FINANCIAL SECTOR ASSESSMENT PROGRAM – DEVELOPMENT MODULE MALI THE BANKING SYSTEM AND CREDIT TO THE ECONOMY TECHNICAL NOTE DECEMBER 2015 This Technical Note was prepared in the context of a Financial Sector Assessment Program mission in Mali during March 2015 led by Mehnaz Safavian, World Bank, and overseen by Finance & Markets Global Practice, World Bank. The note contains technical analysis and detailed information underpinning the FSAP assessment’s findings and recommendations. Further information on the FSAP program can be found at www.worldbank.org/fsap. THE WORLD BANK FINANCE & MARKETS GLOBAL PRACTICE -i- Contents Acronyms ......................................................................................................................................................... iii I. Executive Summary ........................................................................................................ 1 II. Background and context ................................................................................................. 2 III. Structure and Overview of the Banking Sector .............................................................. 4 IV. Soundness and Performance of the Banking Sector ....................................................... 7 V. Legal, Regulatory, and Prudential Framework ............................................................. 12 VI. Credit to the Economy and Financial Inclusion............................................................ 15 VII. Recommendations ......................................................................................................... 23 Figures Figure 1: 5-year Growth in assets, loans, and deposits: Source: BCEAO .................................5 Figure 2: Mali: Ownership Structure of the Banking System as of Dec. 2013 (in % of total banking system assets) .......................................................................................................6 Figure 3: Credit to 5 largest borrowers as % of Equity Capital .................................................9 Figure 4: Break-down of spreads in Mali & WAEMU............................................................11 Figure 5: Sectoral Distribution of Credit (12/31/2013) ...........................................................15 Tables Table 1: Update on Main Banking Sector Recommendations of the 2008 FSAP .....................3 Table 2: Evolution of the Banking Sector..................................................................................4 Table 3: Shareholding of Banks .................................................................................................7 Table 4: Capital Adequacy.........................................................................................................8 Table 5: Bank Liquidity ...........................................................................................................10 Table 6: Profitability and Performance of the Banking Sector ................................................11 Table 7: Prudential Requirements Applicable to Banks in the WAEMU ...............................13 Table 8: Financial Inclusion Indicators-% of Malians> 15 yrs................................................21 Table 9: Financial Inclusion Indicators- in % of adults > 15...................................................21 Table 10: Main Recommendations ..........................................................................................23 Appendix 1: Financial Soundness Indicators………………………………………………..25 - iii - ACRONYMS APBEF Professional Association of Banks and Financial Institutions BCEAO Central Bank of West African States BC Banking Commission BIC Credit Information Bureau BDM Banque de Développement du Mali (Development Bank of Mali) BHM Banque de l’Habitat du Mali (Housing Bank of Mali) BIM Banque internationale du Mali (International Bank of Mali) BMS Banque Malienne de Solidarité (Malian Solidarity Bank) BNDA Banque Nationale de Développement Agricole (National Agricultural Development Bank) BRVM Regional Securities Exchange CCJA Common Court of Justice and Arbitration CMDT Malian Textile Development Company DGDP Directorate General of Public Debt FGHM Mali Mortgage Guarantee Fund FI Financial Institutions FSAP Financial Sector Assessment Program FSI Financial Soundness Indicators FSSA Financial System Stability Assessment GDP Gross Domestic Product GNP Gross National Product IFRS International Financial Reporting Standards IMF International Monetary Fund KFS Key Facts Statement LIC Low Income Countries MoF Ministry of Finance MFI Microfinance