Interview: Mohammed Laksaci
How is the implementation of the regulations on large exposures proceeding?
MOHAMMED LAKSACI: The regulations on large exposures have existed since the early 1990s. They cover the maximum level of risk that a bank or financial institution may incur on a given beneficiary or group, in relation to its total regulatory capital. They also cover the overall allowable level of risk. The new regulations enacted in February 2014 have tightened the definition of large exposures: instead of 15% previously, large exposure now applies to risks exceeding 10% of a lender’s regulatory capital. The new regulations have also tightened the overall limit for these risks from 10 to eight times the regulatory capital. This is an adjustment to the existing regulations to comply with prevailing international standards. A six-month deadline allowed all banks and financial institutions to prepare for and meet the new standards.
In December 2014, the IMF recommended that Bank of Algeria takes a more active role in interest rate management. What are the benefits and shortcomings of such a strategy?
LAKSACI: In its 2014 Article IV Consultation report, the IMF noted that the current monetary policy appeared appropriate and that a careful monitoring of inflation and liquidity was important. In the event of an increase in excess liquidity and inflationary pressures, more active use of interest rates will be justified to signal monetary policy tightening.
For Bank of Algeria, which is empowered to conduct monetary policy and assigned the mandate of ensuring price stability, more active management of interest rates is linked to the evolution of inflation. Interest rates hikes or declines intervene to influence the level of credit, with the ultimate objective of preserving price stability. In 2015, inflation increased but deviated only slightly from the target. Therefore, Bank of Algeria did not see the need to change its intervention rates to absorb excess liquidity in the interbank money market. The objective of a rate hike is to contain the expansion of credit, and therefore money. This is far from justified in 2015. Indeed, compared to end-December 2014, money supply increased by only 1.2% by end-October 2015.
Which sorts of strategies can further reduce the rate of non-performing loans (NPLs)?
LAKSACI: To help banks and financial institutions in their sustained efforts to better manage credit risks, Bank of Algeria has established a new credit registry, which started operating in mid-September 2015. The registry serves essentially as a database on all loans and bank guarantees. It allows the banking sector to regularly evaluate online the risks of all current and potential clients, which is key to further reducing NPLs.
What is the likely time frame for the widespread use of cashless payment systems in the country?
LAKSACI: The use of cashless payments by companies and households depends on changes in behaviour and habits. In the case of card payments, it also depends on the pace at which terminals are made available, which in turn depends on the extent of their acceptance by businesses and retailers.
Bank of Algeria and the banking community have successfully worked on implementing the real-time system for large amounts and urgent payments. This system, which has been in operation since 2006, meets all of the criteria recommended by the relevant committee of the Bank for International Settlements. It is safe, reliable and secure. In addition, the banking community is working on accelerating the implementation standards, legal framework, and authorisations for card payments via an electronic network to facilitate customer payments to utility companies. The project is progressing on schedule.
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