Long-awaited plans to set up a ratings agency to gauge stability levels in Algeria’s banks seem to be back on track, with the process for selecting a monitoring system now gathering pace. The launch of the new ratings system for the nation’s banks has the potential to boost confidence in the sector, while paving the way for increased lending in line with the country’s bid to diversify its economy. Efforts to introduce a ratings system for the banking sector have been slow to get off the ground, with the Bank of Algeria (BoA) delaying its decision on how to implement the process. The launch has already been put back from its originally planned date at the end of 2011, while Mohammed Laksaci, the governor of the BoA, said that bank ratings should be in place from 2013. A representative from the Association of Banks and Financial Institutions (l’Association Professionnelle des Banques et É tablissements Financiers, ABEF) stated in August 2012 that work on the pilot project had now reached the technical elaboration stage.
A VITAL SYSTEM: ABEF general delegate Abderrazak Trabelsi also highlighted the importance of having a ratings system in place. “There must be a bank rating tool, agency or company, regardless of the name, as there is a need for creating a scoring tool for companies and insurance companies. This information is crucial in a market economy,” he said. BoA governor Laksaci added that the rating system would help in the early detection of banks’ vulnerabilities, while playing a significant role in maintaining stability in the sector and protecting depositors. It is understood that three options are being considered by the BoA for the monitoring process; a local ratings mechanism using locally qualified staff, a joint venture with a foreign ratings agency and a system that would enable several separate ratings agencies to operate within Algeria. The BoA has already set up a ratings system in partnership with the IMF and the US Treasury that is currently being piloted in two banks. However, the new ratings system is expected to monitor all banks and financial institutions in Algeria on a range of criteria, such as liquidity, risk management and solvency ratios, while assessing them on a scoring system and establishing rules for intervention. The system should increase the detection of money laundering and other illegal activities in the banking sector, while creating a more transparent means of monitoring banks’ resilience.
PROACTIVITY: Nour Nahawi, the director-general of ABC Bank, an Algerian subsidiary of ABC Bahrain, said that the new ratings system should positively affect the country’s banks: “With a new ratings system forthcoming and efforts to increase lending opportunities under way, the government is taking a proactive stance in maintaining the banking sector’s stability, which should lead to even stronger and healthier banks.”
LENDING: The Algerian banking system has remained stable through the global financial crisis. However, levels of lending to the private sector remain low. The country’s six state-owned banks, which account for about 85% of all assets, are known for adopting a highly cautious stance towards lending, after incurring losses on loans to inefficient public companies. The government hopes that the introduction of an independent ratings agency will encourage better performing banks to lend more freely.
The ratings agency also ensures a strong private sector, a key prerequisite for development. The government plans to boost small and medium-sized enterprises (SMEs) in an effort to secure the future of the banking sector (see overview). To achieve this, a proper strategy, such as the ratings agency, needs to be in place to bring sufficient support to the activities of SMEs.
André Dieu, the head of division at the Algerian branch of French bank Natixis, sees international interest in the North African country as well-founded. “Algeria is a growing market in terms of potential and there is still a relatively low rate of use of the banking system compared to some neighbouring countries,” he said.
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