Institution MIS Management and Information Systems MSME Micro Small and Medium Enterprises OHADA Organization for the Harmonization of Business Law in Africa PRSP Poverty Reduction Strategy Papers RCCM Trade and Personal Property Credit Registers ROA Return on Assets ROE Return on Equity RWA Risk-Weighted Assets SME Small and Medium-sized Enterprises SSA Sub-Saharan Africa SYSCOA West African Accounting System TAF Tax on Financial Activities WAEMU West African Economic and Monetary Union WAMU West African Monetary Union -1- I. Executive Summary 1. There has been sustained development of Mali’s banking sector in recent years, but it remains shallow, and access to banking services is limited. Banking overwhelmingly dominates Mali’s financial sector, with some 97 percent of financial sector assets. Private credit/GDP stood at 21.8 percent in 2013, placing it above the median for.Africa (17.4 percent) and for all low-income countries (16.4 percent). Domestic deposits/GDP, at 23.1 percent, is roughly in line with the median for low income countries (23.5 percent). However, survey data indicate that financial inclusion is lower than in comparable countries. 2. The banking sector generally appears to be adequately capitalized and profitable, though performance varies widely among banks and asset quality is weak. Banks appear to be adequately capitalized, with an overall capital adequacy of the system (Basle I) of 12.9 percent in 20131, above the WAEMU average of 10.6 percent, though one small and one mid- sized bank failed to meet the minimum CAR of 8 percent (Basle I) as of June 2014. Furthermore weaknesses in loan classification and provisioning, gaps in prudential regulation and a history of regulatory forbearance may cast doubts on the reported health and capitalization of the system. Risk concentrations, credit quality, and growing liquidity constraints represent the most significant challenges to the safety and soundness of the sector. Banks are profitable, with an overall ROA of 1.2 percent and ROE of 14.1 percent. Gross intermediation margins have averaged around 8 percent over the past 3 years, with a declining trend (7.7 percent in 2013). This is below the African and low income medians of 8.8 percent and 9.6 percent respectively2. The margins reflect a relatively high cost base (non-interest expense of 55.8 percent of net banking income) and high credit risks. Asset quality is weak but improving. 3. Weak prudential standards and lax enforcement pose potential problems for bank soundness, but reforms are underway. Loan classification and provisioning regulations, capital adequacy, and risk concentration norms fall short of international standards. BCEAO, with technical assistance from the IMF, has initiated a gradual implementation of Basle II/III standards, and has also taken measures to, inter-alia, improve credit information, adopt international accounting standards, and implement consolidated supervision, which is becoming increasingly important given the increased presence of regional bank groups in Mali. While awaiting full implementation of these measures, the Banking Commission (BC) should step up its enforcement. 4. Banks in Mali have traditionally provided credit to a relatively limited universe of companies, and were able to earn comfortable spreads on this traditional client base. However, with new entrants and healthier banks, competition for these companies has increased, putting downward pressure on lending rates. A positive result of recent competitive pressures is that banks are actively looking for new and more profitable lending opportunities 1 BCEAO. 2 Fin stats 2015, IFS. -2- among retail clients (primarily urban salaried workers) and SMEs. As a result, lending to the largest 50 borrowers has been declining, falling from 60 percent of the total portfolio in 2012 to 39.4 percent as of December 2014. 5. Weaknesses in financial infrastructure, the legal and judicial environment, and in the broader macroeconomic context represent obstacles to further diversifying and broadening credit to the economy. Major constraints include: i) poor contract enforcement; ii) inadequate credit information systems; iii) weaknesses in the secured transactions framework; iv) the preponderance of the informal sector in the economy; v) the lack of organized supply chains outside of the cotton sector; and v) the scarcity of long-term resources to finance investment. The national and regional authorities are cognizant of the need to address these constraints, and a number of relevant reform efforts are underway. 