Financial Sector Overview
Democratic Republic of the Congo (DRC) is the largest Francophone country in Africa, with 90 million inhabitants, 80 million hectares of arable land and rich reserves of natural and mining resources. Provided that political and security stability is guaranteed for at least a decade, DRC could become one of the richest and high-performance economies on the African continent. Commodities play a vital role in the domestic economy. After slowing from 6.9% in 2015 to 2.4% in 2016, the country's lowest economic growth rate since 2001, real GDP accelerated to 3.7% in 2017 and 4.0% in 2018, driven by increases in commodity prices and national mining production, particularly of copper and cobalt, which account for 80% of export revenue. Growth is projected to settle at 4.5 percent in 2019 and 4.6 percent in 2020. In agriculture, multiple feasibility studies on agro-industrial parks are under way. These parks are expected to help diversify the economy, which depends heavily on oil and several mineral products. The National Strategic Development Plan, now being finalized, aims for DRC to become a middle-income country by 2022 owing to agricultural transformation. The government has launched sectoral reforms to strengthen governance and transparency in the extractive industries (forestry, mining, and oil sectors) and to improve the business climate. According to the World Bank’s Ease of Doing Business, DRC ranked 184 out of 190 in 2018. The ranking was similar in 2016 and 2017 and marks only a slight improvement from the 2015 ranking of 187.
Financial Sector Overview
The Congolese financial system is growing but remains fragile and operates primarily through the Central Bank of Congo (BCC). According to the 2017 BCC report, the financial sector in DRC is comprised of 17 commercial banks, 1 network of savings banks called CADECO (Caisse générale d’épargne du Congo), 1 public insurance company (SONAS), 1 pension management institution (CNSS), 3 specialized financial institutions including 1 development bank (SOFIDE), 4 mobile operators money, 79 savings and credit cooperatives and 18 licensed Microfinance Institutions (MFIs). Given the strong dollarization of the economy, the central bank maintains a list of 23 approved exchange offices. Banking and financial activities are mainly concentrated in the major urban centers, including Kinshasa, Central Kongo and the Haut Katanga. The DRC banking system is dominated by five local banks, followed by pan-African banks, because of their historic roots and their branch networks across the country. Commercial banks constitute the bulk of the domestic financial system with more than 90 % of the total assets.
The domestic capital market is underdeveloped and dominated by the issuance of treasury bonds. There is no stock exchange 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 one insurance company and a state pension fund. The Central Bank of Congo (BCC), developed a market for short-term bonds mainly issued by the National Treasury, and most of these bonds are bought and held by local Congolese banks.
Weak legal safeguards, fragile business environment and failure of the interbank market are reducing banks' incentives to provide 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 and foreign currency deposits account for almost 90% of bank holdings. Consolidation and strengthening of microfinance along with reforms of the insurance and pension sub-sector could facilitate the expansion of financial services and attract long-term investors.
As of 31 December 2017, the DRC banking system is comprised of 18 banks, with 3 of them out of business due to governance issues: FIBANK, BIAC and BYBLOS. The coverage rate of the banking system is very low in view of the economic potential of the country; it stagnated in 2017 around 6 %. Rawbank is the leading bank in the country with more than 26% of the total assets of the banking sector in 2017, while the five largest banks hold almost 65 % of bank deposits and more than 60 % of total bank asset; including 4 local banks and 1 foreign bank subsidiary. Bank operations are highly dollarized and essentially based on demand deposits. Total assets of the banking sector in DRC increased by 50% in local currency between 2016 and 2017, but this increase was only 14% in USD. Due to the fact that credits and deposits are mostly denominated in USD, a depreciation of the domestic currency (CDF) against the US Dollar (USD) effectively leads to an increase in the level of local currency credits and deposits. As a result, increases in local currency credits and deposits between 2016 and 2017 have been reduced when converted into USD. Between 2013 and 2017, total assets of the banking sector increased from 3250 CDF billion (3.6 USD billion) to 8377 CDF billion (5.35 USD billion); while loans and deposits amounted respectively to 3000 CDF billion (1.9 USD billion) and 5803 CDF billion (3.7 USD billion) in 2017. Although 2017 was marked by a strengthening of the capital base compared to 2016, the level of allowance for credit losses increased by 18% and net income was negative and decreasing. Transactions involving correspondence with associated foreign banks represent a significant part of banks’ operations. Correspondent accounts represent more than 30% of bank assets and more than 95% of interbank market activity. They allow banks to settle transactions denominated in dollars, reflecting efforts to limit risks. According to the BCC data, bank financing to the economy accounted for only 7% of GDP in 2017 compared to 9.4% in 2016. Local currency loans and deposits respectively accounted for only 7.4% and 10.6% of total volumes of banks; thus, showing a strong dominance of the US Dollar in domestic banking operations.
The Central Bank (BCC) policy rate rose from 7% in 2016 to 14% in January 2017, and 20% in June 2017. The interbank market rate was lower than the policy rate over the two years, from 3.5% to 14.4%. However, effective loan and deposits rates remained negative on average in 2017 due to a sharp rise in inflation. In April 2018, the policy rate fell to 14%, then to 9% in May 2019.
