Country Financial Sector Profilesback

Financial Sector Overview

Liberia is a country in transition that is today on a path to long-term development since the end of its 14-year civil war in 2003. The government developed the "Medium Term Economic Growth and Development Strategy (2012-2017)" setting out the strategic objectives to help achieve the country’s vision to become a middle income economy by 2030. Among these objectives is to develop a financial system that enhances growth, ensures access to credit, and encourages the domestic private sector and the underserved – including small and medium sized enterprises, the agricultural sector, women, and youth – to accumulate assets.

Financial institutions

The key institutional players in the Liberian financial sector are the Central Bank of Liberia (CBL), commercial banks, and non-bank financial institutions including insurance companies, credit unions, and financial cooperatives. The microfinance sector is growing and today comprises a number of different players that include commercial banks and microfinance institutions.

Table 1 : Number of Main Financial Institutions in Liberia, 2010 - 2015

Number of Main Financial Institutions in Liberia, 2010 - 2015

Source: Central Bank of Liberia

The Central Bank is at the apex of the financial system. Among other roles, it is responsible for safeguarding the integrity of the financial sector and for promoting and supporting the development of financial markets and efficient payment and settlement systems.

No capital market exists in the country. There are several informal financial service providers, including money lenders and rotating saving and credit associations that typically provide access to short-term loans at high interest. However, there is a lack of data on their size and the volume of their activities.

Financial depth

Liberia's financial depth, approximated by ratios of financial system deposits or private credit to GDP, is close to the median in Africa, according to Global Financial Development Data GFDD, World Bank 2015. The ratio of deposits to GDP was 28.5 per cent in 2013, compared with a median of 24.6 per cent for sub-Saharan Africa. Private sector credit  to GDP ratio was 16.7 per cent the same year, compared with the overall median of 17 per cent.

Deposit money banks are the sole private sector credit providers, but their size relative to the economy is small, with total assets representing 18.6 per cent of GDP in 2013, compared to the sub-Saharan median of 23.1 per cent.

Table 2 : Depth of Financial Institutions & Markets in Liberia 2010 - 2013

Depth of Financial Institutions & Markets in Liberia 2010 - 2013

Source: Global Financial Development Database, June 2016.

Bank credit

The private sector took the lion’s share of bank credit in 2015, receiving 96.7 per cent of the total while the Government and public corporations accounted for the remaining 3.3 per cent.

The share of loans between the economy's various sectors has changed little over the past decade. Agriculture and manufacturing together received on average less than 10 per cent : in 2015, the former took 7.3 per cent of total bank loans, and the latter 2.9 per cent. The sector showing the greatest change has been Trade, Hotels & Restaurants, which grew from receiving roughly 20 per cent of bank loans in 2006, to 42.9 per cent by 2015 (see Chart 1).

Lending and deposit rates

The average interest rate for lending continuously but gradually declined between 2006 and 2012, from 15.2 per cent to 13.2 per cent, before rebounding slightly in the years since. By 2015, the rate was 13.6 per cent. By contrast, average savings rates have remained stable since 2007 at around 2 per cent, leading to a persistent and relatively high spread between lending and savings rates that reflects structural inefficiencies in the financial sector, including a high risk of default, a lack of competition, and high operating expenses (see Chart 2).

Chart 1:Share of total banks’ loans to selected economy sectors

Share of total banks’ loans to selected economy sectors

Source: MFW4A. Data from Central Bank of Liberia.

Chart 2:Banks' interest rates in Liberia (in %)

Banks' interest rates in Liberia (in %)

 Source: MFW4A. Data from Central Bank of Liberia.

Financial access

The World Bank Global Findex Data report of 2011 found that 18.8 per cent of the Liberia's adult population had an account at a formal financial institution, a little below the sub-Saharan African average of 24.1 per cent. The same  report also found that 13.9 per cent of adults held savings at formal financial institutions – about the same as the sub-continental average – and 6.5 per cent had taken loans from them, slightly more than the average.

A more recent report, the IMF Financial Access Survey of 2015, shows substantial recent progress in financial access in Liberia. The percentage of adults with deposit accounts at commercial banks almost doubled between 2011 and 2014, from 16.3 per cent to 28.3 per cent, while those with loan accounts more than doubled, going from 7.2 per cent to 14.8 per cent in the same period.