6. Mali’s high poverty levels, large landmass, and low population density make financial inclusion a challenge. The latest Findex survey indicates that just 13 percent of Malians have an account with a financial institution. Mobile money is growing rapidly, and holds promise for reaching rural areas which cannot be sustainably served by traditional branch banking. Existing services need to be broadened from basic payment services to a more comprehensive menu of remittance, savings, credit, and insurance products. Providing broad access to these services will reduce informality in the economy, and will deepen and broaden the financial sector. One way of accelerating change is to shift bulk payment streams from cash to digital platforms, including government payments such as wages and other government-to-person (G2P) payments such as pensions, and social transfers; II. Background and context 7. Mali is a vast, land-locked country in West Africa with a population of 16.9 million, and a GDP per capita of USD 657. The economy is largely rural, with over two- thirds of the population living off agriculture, notably cotton. Gold is the country’s largest export, though production has been declining and the industry faces an uncertain future as proven reserves are limited. The service sector, which represents 40 percent of GDP, is dominated by trade and commerce. Mali’s dependence on crops and gold makes it vulnerable to terms of trade shocks. Industry, which employs just 3 percent of the active population, consists largely of small-scale food processing and textile plants. The overwhelming majority of the population (over 90 percent) works in the informal sector. 8. In 2012, Mali suffered a grave political and security crisis from which it is now recovering. In early 2012, insurgents took control of northern Mali, displacing over half a million people. A military coup a few months later further de-stabilized the country and its economy, and resulted in the withdrawal of donor support. A French-led military intervention allowed the government to regain control over the north by mid 2013, and new presidential and parliamentary elections were held later that year to re-establish democracy. 9. Economic growth has resumed since the crisis and inflation is low. GDP registered zero growth in 2012 due to the political crisis, and just 1.7 percent in 2013 due to poor agricultural output. Mali’s economy returned to strong growth in 2014, with an estimated -3- increase in GDP of 7.2 percent, and a projected growth of 5 percent in 2015. This year’s projected growth represents a return to Mali’s normal growth path, which averaged just over 5 percent for nearly a decade before the crisis of 2012. Inflation is low (1 percent in 2014), and projected to remain well within the BCEAO’s target of under 3 percent. 2008 Financial Sector Assessment Program (FSAP) 10. Mali underwent a joint World Bank/IMF FSAP evaluation in 2008. The main findings and recommendations related to the banking sector, and the current status of those recommendations is summarized below Table 1: Update on Main Banking Sector Recommendations of the 2008 FSAP Recommendation Status Properly prepare the banking sector The changes in the cotton sector envisaged in 2008 for the rapid changes occurring in (split and privatization of CMDT, the cotton company) the cotton sector. did not take place. Financing of the sector is assured by a structured facility provided by international and domestic banking consortia, which appears to work well. The problem of high risk concentrations to the cotton sector remains an issue for the banking sector. Ensure the right conditions for the BIM was successfully privatized, but the question of successful privatization of BIM and privatizing BHM is still under discussion, and its BHM. underlying problems have not been resolved. (see Technical Note on Housing Finance) Government should play a more A number of initiatives are underway at the regional active role in the WAEMU Council level to improve financial infrastructure of Ministers with a view to achieving (modernization of payments, establishment of private modernization of financial credit bureau-BIC, etc.), and there are plans to infrastructure and adoption of a modernize the prudential framework with a gradual regulatory and prudential framework move to Basle II/III by 2017/18. However much work that is more conducive to the remains to be done. The recommendation that the development of the financial sector. Government of Mali play an active role in regional decision-making bodies to strengthen infrastructure, and the regulatory and