Central Bank of Liberia tackles non-performing loans
MONROVIA – Following the quarterly meeting of its Monetary Policy Committee (MPC) on May 19, 2021, the Central Bank of Liberia (CBL) decided to strengthen its engagement with commercial banks to mitigate the risks of non-performing loans on stability the financial sector, with the aim of improving asset quality and loan valuation. The CBL also resolved that loan recovery be pursued aggressively, in accordance with its regulations.
Announcing monetary policy decisions on behalf of the Monetary Policy Committee, CBL Executive Governor J. Aloysius Tarlue said that in addition to engaging with commercial banks to mitigate the risk of nonperforming loans, CBL will initiate discussions with the government of Liberia and other stakeholders for the establishment of specialized development finance institutions to support lending to the main growth engines of the economy, in particular agriculture and manufacturing.
Other decisions made at the May 2021 MPC meeting included maintaining the current monetary policy rate of 25%, with an upper band of +500 basis points for the standing credit facility, as well as a threshold of 25% reserve requirement for Liberian dollars and 10%. for United States dollars. The CBL will also strengthen its engagement with the Ministry of Finance and Development Planning (MFDP) to resume issuance of GoL money market instruments in Liberian dollars to increase fiscal space to increase investment in Liberian dollars. growth sectors, in particular the agriculture and manufacturing sub-sectors.
Monetary policy decisions have been guided by national and global macroeconomic developments:
Global and regional macroeconomic developments
The global economy has rebounded from a 3.3% contraction in 2020 and is expected to grow 6.0% in 2021, according to the International Monetary Fund (IMF). The MPC noted favorable developments in the prices of palm oil, cocoa bean, rubber and rice, as well as those of iron ore, crude oil and precious minerals (excluding l ‘gold).
The MPC also noted a slight increase in global inflation in 2021 to 3.5% from 3.2% observed in 2020, while in sub-Saharan Africa it is projected at 9.8% for 2021, 1 , 0 percentage point below the 2020 average. Monetary policy rates, on the other hand, remain stable in both some advanced and West African countries, with the exception of Sierra Leone, which lowered its monetary policy rate in the first quarter of 2021 compared to the fourth quarter of 2020.
Domestic macroeconomic development
The MPC has projected that Liberia’s real gross domestic product (RGDP) will grow to 3.6% in 2021, after falling 3.0% in 2020, while inflation for the first quarter of 2021 has moderated. at 11.1%, compared to 12.5% in 2020. Liberia’s external account has improved. clearly, the trade deficit representing only 1.7% of GDP in March 2021 against 4.0% of GDP in the previous quarter, mainly reflecting the increase in exports.
The Liberian dollar, meanwhile, appreciated to LD 171.53 / $ 1.00 from LD 172.52 / $ 1.00 in the fourth quarter of 2020.
The banking sector, the MPC noted, remained in compliance with capital adequacy (CAR) and liquidity (LR) ratios, at 29.3% and 47.6, respectively, well above their respective thresholds. . However, non-performing loans remained above the tolerable regulatory level, deteriorating an additional 5.7 percentage points to 26.9% of total loans.
Subscriptions to CBL invoices increased 7.5% to LD 10.9 billion from LD 10.1 billion in the fourth quarter of 2020, due to increased subscriptions from commercial banks and retail investors of 10.4% and 17.5%, respectively.
Overall, the above economic developments prompted the PPM to maintain the current monetary policy rate at 25% and reserve requirements.