Liberians have also substantially increased their use of mobile money services, with the number of active mobile money accounts more than quadrupling in three years from 2252 in 2012 to 51571 in 2013, and 99464 by 2014.

Recent policies and reforms

The CBL launched the Economic Stimulus Initiatives Programme in 2010 to make it easier to access affordable and longer-term credit in the domestic economy, to help create jobs and reduce poverty. The programme focused on key sectors of the economy such as agriculture, housing, private sector development, and in particular SMEs. Capital was lodged with domestic banks to be loaned to Liberian-owned SMEs, farmers, and low-income earners, who would most benefit from loans with affordable interest rates and longer repayment terms.

To further enhance access to financial services for particularly low-income and rural populations, the CBL in 2012 instructed commercial banks to offer multiple money transfer services. Before this, an exclusivity clause in international money transfer agreements meant that Liberia's banks could offer one of only two services, either Western Union or MoneyGram. Introducing competition is intended to make money transfer services more convenient and affordable.

The CBL also established a Collateral Registry in June 2014 that allows furniture, farm products, accounts receivables or other rights of payments, equipment, inventory, minerals, and motor vehicles, amongst others, as loan collateral. This especially helps small businesses and individuals who could not easily meet traditional collateral requirements.

Despite these successful fiscal interventions, the 2014 Ebola outbreak caused significant economic turbulence. The CBL introduced exceptional policy measures in December 2014 to help mitigate the impact of the crisis on banks. These measures included extending repayment periods on loans disbursed as part of ongoing CBL credit stimulus initiatives, to allow borrowers to rebuild their post-Ebola financial capacity, and paying off all loans that private schools held with commercial banks, an amount in the region of $1 million.

Banking Sector

By the end of 2015, Liberia's banking sector comprised nine commercial banks : the Liberian Bank for Development and Investment, International Bank Liberia Limited, Ecobank Liberia Limited, First International Bank, Global Bank Liberia Limited, United Bank for Africa Liberia Limited, Guaranty Trust Bank Liberia Limited, Access Bank Liberia Limited, and Afriland First Bank Liberia Limited.

Eight of the nine banks are majority foreign-owned, mostly by Nigerian banks. Ecobank dominates, holding approximately 40 per cent of the sector's total assets. The CBL, mindful of the cross-border risks of such high foreign ownership of its banking sector, established and manages agreements and Memoranda of Understanding with supervisory authorities in other regional banking centres. At the same time, the CBL aims to encourage active Liberian participation in the ownership and management of banks.

Although the number of banks has remained the same since 2011, the number of bank branches has increased steadily from 74 in 2010 to 87 in 2015 (see Table 1). Note however that four of Liberia's 15 counties do not have a single bank branch.


Assets and liabilities

The banking industry recorded strong growth in its balance sheet over the past decade. By the end of 2015, total banking industry assets in Liberian dollars (L$) were L$79.9 billion (US$ 0.9 billion), close to a nine-fold increase from the L$9.2 billion (US$ 0.15 billion) of assets in 2006, and not far off double the 2011 figure of L$ 51.7 billion (US$ 0.7 billion). The banking industry’s assets represented 44.5 per cent of GDP in October 2015, compared with 43.5 per cent a year earlier.

Loans and advances constitute the highest share of banking industry assets, accounting for 42.4 per cent in 2015. Liquid assets constituted 26 per cent of total assets.

On the liabilities side, deposits are the major source of bank funding, making up 69.7 per cent of total liabilities in 2015. Demand deposits account for the greatest share, at 61.7 per cent, with saving deposits accounting for 33.4 per cent.

The growth in bank loans and deposits has shadowed total bank assets in recent years (see Chart 3). The volume of total bank assets and deposits almost doubled between 2010 and 2015; total loans more than doubled over the same period. The industry-wide loan to deposit ratio has also increased continuously, from 39.1 per cent in 2010 to 63.3 per cent in 2015, indicating that financial intermediation is improving as the share of deposits banks are able to lend is increasing. However, high loan to deposit ratios may pose challenges for banks who have to meet their customers' liquidity needs and other contingent liabilities.

Chart 3: Total bank industry’s assets, loans and deposits

total bank industry’s assets, loans and deposits

Source: MFW4A. Data from Central Bank of Liberia.