prudential framework remains valid today. Create a framework and dynamic for The lack of structured supply chains outside of the structuring supply chains to promote cotton sector remains a major obstacle to access to involvement by banks and the private finance (see Technical Note on Agricultural Finance). sector -4- III. Structure and Overview of the Banking Sector 11. There has been significant development of Mali’s banking sector in recent years, but it remains shallow, and access to banking services is limited. Banking overwhelmingly dominates Mali’s financial sector, with some 97 percent of financial sector assets. Private credit/GDP stood at 21.8 percent in 2013, placing it above the median for Africa (17.4 percent) and for all low-income countries (16.4 percent).3 12. With the opening of a new bank in 2014, there are now 14 commercial banks operating in Mali. The sector is only moderately concentrated, with the top three banks controlling 48 percent of deposits and 40 percent of loans. Only one of the banks is a specialized bank, the troubled housing bank, Banque de l’Habitat du Mali. The Banque Nationale de Developpement Agricole (BNDA), was an agricultural development bank and still has a focus in that area, but now operates as a general commercial bank. In addition, there are three small non-bank credit institutions, a leasing company and two guarantee funds, one for mortgages and the other for the private sector, notably for SMEs. The Private Sector Guarantee Fund started operations in late 2014 only. These 17 financial institutions are subject to WAMU regional regulations and supervised by the WAMU Banking Commission. 13. There has been a positive evolution of the banking sector in Mali from 2009-13, as shown in Table 2 below. While the mission did not receive comparable 2014 data, it is understood that the positive trend continued, with credit to the economy reportedly increasing by approximately 15 percent. Both credit and deposit growth have outpaced GDP growth, and the number of bank branches and accounts has continued to grow throughout, in spite of the slowdown in 2012 and 2013. Over the period, credit to the economy increased 65 percent, deposits grew by 47 percent, the number of bank branches increased by 75 percent, and the number of accounts registered a growth of 86 percent. Table 2: Evolution of the Banking Sector 2009 2010 2011 2012 2013 Total assets (FCFA B) 1572.7 1844.2 2041.3 2167 2530.8 Deposits (FCFA B) 1161.4 1337.7 1457.2 1531.1 1702.8 % growth year on year 15.2% 8.9% 5.1% 11.2% Loans (FCFA B) 818 936.8 1124.7 1174.7 1344.5 % growth year 14.5% 20.0% 4.4% 1.4% Private sector credit/GDP-% 17.6 18.1 20.9 21.4 21.8 # bank branches 249 281 343 400 433 Branches per 100,000 inh. 1.72 1.87 2.2 2.46 2.52 # bank accounts 594784 655355 901584 1101688 1104057 Sources:BC-WAEMU, BCEAO. 3 Finstats 2015. -5- Figure 1: 5-year Growth in assets, loans, and deposits: Source: BCEAO Source: BCEAO 14. There have been a number of changes in recent years in the ownership structure of the banking sector, which is now dominated by foreign shareholders, primarily from Africa. Moroccan banks have the most significant presence in the market, having majority or substantial shareholdings in 4 banks, with a total market share (assets) of 50 percent. WAEMU banks constitute the second largest group, controlling 3 banks with a total market share of approximately 16 percent. The most significant change in the structure of the sector over time has been the reduction in government and public ownership. At the time of the 2007 FSAP, banks controlled by the public sector held 60% of assets and 70 % of deposits, whereas banks which are majority held by foreign private shareholders now control 91% of deposits and 90% of loans. 4There remains only one bank with majority government ownership, the troubled housing bank (Banque de l’Habitat du Mali, or BHM), which has just a three percent market share and is slated to be merged with the Banque Malienne de Solidarite this year.The 3-bank concentration ratio is moderate, and has declined over time (from 57% in 2006 to 45% in 4 Government also has a majority shareholding in the Mortgage Guarantee Fund-FGHM. -6- 2013), as new entrants have gained market share from the largest player. French banking groups, which have a major presence in many WAEMU countries, control just one small bank in Mali, BICIM, which has a market share of only 4 percent. 