Financial Sector Overview
The Gambia is the smallest country on mainland Africa. Its economy is limited and undiversified, relying primarily on tourism, agriculture, and remittances inflows. Real GDP growth reached 5.4% in 2018, up 1.9% points from 2017 (3.5%). Essentially driven by the services sector which grew by 10% in 2018, economic growth is projected at around 5% in 2019 and 2020. The Gambia is also vulnerable to poor harvests and large-scale health crisis as evidenced by the recent West African Ebola outbreak affecting Gambia’s neighboring countries which resulted in a sharp decline in export receipts by half as tourism inflows collapsed. The country was reclassified as a fragile state in 2014, which mainly reflects the deterioration in its macroeconomic conditions, in particular the recent significant build-up of public debt and large balance of payment imbalances. With a high level of public debt which represents 87% of GDP in 2018, policymakers in Gambia have to face key long-term development challenges such as fiscal deficit (6.2% in 2018), access to energy and clean water, narrowness of the private sector and weak institutional capacity to stimulate sustainable economic growth.
Overview of the Financial Sector
As of 31 December 2017, the Gambia’s financial system comprises the Central Bank of the Gambia (henceforth, CBG), 12 commercial banks, and other financial institutions including 1 pension fund, 13 insurance companies, 128 microfinance institutions and foreign exchange bureaus. There are also 2 licensed finance companies, namely Reliance Financial Services Ltd, a non-bank financial institution providing deposits, loans and remittances services to medium/low-income Gambians, and the National Association of Cooperative Credit Unions of The Gambia (NACCUG), the apex body for all credit unions in the country. The NACCUG promote and support the development of credit unions through various services including capacity building and finance facilities.
The financial system is shallow, underdeveloped and largely dominated by commercial banks; the majority of which are foreign owned and mainly subsidiaries of Nigerian banks. The country also has a fixed income market but it is relatively small and largely limited to government securities. The level of financial depth in The Gambia is well above the rest of African countries. Global Financial Development Data (GFDD) shows that in 2014, the ratios of financial system deposits to GDP and deposit money banks’ assets to GDP for The Gambia were 43.94% and 40.15%. However, domestic credit provided by financial sector in 2017 stood at 38.1% of GDP well below the average for sub-Saharan Africa (61.8%). Deposit money banks dominate the financial system and are the sole providers of credit to the private sector. As of June 2019, there is no stock exchange. In order to reduce fiscal deficit, Gambian authorities took measures in 2017 to curtail short-term borrowing from the domestic market while lowering the Treasury Bills rates. As a result, investments in this category of assets declined by 9.7% to 11.8 GMD (Gambian Dalasi) billion, 248 USD million in 2017, compared to an increase of 23.2% in 2016. Investments in government securities also declined by 2% to 15.1 GMD billion (317 USD million) in 2017.
The CBG established a Credit Reference Bureau (CRB), which became fully operational in July 2009 following the amendment of the Banking Act to allow banks to share confidential customer data through the Credit Reference Bureau. The CRB is now fully functional, but there have been delays in the updating of borrowers’ information by commercial banks.
Structure of the banking Sector - The banking industry of The Gambia in 2017 consists of 12 banks, of which one is an Islamic bank, and 11 are conventional commercial banks. This marks an expansion of the number of banks from 8 in 2006. The number of bank branches per 100 000 adults increased from 5.2 in 2006 to 8.8 in 2012, but declined to 7.4 in 2017. The banking system is highly concentrated, with the 4 largest banks accounting for 66% of total assets in 2017, while the top 4 borrowers account for about 50% of total loan portfolio. The asset base of banks expanded significantly between 2004 and 2013, growing by over 300%over the 10-year period. . This may be explained by the entry of 6 new banks over the period, coupled with the geographic expansion of bank branches. Banks total assets expanded by 16% to 37.8 GMD billion (793 USD million)at end of December 2017.