Financial soundness

Bank liquidity has remained comfortable by regulatory standards. The liquidity ratio was 39.1 per cent in October 2015, 9.1 percentage points lower than in 2013 but still significantly above regulatory minimums of 15 per cent.

The banking sector also continues to show a comfortable capital position. Despite the capital adequacy ratio decreasing from 21.9 per cent in October 2014 to 20.6 per cent 12 months later, it remains well above the 10 per cent minimum required by the banking regulators, and indeed has remained above that regulatory floor since 2007.

By contrast, non-performing loans (NPLs) are one of the major challenges in Liberia's banking system. The trend in the ratio of NPLs to total loans has been uneven over the last decade, but has remained consistently above the regulatory limit of 10 per cent.

Chart 4:  Non-performing loans to total loans (in %)

Non-performing loans to total loans (in %)


Source: MFW4A. Data from Central Bank of Liberia.

Profitability is another major challenge. Returns on Assets (ROA) and Returns on Equity (ROE) have been persistently low or negative in the banking sector over the past decade. By October 2015, ROA and ROE were -0.9 per cent and -7.0 per cent respectively, marking the sixth consecutive year in negative territory. Liberia's Central Bank however notes that these losses are attributed to a few banks, with the remainder performing well. Potential reasons for this low profitability include new banks' high amortization expenses, high loan loss provision due to poor quality of assets, and high operating costs.

Non-interest income, mainly fees and commissions, constitutes the largest portion of total industry earnings, standing at more than half of such earnings. However, the share of non-interest income to total income has decreased from 81 per cent in 2005 to 57 per cent in 2015, reflecting the positive trend in financial intermediation.

Non-Bank Financial Institutions

By 2015, the formal non-bank financial institutions licensed, regulated, and supervised by the Central Bank included insurance companies with insurance intermediaries and agents; one development finance institution; one microfinance deposit–taking institution; rural community finance institutions; and foreign exchange bureaus. In addition, Credit Unions and Village Savings and Loans Associations have been established across the country that are yet to be licensed and/or registered with the CBL.

Chart 5:

Earnings and profitability of banks.

Source: MFW4A. Data from Central Bank of Liberia.


Insurance industry

There were 20 licensed companies in the insurance industry in 2015, the same as a year earlier but a drop from the 24 operating before the CBL took over supervision of the sector in 2013. A CBL moratorium on registering new insurance companies, intended to safeguard the sector from oversaturation and to ensure its long-term viability, remains in force.

The sector's 2015 performance shows improvements on the previous year, with assets of US$42.0 million in September 2015 compared to US$39.2 million in December 2014. Likewise, total capital grew by a quarter from US$20.6 million to US$25.6 million over the same period, and net income increased more than four-fold from US$0.82 million to US$3.6 million.

The CBL sees the insurance sector as central to mobilising long-term financial resources that can be used to support key sectors and development projects and facilitate a functioning capital market. It intends to implement measures to further strengthen the sector, some of which will require industry consolidation. In view of this, the National Legislature passed a new Insurance Law in December 2014, replacing the 1973 Act. Additionally, several prudential regulations for the insurance sector, including new capital requirements, were issued and published.

In its capacity as insurance sector regulator in Liberia, the CBL has played an important role in the West African Monetary Zone (WAMZ) insurance sector integration initiative, which is part of overall financial sector integration across the Zone and involves harmonization of regulatory and supervisory standards and practices in West Africa.

Development finance institution

Licensed in 2007, the Liberian Enterprise Development Finance Company (LEDFC) provides loans and credit, as well as technical advice and business capital, to Liberian-owned SMEs. Loans are either short term from six to 23 months for working capital and other short-term needs, or medium-term from two to five years for investments in equipment and productive assets. Construction financing, agro-processing, real estate, and manufacturing are among the target sectors. LEDFC's total assets, loans and advances, and capital by October 2015 were US$22.2 million, US$9.1 million, and US$4.7 million respectively, and the group disbursed 51 Loans in 2015.


Deposit-taking microfinance institutions

The CBL issued Prudential Regulations to regulate the establishment, operations, and business conduct of deposit-taking microfinance institutions in 2012. The regulations define microfinance lending as unsecured loans up to US$7,000 or its equivalent in Liberian dollars. The first and the sole such institution in the country, DIACONIA, was licensed in 2014, and has since disbursed loans to 516 clients including micro, small, and medium-sized enterprises, and low-income populations. Its total assets, loans and advances, and capital by October 2015 were US$1.1 million, US$0.6 million, and US$1 million respectively.