15. The emergence of WAEMU banking groups is a recent phenomenon, spurred in part by the approval of a single banking license for the sub-region. The two most recent entries to the market are from groups headquartered in the WAEMU (Burkina Faso and Togo). The largest Malian bank, the Banque de Développement du Mali (BDM), has also begun to expand in the region by establishing subsidiaries in Côte d’Ivoire and Burkina Faso, and has offices in Guinea Bissau and France. .. The current ownership structure of the sector is found below. Figure 2: Mali: Ownership Structure of the Banking System as of Dec. 2013 (in % of total banking system assets) STATE FOREIGN PRIVATE MALIAN Source: BCEAO -7- Table 3: Shareholding of Banks Profile of the Banking Sector as of Dec. 2013 Shareholding Total Assets Deposits Loans state private M foreign Mkt share Mkt share Mkt share Tot. banks 15% 22% 63% 2528152 1701116 1359966 BDM 20% 21% 59% 18% 19% 14% ECOBK 0% 7% 93% 14% 12% 15% BIM 10% 39% 51% 13% 15% 11% BOA 0% 20% 80% 12% 13% 14% BNDA 36% 0% 64% 12% 11% 12% BMS 25% 71% 4% 9% 9% 8% BAM 0% 45% 55% 7% 7% 8% BICI-M 0% 15% 85% 4% 4% 4% BSIC-Mali 0% 0% 100% 3% 2% 5% BHM 98% 2% 0% 3% 3% 2% BCS 3% 0% 97% 3% 2% 3% BCI 0% 0% 100% 2% 2% 2% Orabank 100% 1% 1% 1% NB: Coris Bank commenced operation in 2014 IV. Soundness and Performance of the Banking Sector 16. Available financial soundness indicators (FSI) suggest that the banking sector is generally sound, though performance varies widely among banks, and asset quality is weak. Summary FSIs s are given in Appendix I. Capital Adequacy 17. Overall, banks appear to be adequately capitalized, though two banks do not meet minimum requirements. The overall capital adequacy ratio (Risk-weighted assets/Regulatory Capital) stood at 12.9 percent as of year end 2013, comfortably above the regulatory minimum of 8 percent (Basle I), and above the average for WAMU of 9 percent. However, as of end, 2014, one bank failed to meet both the minimum CAR and the minimum capital requirement, though the bank has a market share of just 1 percent. In the WAMU zone as a whole, as of June 2014, a quarter of banks did not meet the minimum capital adequacy ratio, and 10 percent had negative capital. These figures are indicative of regulatory forbearance which poses a risk to financial soundness in the monetary zone. In addition, the level of capital may be considered overstated in light of weak prudential norms on loan classification and provisioning. -8- Table 4: Capital Adequacy 2009 2010 2011 2012 2013 CAR-% 7.7 13.7 11.7 11.4 12.9 Capital/Total 4.6 7.5 8.3 7.7 7.9 Assets-% Source: BCEAO Asset Quality 18. Asset quality appears to be relatively weak, and provisioning may be inadequate. Gross non-performing loans (NPLs) were 19.3 percent in 2013, and net NPLs stood at 8.3 percent, above the WAEMU average of 15.3 percent and 6.6 percent, respectively. Trade and commerce represent the largest share of NPLs (40 percent), which is somewhat higher than the sector’s share of loans (33 percent). NPLs are 62 percent provisioned. Conflict and political instability in 2012 resulted in a sharp increase in NPLs in 2012, but preliminary (unaudited) figures for 2014 show a marked improvement in asset quality over the past 12 months (15.9 percent gross and 5.59 percent net, with a provisioning level of 68.6 percent). Banks typically leave NPLs on their books for many years, even if fully provisioned, awaiting final resolution of lengthy legal proceedings before writing off loans. The level of gross NPLs is therefore inflated, sometimes by legacy bad loans of banks that were restructured and privatized years ago. These legacy NPLs, which are concentrated in 3 banks, represent roughly 30 percent of the bad loans of the system.. Banks currently do not have to classify a loan until it is 180 days past due. 19. A key weakness of the system is the level of risk concentration . Under WAMU regulations, banks can lend up to 75 percent of their capital to a single borrower, and exposures exceeding 25 percent of net worth cannot exceed 800 percent of capital. Yet, even with the lax single borrower limit, some banks fail to comply, particularly during seasonal high-points. As of June 30, 2014, for example, 4 banks did not comply with the single borrower exposure limit, and credit to the system’s 5 largest borrowers represented nearly 100 percent of bank capital. Regional authorities have indicated that they will address the large exposure limit in the ongoing regulatory and transition to Basle II/III., but this will not address the issue of lax enforcement. At a minimum that the BC should strictly enforce the existing limit. Banks should be able to syndicate more risk outside Mali if necessary5. The proposed increase in the minimum capital may also alleviate the problem for smaller banks. 