Congo, Democratic Republic -7-Financial SectorCongo (DR) - Financial Sector
Capital Market and Portfolio InvestmentThe DRC’s capital market remains underdeveloped and consists mainly of the issuance of treasury bonds. There are no stock exchanges operating in the country, but a small number of private equity firms are actively investing in the mining industry. The institutional investor base is poorly developed, with only an insurance company and a state pension fund as participants. The Central Bank of Congo (BCC), developed a market for short-term bonds, but most of these bonds are bought and held by local Congolese banks. In the absence of a domestic debt market, the fixed-rate market is limited to government-issued treasury bonds with maturities of up to 28 days traded through commercial banks.
Access to the primary market is limited to commercial banks holding securities accounts at the BCC and all investors, including institutional and individual investors, must submit bids through banks. Commercial banks, which dominate the investor base, may trade in treasury bills in the secondary market, but in order to do so bids and prices for which they agree to trade must be transparent and publicized. There is no market for derivatives in the country.
The DRC suffers from a weak and fragile financial infrastructure. National payment systems are not governed by central legislation, although the DRC’s National Payments and Settlement Committee is in the process of proposing legal reform through a draft bill that was proposed in 2016, has been adopted by the DRC Senate, and, as of the date of this report, is before the National Assembly for a second reading. The DRC has a credit bureau supervised by the BCC, but it is generally considered inefficient and obsolete, with relatively few clients. It serves mainly institutional clients that are eligible for large loans.
Borrowing options for small and medium enterprises (SME) are limited. Maturities for loans are usually limited to 3-6 months, and interest rates typically hover around 16-18 percent. The weakness of the legal system, the often cumbersome business climate and the difficulty in obtaining inter-bank financing discourages banks from providing long term loans. There are limited possibilities to finance major projects in the domestic currency, the Congolese franc (CDF). Local banks’ have limited holdings in the CDF. Prior to 2016, the average was roughly $12 million per bank, though the economic downturn prompted the Central Bank to mandate an increase in CDF holdings to $30 million per bank by October 2017. Foreign currency deposits account for almost 90 percent of bank holdings.
Portfolio investment has not yet developed in the DRC. Cross-shareholding and stable shareholding arrangements are also not common. There are occasional complaints about unfair privileges extended to certain investors in profitable sectors such as mining and telecommunications.
Money and Banking systemThe Congolese financial system is growing but remains fragile and operates primarily through the BCC. The financial sector is comprised of 19 licensed banks, a national insurance company (SONAS) and the National Social Security Institute (INSS), one development bank, SOFIDE (Société Financière de Development), 120 micro finance institutions and cooperatives, 78 money transfer institutions which are concentrated in Kinshasa and the former Katanga provinces, three electronic money institutions and more than 16 foreign exchanges offices. There is no equity market or debt market.
The bulk of the banking system is based on banks and the aggregate holdings of banks, estimated at $5.1 billion, accounts for about 95 percent of the overall holdings of the financial system. Bank deposits account for the majority of total deposits, around 90 percent of the deposits in the financial system, with the balance held by microfinance institutions. Among the largest banks, four are local and another is controlled by foreign holdings. The five largest banks hold almost 65 percent of bank deposits and more than 60 percent of total bank assets.
Bank financing is dominated by the collection of deposits, nearly 90 percent of which are denominated in U.S. dollars and deposited into demand accounts. Bank operations are highly dollarized and their financing is highly dependent on demand deposits. While nearly 95 percent of loans are in dollars, clients are mainly companies that deposit working capital and then take loans primarily for daily operations and import/exports activities. The national and local DRC governments have significant balances in some banks (deposits in dollars used for investments) and also borrow funds from a few banks to finance administrative expenses. Statistics on non-performing loans do not seem reliable. According to the BCC's regulatory framework many banks only record the balance due rather than the total amount of the non-performing loan.
Transactions involving correspondence with associated foreign banks represent a significant part of the activities of DRC banks. Correspondent accounts represent more than 30 percent of bank assets and more than 95 percent of interbank market activity. They allow banks to settle transactions denominated in dollars, reflecting efforts to limit risks. The profitability and profits of the banks are fragile and have deteriorated over the last year, reflecting high operating and exchange rates. Fees charged by banks are a major source of their revenues.