Rural Community Finance Institutions (RCFI)

These institutions are owned and managed by members of the community, and are licensed to provide banking services in rural areas, including taking deposits, extending credit, paying civil servants' salaries, and offering money transfer services. Five new RCFIs were established in 2015, bringing the total number to nine and meaning that each of Liberia's 15 counties now has at least one financial institution.


Credit Unions and Village Savings and Loans Associations

There are currently 400 Credit Unions and 1,450 Village Savings & Loans Associations in Liberia, all continuing in their traditional role of providing financial services to low-income populations. In 2015, the CBL adopted new Credit Union Regulations aimed at enhancing regulation, monitoring, and supervision, which provide minimum operational guidelines and prudential standards for financial credit unions offering savings deposit and loan services to their members

Mobile Banking

The CBL issued its first regulation on mobile money in August 2011, directing that only banks could provide mobile money services subject to Central Bank approval before launching such services. In 2014, the CBL relaxed the rules  to allow other institutions also to apply to provide mobile money products. A subsidiary of one of Liberia's telecom operators – Lonestar Cell MTN – now has a licence, as do three banks that work in partnership with Lonestar. Mobile money services reach all 15 counties.

According to data from the IMF Financial Access Survey, usage of mobile money services in the country saw a rapid increase over the past three years. The number of active mobile money accounts have more than quadrupling in three years, from 22521 in 2012 to 51571 in 2013 and 99464 by 2014. Also, the value of mobile money transactions (as % of GDP) increased by almost sixfold in the three years, from 0.4 per cent in 2012 to 1.0 per cent in 2013 and 2.2 per cent  in 2014.

It should be noted, however, that the number of mobile money transactions decreased by 11.8 per cent between 2013 and 2014, after having increased by 74.3 per cent between 2012 and 2013.


Microfinance

Liberia's policymakers agree that building a sustainable microfinance industry in the country is a key objective that will promote financial service access for all Liberians, and thus enhance the Government’s poverty reduction programme. In line with this, the Central Bank established a Microfinance Unit in 2006 that embarked on a number of initiatives to help create an enabling environment for a national microfinance industry. The Microfinance Policy, Regulatory, and Supervisory Framework for Liberia, approved in 2010, is a key step that guides and oversees the  development and implementation of the national microfinance policy.

Currently, microfinance service providers include commercial banks, credit-only institutions, NGOs, credit unions, rotating savings and credit associations, and informal credit providers. By 2015, there were 20 registered microfinance institutions, 400 credit unions, 1,450 Village Savings and Loan Associations (VSLAs), and nine rural community finance institutions. Three of Liberia's nine commercial banks also offered some form of microfinance, with one, AccessBank Liberia, dedicated solely to microfinance.

MFIs in Liberia now serve more clients than commercial banks in the provision of credits, according to recent data from the IMF Financial Access Survey. In 2012, 4.2 per cent of Liberian adults borrowed from a MFI, compared to 0.9 per cent from a commercial bank, and twice as many people held actual loan accounts with MFIs compared to commercial banks. However, banks still provide far more credit in terms of value : the volume of outstanding loans owed to commercial banks as a percentage of Liberia's GDP was 1,395.8 per cent in 2013, versus 158.3 per cent for all MFIs the same year.

Table of selected financial access indicators, Liberia, 2010- 2014

Table of selected financial access indicators, Liberia, 2010- 2014


 

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At a Glance

Source
Population in thousands (2017): 4,731.91
GDP per capita (current US$) 2017 - World Average 10,721.61: 694.32
Account (%) age 15+) - (2014 vs 2017): 36% (2017)
Agriculture Orientation Index - Credit ( Agriculture, Forestry and Fisheries share of GDP) (2015 vs 2016): 0.09 | 0.06
Financial Inclusion Strategies: National Strategy for Financial Inclusion (NSFI) (2014-2018)
Domestic credit provided by financial sector (% of GDP) 2017: n/a
Made or received digital payments in the past year (% age 15+) (2014 vs 2017): 28% (2017)
Remittances % of GDP for 2017: 0.259
Mortgage Interest Rate / Mortgage Term (years): 13.33% | 8

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