5 Credit to CMDT, the cotton company which is the largest borrower in the system, is already syndicated to both domestic and international banks. -9- Figure 3: Credit to 5 largest borrowers as % of Equity Capital Source: BCEAO. Liquidity 20. Bank lending has expanded more rapidly than deposit mobilization in recent years. Since 2009, deposits have grown by 47 percent, while loans have increased by 64 percent. Nonetheless, most banks have been able to meet the statutory liquidity requirement (12 banks and FIs of 15 as of 6/30/2014 and 14 of 15 as of December 2014). The relative shortfall in deposits may be exacerbated by the move to a single treasury account (STA) for government, which has traditionally kept its accounts at commercial banks, where they represented 19 percent of deposits as of December 2014. While the first phase of this exercise, involving the transfer of State accounts, commenced in 2014, preliminary figures indicate that government deposits in fact increased in 2014, and bank liquidity has reportedly improved during the first half of 2015. The second phase will involve the withdrawal of government agency accounts from the system (currently estimated at 149 Billion FCFA). Banks have generally been able to maintain adequate liquidity (thanks in part to ample injections of liquidity by the BCEAO), but competition for deposits--particularly wholesale time deposits— has increased. The resulting increase in deposit rates is occurring at a time when the BCEAO has lowered policy rates and the usury rate, and where there is increased price competition for prime commercial borrowers. Since late 2014, banks report lending rates of as low as 5.5 to 6 percent for their best clients, and wholesale deposit rates of up to 5.5 to 6 percent. Good customers are also now able to negotiate interest on demand deposits, which had always been non-interest-bearing in the past. This increased competition and narrowing of margins may be salutary for the system in the long run, and the move to a STA is a necessary step. However, with an already high loan to deposit ratio (90 percent as of YE 2013), it will be important to - 10 - ensure that the withdrawal of deposits is managed in such a way that it does not lead to liquidity problems or result in banks having to curtail credit to the economy. The BCEAO and GoM are cognizant of the risks, and are conducting simulation exercises to assess the impact. 21. The level of provision of central bank liquidity is unusually high in Mali and throughout the monetary union. The BCEAO has been providing an increasing level of central bank liquidity to banks. Credit from the central bank represents 9 percent of bank assets in the zone, compared to under 1 percent in similar African countries. In Mali, Central Bank financing increased by 867 percent from 2011 to 2013, and represented over 12 percent of liabilities and shareholders equity at end 2013. 22. Banks have been taking advantage of inexpensive BCEAO refinancing to fund the purchase of government securities. BCEAO financing is currently available at 2.5 percent, whereas t-bills currently yield about 5 percent, making this an easy and profitable business proposition for banks. Most Central Bank refinancing appears to be deployed to purchase government securities. Holdings of government securities grew by 37 percent in 2013 alone, and represented 18 percent of bank assets at year end. This leaves both government and banks vulnerable to liquidity risks in the event of a tightening of monetary policy. This cheap and ready access to Central Bank funding is one factor which may be deterring the development of an inter-bank money market. Table 5: Bank Liquidity Liquidity ratios 2009 2010 2011 2012 2013 Loan-to-Deposit ratio 72.2 82.6 88.0 88.5 89.7 Liquid Assets/Total Assets 33.8 32.7 36.7 34.8 34.4 Liquid Assets/ST liabilities 61.2 92.9 89.4 90.0 98.0 Source: BCEAO Profitability and Performance 23. Mali’s banking sector has remained consistently profitable over the past 5 years, including during the 2012 crisis. (Table 6). The gross interest margin, which has varied little over the period, stood at 7.7 percent in 2013. While this may appear high when compared with banking spreads in more developed countries, it is in fact below the African and low income medians of 8.8 percent and 9.6 percent respectively6. It is also slightly lower than the average spread in WAEMU countries of 7.9 percent, which is the closest comparator group (see figures 5 and 6 below). While the overall profitability figures over the period show no pronounced trend, the more detailed breakdown of costs would indicate the component related to profit margins constitutes a large portion of interest rate spreads in Mali in line with WAEMU average (figure 4). 