The DRC has roughly $3.6 billion of deposits in the banking system, up slightly from 2015. An estimated $10 billion of savings exist outside of banks. Most deposits in the formal system are U.S. dollar-denominated. A slight increase in bank penetration occurred after 2011 as the GDRC switched public employee payments from cash to bank transfers. Bank penetration is roughly 6 percent, which places the country among the most under-banked nations in the world. According to the BCC strategic plan, the aim is to reach more than 20 million bank accounts by 2030. Banks are increasingly offering savings accounts that pay approximately 3 percent interest, but few Congolese hold savings in banks. Of an estimated 65 percent of the population that saves, only 4.7 percent do so through a bank, according to the Banking Association of Congo (ACB). Most account holders withdraw their balance in full shortly after their salary is deposited.
The overall balance sheet of the banks amounted to roughly $5 billion; the credit volume is estimated at roughly more than $2.2 billion. Credit volume has risen rapidly, but remains scarce, short-term, and highly concentrated. From 2012 to 2016, credit reached only 13 percent of GDP. Domestic credit granted by banks from 2015 to 2016 increased from $2.2 billion to $2.3 billion, and those granted by microfinance institutions for the same period increased from $162 million to $190 million. The largest depositors in the banking system are private enterprises and households with 46 and 43 percent of deposits, respectively. Public enterprises, central administration and local administration deposits are estimated at seven percent, four percent and one percent respectively.
Foreign Exchange and RemittancesForeign Exchange
As part of broad economic reforms begun in 2001, the DRC adopted a free-floating exchange rate policy and lifted various restrictions on business transactions, including in the mining sector. The international transfer of funds takes place freely when sent through local commercial banks. On average, bank declaration requirements and payments for international transfers take less than one week to complete.
The BCC is responsible for regulating foreign exchange and trade. The only currency restriction imposed on travelers is a $10,000 limit on the amount an individual can carry when entering or leaving the DRC. The GDRC requires that the BCC license exporters and importers. The DRC’s informal foreign exchange market is large and unregulated and has tended to offer exchange rates not widely dissimilar from the official rate. In practice, the nation’s economy remains highly dollarized.
On September 25, 2014, new foreign exchange regulations were put into place by the BCC. Among other things, these regulations declared the Congolese franc (CDF) as the main currency in all transactions within the DRC. Payment of fees related to education, medical care, water and electricity consumption, residential rents, and federal taxes were mandated to be paid in CDF. In the last several years, this requirement has been relaxed and where the parties involved and the appropriate monetary officials agree, exceptions may, and routinely are, made. Any payments exceeding $10,000 must be executed within the banking system, unless there is no presence of banking entities. The largest, albeit rare, banknote in circulation is the CDF 20,000 note (approximately $14.70). Far more common are the CDF 500 and CDF 1,000 notes worth approximately $0.36 and $ 0.73, respectively. U.S. banknotes printed after 2008 are readily accepted in virtually all transactions, with the exception of one-dollar bills. Banks provide accounts denominated in either currency. In September 2013, the GDRC embarked on a process of “de-dollarizing” the economy by requiring that tax records be kept in CDF and tax payments from mining companies be paid in CDF. In March 2016, however, as a result of a dollar shortage the GDRC began requiring mining and oil companies to pay their customs fees and taxes in U.S. dollars.
The CDF depreciated by nearly 40 percent against the U.S. dollar in 2016 and the annualized inflation rate, which was stable at around 1 percent from 2013 through 2015 then increased rapidly to 11 percent The economic forecast calls for continuing inflation and currency depreciation. With March 2017 foreign exchange reserves at $730 million, or 3.3 weeks of import cover (half the level of a year ago) Central Bank officials can no longer support the CDF, which has depreciated over 9 percent this year.
Although there is no legal restriction on converting or transferring funds related to investment, new exchange regulations will increase the time for in-country foreigners to repatriate export and re-export income from 30 to 60 days. The BCC is the legal authority controlling and providing the legal framework on foreign exchange in the DRC. Foreign investors may remit through parallel markets when they are legally established and recognized by the BCC.
Sovereign Wealth Funds
The DRC has no reported Sovereign Wealth Funds.Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.