Interest rates in the DRC banking system differ depending on the base currency: CDF or USD. In 2017, local currency and USD denominated lending rates were respectively 21.47% and 15.57%, while deposits rates were 4.13% and 3.64% respectively.
Financial inclusion is one of the main building blocks of inclusive growth in the DRC. The country has a historically low take-up of financial services but in recent years, some progress can be noted in this area. According to a recent FinMark study, out of an estimated adult population of 40 million, more than 25 million people are financially excluded in DRC while 7 million have access to formal financial services. Only 1.1 million people use at least 2 types of financial services. Financial exclusion affects both low-income and middle-class populations. More than 900,000 adults earning over $ 200 a month do not have access to any formal financial services, while 1.5 million adults earning between $ 100 and $ 200 are also financially excluded. On average, men seem to have higher access than women: 13% of adult men have access to financial services (compared to 10% for women) and 27% are financially excluded (compared to 36% of women). Given these data, the DRC appears to be one of the least performing economies in the region in terms of financial inclusion.
In addition, an upgrade of the national payments system and related regulation are currently being developed to address interoperability, encourage payment partnerships, and allow better access to payment systems and telecoms infrastructure. Mobile money operators are also developing capacity in the country, e.g. the number of Vodacom M-Pesa agents increased from 3,000 in 2013 to close to 30,000 in 2017, thus covering a much larger territory. However, the DRC financial system as a whole faces access and usage barriers, such as poor distribution infrastructure, high transaction costs linked to low density of bank branches and ATMs, as well as trust, capability and awareness issues.
The microfinance sector in DRC has grown rapidly since 2011, but remains underdeveloped. Several MFIs and credit unions have also experienced governance issues. In 2013, 37 institutions went into bankruptcy and 63 licenses were withdrawn by the BCC.
As of 31 December 2017, the microfinance sector is comprised of 102 institutions, including 20 microfinance institutions (MFIs) and 82 credit and savings unions. The total remained unchanged compared to 2016, but down from 2015 (128 MFIs) due to persistent withdrawal of licenses by the central bank. 3 regions concentrate most of the MFIs: North Kivu, South Kivu and Kinshasa with respective shares of 25.5%, 23.5% and 19.6%. The sector has 1,930 million active accounts, with 48.3% of them belonging to women. Total assets amounted to 234.3 USD million at the end of the same year, accounting for 4.5% of the entire financial system total assets. Outstanding credit reached USD 121.8 million while deposits amounted to USD 175.2 million in 2017.
According to the 2017 Global Findex, the number of adults holding mobile money accounts increased by 6.9 percentage points between 2014 and 2017, from 9.2% to 16.1%; below the Sub-Saharan Africa average. Predominant cash-based P2P (Person-to-Person) financial exchanges in DRC represent a medium- and long-term commercial opportunity for mobile money operators due to the growing adoption of mobile services across country. Mobile penetration rate in 2017 hit 26 % with 21 million subscribers. GSMA has been supporting policymakers’ efforts to update regulation in a number of key areas. The new Telecom Bill – adopted in May 2018 – is a significant step in terms of regulatory modernization in the mobile industry.
Banks ATMs density is very limited (0.19 ATMs per 1000 km2) and there were 8000 active mobile money agents, out of a total of 32000 registered agents in 2016.
Remittances inflows into DRC originate mainly from 9 countries, including Angola, Belgium, Burundi, Canada, Congo-Brazzaville, France, Rwanda, South Africa and USA. Total remittances into DRC from all nine countries amount to 305 USD million per annum, of which 81% is estimated to flow via informal channels. The largest of these remittance markets is Angola, followed by France and Congo-Brazzaville. 58% of remittances come from other African countries.
The insurance penetration rate in 2017 was 0.29%. The market is underdeveloped and total premiums collected are close to 80 USD million in 2019. Having long operated under the state monopoly of SONAS – Société nationale d’assurances – created in 1967, the insurance sector in the DRC was liberalized in March 2019 with the entry of 6 new private operators into the domestic market. Based on Bloomberg forecasts, this market could be worth as much as 500 USD million a year. A series of reforms were launched in 2012 and the new insurance legislation, Act No. 15/005 of 17 March 2015, was adopted to liberalize the sector and attract private insurance companies. This legislation has allowed the effective establishment of the Insurance Regulatory and Control Authority, known by the French acronym ARCA, which has received interest from at least 16 companies to be awarded licenses. However, implementation has been slow and regulation delayed as new structures are being put in place.
The new law will require insurance companies to keep 25% of total premiums in Congo, a potential boon for domestic financial liquidity.
The pension system in DRC is managed by the National Social Security Fund (Caisse Nationale de Sécurité Sociale - CNSS), known before 2016 as INSS (Institut Nationale de Sécurité Sociale). The new Act on Social Security entered into force on 16 July 2017 and provides for (i) the harmonization of the retirement age between men and women, which is set at 60 years, subject to social contributions requirements, and (ii) the introduction of compulsory retirement at 65 years. The Act will also allow private companies and independent workers to be included in the national pension system, whose coverage rate is less than 10% of active population. Pension contribution rate is set at 10%, with equal parts for the employee and the employer.