6 Finstats 2015, IFS. - 11 - Table 6: Profitability and Performance of the Banking Sector 2009 2010 2011 2012 2013 Ave. cost of borrowed funds 1.9 1.9 1.8 1.9 1.8 Ave. int. on loans 9.8 9.4 10 9.9 9.5 Gross interest margin 7.9 7.5 8.2 8 7.7 ROA 0.6 1.4 1.7 1.3 1.2 ROE 6.8 8.6 14.9 12.5 14.1 non-int.exp./net bk. inc. 63.1 59.6 56.5 57.5 59.6 Source: BCEAO Figure 4: Break-down of spreads in Mali & WAEMU UEMOA 9 8 7.9 7.9 Profit margin 7.6 7.3 7.3 before tax 7 2.1 Mandatory 2.3 3.2 2.1 2.2 reserves 6 0.7 Other overhead 5 0.7 0.7 0.5 expense 0.5 4 2.0 1.8 Personnel 2.1 1.8 1.7 expense 3 1.4 Provisions 2 1.6 1.4 1.3 1.3 1 1.7 1.4 1.3 1.1 0.9 0 2009 2010 2011 2012 2013 Source: BCEAO - 12 - V. Legal, Regulatory, and Prudential Framework Legal Framework and Banking Supervision 24. The legal, prudential and supervisory system for banking in Mali is governed largely at the WAMU community level, though national authorities also play a role. The main oversight bodies are: i. The WAEMU Council of Ministers, which establishes the general legal and regulatory framework, and is also the instance of appeal for decisions to wind-up credit institutions; ii. The BCEAO, which sets monetary policy and supports banking supervision through its eight national directorates, oversees payments systems, and determines accounting and credit policies applicable to banks; and iii. The WAMU Banking Commission (BC), which supervises credit institutions, and has powers to sanction non-compliance with directives, and to place institutions under temporary administration. The BC must also give its concurrence on the granting of banking licenses. iv. The national Ministry of Finance (MOF), which has powers to issue and withdraw banking licenses on the recommendation of the BCEAO and the BC. 25. Banking supervision in WAMU countries needs to be strengthened and modernized, notably in the following areas: i. Regional prudential norms fall short of international good practice in key areas, notably with respect to the single large exposure ceiling (75 percent of capital versus 25 percent), and provisioning requirements, which are comparatively weak. Loans are classified only after they are 180-days past due, and banks have up to 4 years to fully provision secured loans. Hence NPLs are under-stated and capital over-stated. ii. The prudential framework does not cover market, country or interest rate risks; iii. Banks’ financial statements are not reported in accordance with international accounting standards; iv. Bank holding companies are not subject to regulation or consolidated supervision. In light of this, the expansion of regional banking groups, while presenting opportunities, also entails risks which need to be addressed. v. It is also important that home and host supervisors cooperate closely in overseeing regional banking groups. This is not an issue for WAEMU banking groups, but is an issue for groups headquartered outside the WAMU, and to date, cooperation and coordination between home and host supervisors has been inadequate. - 13 - vi. There are weaknesses in the bank resolution framework, due in part to shared responsibilities between national and regional authorities. vii. There has been a history of regulatory forbearance in the region, though compliance with prudential norms has improved in recent years. Still, at end 2014, the only norm met by all credit institutions in Mali was that regarding the ceiling on investments in non-financial enterprises. Required Prudential ratios are given below (Table 7). Table 7: Prudential Requirements Applicable to Banks in the WAEMU Minimum capital CFAF 5 Billion Capital Adequacy Ratio >= 8 percent Single borrower limit <=75 percent of regulatory capital Limit on loans >= 25 percent of net worth 800 percent of net worth Insider Lending limit <=20 percent of net worth Liquidity ratio (liquid assets/ST liabilities) >=75 percent Limit on off-balance sheet fixed assets <= 15 percent of net worth Equity holdings in non-financial enterprises <= 15 percent of net worth Transformation ratio7 >= 50 percent 26. The WAEMU authorities are cognizant of weaknesses, and are taking measures to strengthen banking supervision and regulation. Plans are underway, notably, to transition from compliance-based supervision under Basle I to risk-based supervision under Basle II/III. This transition is being spearheaded