Loans and Deposits of the banking sector – The growth of banks’ loans and advances and that of banks’ deposits have also been striking. The volume of total deposits nearly quadrupled, while the volume of total loans and advances increased by a factor of 3.7 between 2004 and 2013. But in terms of transformation of deposits into credit to the private sector, the loans-to-deposits ratio is relatively low. This may be explained by banks’ increasing preference to lend to the central government and reflects the low level of financial intermediation in the economy. The bulk of banks loan portfolio to private sector is distributed as follows: distributive trade (31%), other loans and advances (30%) and building and construction (14%).
Interest Rates - In 2017, the average lending rate is 29% while deposit rate stood at 15.8%. Data from the World Bank’s Global Financial Development Database (2018) shows that bank lending-deposit spreads in The Gambia are among the highest in SSA: over the period 2010-2017, they varied between 12% and 16%; the median spreads for the group of developing countries in SSA remained below 10% over the same period. The prolonged high interest rates, partly caused by the government’s high net domestic borrowing, have been damaging to the private sector, and in particular to some state-owned enterprises (SOEs), contributing to the deterioration of their financial position. Other causes of high interest rates include high reserve requirements, high overheads as well as legal and institutional difficulties in recovering loans and realizing collateral.
Financial soundness - The banking system as a whole is well capitalized, highly liquid and also profitable. Asset quality has also improved with non-performing loans ratio declining to 7.2% as of end-December 2017, from 9.3% a year ago and after peaking at 20.5% in 2013. The high NPL ratio by end-2013 was mainly attributable to the huge volume of NPLs from one bank. The risk weighted capital adequacy ratio stood at 33.6%, higher than the minimum statutory requirement of 10%. The CBG continues to upgrade its regulatory and supervisory framework to ensure that the financial system remains stable. Over the 2011-2015 period, Return on Assets (ROA) and Return on Equity (ROE) for the industry stood respectively at 3.2% and 19.3% on average. Banks remained highly liquid with the liquidity ratio at 92.47% in 2017, well above the required minimum of 30%. Despite the marked decline in banks assets, Treasury bills still accounted for 56% of banks’ total liquid assets. However, many challenges remain. Firstly, credit concentration is significant: the top four borrowers account for 54% of the total loan portfolio. Secondly, there is significant variation in financial soundness indicators between banks. In particular, the capacity of some of the larger banks to absorb an increase in nonperforming loans (NPLs) or an external shock is potentially lower than the aggregate indicators would suggest. Finally, fiscal distress related to government overspending has had a damaging impact on financial sector stability, given the high commercial banks’ exposure to government debt.
Despite its low level of financial development, and in comparison with other Sub-Saharan Africa countries, The Gambia performs relatively well regarding some financial inclusion indicators such as number of bank branches per 100,000 adults (7.4) and bank accounts per 1,000 adults (357) in 2017. The Sub-Saharan Africa average is 4.5 for bank branches per 100,000 adults while the bank accounts ratio is 187. This is partly explained by the rapid expansion of the bank branches network, due to the doubling of the number of commercial banks in the last decade. However, The Gambia lagged behind its West African pairs when financial inclusion is measured by access to financial services by private firms and SMEs, because of crowding-out effects of significant bank financing dedicated to public spending. The financial infrastructure – financial institutions branches and ATMs – is not equally distributed over the national territory, and remains concentrated in a few regions including the capital city. Mobile money and microfinance services are still in their infancy in The Gambia.
Supervised and regulated by the CBG, the Gambian microfinance industry is made up of 3 large institutions, 14 active Village Savings and Credit Associations (VISACAs) on a total of 65 registered VISACAs and 64 credit unions. Total assets in the microfinance industry rose to 2.2 GMD billion in 2017 (46.2 USD million). Total loans extended by microfinance companies increased to 207.3 GMD million (4.35 USD million), a 43.7% growth from December 2017 to December 2016, while credits unions loans stood at 735.9 GMD million (15.44 USD million) in 2017 (+ 16.7%). Data are not available for VISACAs’ financial assets and members, but weak internal capacity, low level of capital and inadequate internal control remain central issues for the expansion of this type of microfinance institutions. Credit Unions are supervised by the National Association of Cooperative Credit Unions (NACCUG), which provides technical and advisory support. NACCUG is regulated and supervised by the CBG as a financial institution. More than 214,000 clients/members – of which 133,000 clients held account in microfinance companies – had access to the services of microfinance institutions, nearly 20 percent of the adult population In 2017, the CBG issued guidelines for microfinance companies and credit unions, as well as capital requirement measures for VISACAs in order to strengthen the microfinance industry regulatory and supervisory framework.
