Bad debts grip Gambian banks

Trust Bank's Ofori-Atta and Macoumba Njie The revolution in the financial industry of The Gambia in recent years has augured well for the national economy and arguably business transactions, but the competition in the banking industry has left commercial banks in the country rocking the boat of bad debts due to unprecedented rate of loans and advances given out to customers. Commercial banks in The Gambia are grappling with bad debts more than ever before 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. Skye Bank's MD, Akim Yusuf The situation of FIBank, which by the end of last year published a long list of bad debtors owing the bank tens of millions of dalasis, is a case in point. The International Commercial Bank of The Gambia also threatened to publish its list of bad debtors last year, due to huge sums of money or loans that are not likely to be paid by the debtors. Impeccable sources in the banking industry have also revealed to Gambia News Online that banks such as Sky Bank Limited are contemplating publishing names of loan defaulters. The wave of bad debts in the financial industry is also sensed in the air as banks and non-banking financial institutions continue to drag their clients to court to settle huge sums of money owed to them, some leading to the confiscation of landed properties of defaulting customers. Trust Bank Gambia Limited and Standard Chartered Bank Gambia Limited are also struggling with controlling their loan portfolios. While Trust Bank is concerned that non-performing loans has been increasing and requires some checks, Standard Chartered Bank (SCB) is fighting tooth and nail to clean up its balance sheet of loan impairment. “The Wholesale Banking business [of SCB] saw an increase in its loans and advances portfolio, but this was offset by a decline in the Consumer Banking loan and advances portfolio, resulting in a marginal decline of 2 per cent in the Bank’s loan and advances portfolio,” said SCB Executive Director for Finance, Richard Ahulu. In the same vein, Trust Bank Board Chairman Ken Ofori-Atta cried out: “The loan books of Banks have consequently shown unprecedented levels of impairment and requires an urgent need for balance sheets to be cleaned up.” The incidence of loan default is greater and intensive than even the competition, as a risk to the banking system, Sky Bank Managing Director Akim Yusuf said in an interview with Gambia News Online. “At the end of the day banks would also have to make provisions from their profits, which will also eventually reduce bank profitability,” Mr Yusuf noted, saying: “So it is a greater risk than even the competition between banks. It can affect the overall macroeconomic policy of the government, because it reduces bank capacity to lend to the real sectors of the economy.” According to the IMF mid-2010 report, while the increased number of banks in The Gambia helped to fuel a deepening of financial intermediation, it has also heralded intense competition among the banks in the country in a small market of 1.7 million people, which makes banks vulnerable to bad debts. “As a result of the competition for instance,” Mr. Ofori-Atta observes, “there has been increased lending in both the public and private sectors, which unfortunately led to increased risks and Non-Performing Loans (NPLs) to the banking system.” The intense competition has also resulted in a sharp rise in the cost of deposits and staff remuneration, noted the Trust Bank board chairman, who says “all of these have combined to amplify the pressure on banks’ earnings”. Total earnings for the banking sector as a whole was negative in 2009, provision for loan losses increased and the level of non-performing loans also increased, according to Ofori-Atta. “Although the capital adequacy ratio of 19% indicated the banking sector was still adequately capitalised, this still represented a massive drop from the preceding years and the aggregate percent masked a wide dispersion across banks,” he added. The Central Bank of The Gambia is, however, applauded by the banks for “taking 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.  “We expect that with all of these policy measures [by the Central Bank of The Gambia], banks in The Gambia should be much healthier,” Mr. Atta said.