Fund has said.
On the conclusion of its 2013 Article 1V Consultation with The Gambia last month, the IMF Executive Board stated that whilst the banking system is well capitalised and liquid, more efforts should be placed on supervision, capacity building and cross-border monitoring.
Commercial banks in the country have been grappling with bad debts over the years as their loans and advances portfolio continue to swell while increasing sums of monies given out as loans to customers continue to remain as bad debts, which are debts not likely to be paid, giving rise to banks losing millions of dalasis in profits.
Loan default has therefore gravely affected almost all the 12 banks in operation in The Gambia, whose seemingly uncontrolled loans and advances to clients have been precipitated by the desperate jostling for clients and the stiff competition in the industry.
As a result of the competition, for instance, there has been increased lending in both the public and private sectors, which unfortunately has led to increased risks and Non-Performing Loans (NPLs) to the banking system.
In preparation for the increase in the minimum capital requirement at the end of 2012, the Central Bank of The Gambia (CBG) strengthened banking supervision as it reviewed banks' plans for meeting the new requirement.
For this, as well as for taking other concrete steps to mitigate emerging risks in the industry, such as the introduction of the Credit Reference Bureau, to place checks and control on loan seekers and debtors across banks, the apex bank was highly applauded by commercial banks and other players in the system.
However, the woes of bad debts have continued to grip the banking industry, hence the call to action by the IMF.
Over the years commercial banks in The Gambia have gone through a lot of service problems. "The major problem is bad loans," said Zenith Bank Managing Director and Chief Executive Officer Emeka Anyaegbuna.
Mr Anyaegbuna said that due to the bad experience they have been grappling with as regards loans and advances, banks have now put in place a new policy or pattern to retrieve loans.After 90 days of giving out a loan, 20% of the loan amount must be paid back to the bank, and at 180 days, "we try to retrieve about 50% of the amount", he said, adding:"Now things are changing."
However, the continued high rate of non-performing loans requires vigilance, including intensive supervision for individual banks as needed, the IMF advises.