Mobile money (MM) services are still at a formative/an early stage in The Gambia. The CBG, acting under sections 52 and 75 of the CBG Act 2005, introduced a regulation for the provision of MM services on October 15, 2011. This regulation allows telecoms operators to provide mobile money services, opening the way for a telecom-led development of this service. It also stipulates the requirements for the provision of this service. In particular, the capital requirements are set at 10 GMD million (233,400 USD), with a security deposit of 5 GMD million (116,700 USD).
2 GSM companies subsidiaries successfully went through the licensing process. They were granted license in early February 2016 to provide mobile money services. The first is Africell, which launched its MM service “Africell money service” in February 2016, allowing subscribers to send and receive money through their mobile phone. The second, QCell launched its MM services under the brand name ‘Qodoo’ in March 2016. Both Africell and QCell are under supervision of the CBG and the PURA (Public Utilities Regulatory Authority), and subjected to external audits on an annual basis. Some banks are progressively integrating MM services in their products line, thus opening a window for further collaboration between financial institutions, mobile network operators and financial regulators in the near future to make MM interoperability possible in the country. With 1.4 million unique subscribers to mobile network and 67% of mobile penetration rate in 2016, the second highest in West Africa after Ghana, MM services represents a huge opportunity for financial inclusion in the Gambia.
There are 11 insurance companies, including one Takaful/Islamic operator. The sector also consists of 10 brokerage firms and 74 insurance agents. 9 companies are involved in the non-life insurance business, including the Takaful specialized-company, and the remaining 2 companies propose life insurance products. There is no domestic reinsurance company, but regional and international reinsurers deal with domestic insurance companies. The industry is regulated by the 2003 Insurance Act, the Insurance Regulations Act 2005, and the Insurance Amendment Act 2006, which provides for the operation of Takaful. As of end-December 2017, total assets in the industry rose to 566.3 GMD million (11.9 USD million). Non-life companies accounted for 80% of total assets, i.e. 453.3 GMD million (9.5 USD million). Total premiums and claims respectively increased by 5% to 283.2 GMD million and by 23% to 71.6 GMD million. The domestic insurance market remains shallow with a penetration rate around 1%. Recently, the CBG benefited from an African development Bank technical assistance program aiming to review the insurance legislation and insure the sector’s transition to the International Financial Reporting Standards (IFRS).
Social Security System
The Gambian pension system is mainly managed by the Social Security and Housing Finance Corporation (SSHFC), while Gambian civil servants are under a separate pension scheme run by the government under the Pension Act 1950 (cap.137). SSHFC provides social protection services in The Gambia, with 3 schemes: the Federated Pension Scheme (FPS), the National Provident Fund (NPF) and the Industrial Injuries Compensation Fund (IIPC). The FPS covers non-government public sector or quasi-government institutions employees, with a contribution rate of 15% of gross salary. Private sector workers could also be registered under this scheme. The NPF covers private sector employees with a contribution rate of 15% (10% for the employer and 5% for the employee); while the third fund is dedicated to public and private sectors workers, excluding casual and domestic workers as well as and military. Pension fund assets amounted to 5.63 GMD billion or 119 USD million in 2017, representing 13% of the Gambian financial system assets. The legal and minimum retirement ages are respectively 60 and 45, while the minimum length of service required for a regular pension is only 10 years.
Contact Details Information of Banks operating in The Gambia