Cameroon: Cameroon Financial Sector Profile

Cameroon has enjoyed a decade of strong economic performance, with GDP growing at an average of 4 % per year. During the 2004-2008 period, public debt was reduced from over 60 % of GDP to 10 % and official reserves quadrupled to over USD 3 billion.

Despite these positive signs and abundant natural resources, Cameroon’s economy remains vulnerable to external shocks. The economy is dominated by the oil sector, which accounts for about 40 % of fiscal revenue and 50 % of export earnings, rendering it sensitive to fluctuations in commodity prices and request: Cameroon is from now on to recover from the effects of low energy prices in the 1980s, which led to GDP dropping by 60 %.

In addition, poverty levels remain unchanged, with about 40 % of the people living below the poverty line – making the attainment of the Millennium Development Goals a distant reality for Cameroon.

Cameroon’s economy is the major in the CEMAC region, accounting for about half of regional financial assets. The financial sector is dominated by large foreign banks with excess liquidity out of the eleven major banks are foreign owned. Non-bank financial institutions play a minor role, the public insurance and pension system is in difficulties and the public postal bank, inclunding the real estate finance institution are insolvent.

Access to financial services is limited, particularly for SMEs. Aside from a traditional tendency for banks to prefer dealing with large, established companies, determining factors are as well found in interest rates for loans to SMEs being capped at 15 % and being heavily taxed. Further, problem of legal enforcement of guarantees and the land tenure system hamper the utilization of real estate as collateral. As of 2006, bank loans to SMEs hardly reached 15 % of total outstanding loans.

At the retail level, less than 5 % of Cameroonians have access to a bank account. While the microfinance sector is as a result becoming increasingly significant, its development is hampered by a loose regulatory and supervisory framework for microfinance institutions (MFIs).

Access to housing finance is equally difficult for households. Even though Cameroon hosts the leading real estate fund in the CEMAC region, with a capital of US$ 200 million, disbursements are not made for housing loans. The fund suffers from huge problems of non-performing loans, with a NPL rate close to 80 %, has been insolvent for several years and remains heavily subsidized by the government.

The banking sector is highly concentrated and dominated by foreign commercial banks out of the eleven major commercial banks are foreign-owned, and the three major banks hold additional than 50 % of total economy assets.

While foreign banks generally display good solvency ratios, small domestic banks are in a much weaker position. Their capitalization is well below the average of banks in the CEMAC region and their profits are close to 2 %, compared to 20 % for foreign banks in the country. This is partially explained by the high levels of non-performing loans, which reached 12 % in 2007, leading to most banks holding large amounts of excess reserves as a percentage of deposits and large levels of unutilized liquidity.

In general, financial intermediation is amongst the lowest in Sub-Saharan Africa, and the range of financial products offered is limited and with a strong short-term bias.

Cameroon plans to start issuing government securities in the domestic market in the near next. However, the basic market infrastructure to support the development of capital markets in the country lags behind issuing plans: regional auction mechanism and dealer-type systems to support both the primary and secondary market are not from now on fully in place. Furthermore, a cash and debt management framework is not from now on established at the Treasury, hampering budget financing through government debt securities.

Due to the integration of Cameroon in the CEMAC region, regional laws govern most of the country’s economy, often rendering legal procedures cumbersome. Accounting requirements under the OHADA framework are not from now on fully in line with International Financial Reporting Standards (IFRS).

In 2008, the world downturn had moderate effects on Cameroon’s economic activity, but the world crisis is expected to take a considerably better toll in 2009. Although Cameroon’s banking sector is not directly exposed to the world financial turmoil, its economic activity is expected to be adversely affected by lower world prices and sluggish request for Cameroon’s major export commodities, delays in investment projects due to tight liquidity conditions, and lower remittance flows.