by the BCEAO with technical assistance from the IMF, and will give the BC jurisdiction over bank holding companies. Full implementation is scheduled for 2017/18. In addition, accounting standards applicable to banks under the regional standard (“Plan Comptable Bancaire”) are being upgraded to reflect International Financial Reporting Standards (IFRS). With respect to capital adequacy, the intention to raise minimum capital to FCFA 10 Billion was announced some time ago, and will go into effect mid 2016. Banks which do not meet the minimum as of end 2015 must submit a plan for meeting the requirement by end 2015. The increase in minimum capital is not expected to have any major impact on concentration and consolidation, as most banks in Mali either already have capital in excess of 10 B or are expected to be able to increase capital without much difficulty. A supervisory college has been formed for one WAEMU banking 7 Defined as the ratio of medium-to-long term assets funded by medium-long-term liabilities. - 14 - group, and a first meeting is planned for this year. Finally, the planned implementation of a deposit insurance scheme and financial stability fund should facilitate bank resolution. Consumer Protection 27. There is little in the legal and regulatory framework regarding consumer protection, and neither the BCEAO nor the Banking Commission has an explicit legal mandate to ensure consumer protection. The mission and primary focus of both the Central Bank and Banking Commission have been on ensuring stability and soundness of the sector, though there are measures in place which could be considered as consumer protection measures. These include a maximum interest rates banks can charge (usury rate), a recent instruction mandating that certain banking services be provided free of charge, and a 2014 decision to establish a Deposit Guarantee Fund.8 It is also noteworthy that the recent Uniform Act on Credit Bureaux includes relevant consumer protection clauses. In each WAEMU country, there is a National Credit Council, established by BCEAO and presided by the Minister of Finance, whose role is to analyze the functioning of the banking market, including in matters of business conduct. Two consumer associations, RECOMA and ASCOMA, are members of the Council. However, the Council does not appear to have published or disseminated any of its analyses or deliberations in this area. 28. While the BCEAO has recently strengthened disclosure requirements, in practice terms and pricing often remain non-transparent. The lack of standardized, comparable pricing information on all bank products impedes competition in the sector and no doubt contributes to higher costs of financial products and services. A recent instruction requires banks to report their base rate, minimum and maximum rates on loans and deposits to the BCEAO, the Banking Commission, and relevant consumer associations or watchdogs. However, there are no standardized methodologies in place to calculate and disclose total costs or returns. In addition, there are no requirements regarding minimum contents of terms and conditions that must be provided to customers. In many jurisdictions, financial institutions are required to provide simple Key Facts Statements (KFS) that explain all key terms for consumer products in simple, easy-to-understand language. 29. There is no effective and speedy alternative dispute resolution mechanism in place to resolve customer complaints. Such mechanisms are of particular importance in countries where courts cannot be relied upon to provide timely, affordable and predictable redress to consumers. This gap should be addressed by the establishment of a banking ombudsman or equivalent. It is understood that there is an ongoing initiative to establish a mediation mechanism at the regional level, as well as an “ Observatory of the Quality of Banking Services”. Once these are in place, comprehensive complaints data should be collected, analyzed and published, with a view to identifying major issues and informing consumer protection policy. Furthermore, there are no requirements or minimum standards for internal 8 As of the date of the mission, the Fund was not yet operational. - 15 - complaints handling at banks or other credit institutions. This, too, should be addressed and compliance with standards monitored. VI. Credit to the Economy and Financial Inclusion 30. Credit to the economy and banking sector depth are low but increasing, and are broadly in line with levels found in countries with similar macroeconomic fundamentals. Banks overwhelmingly dominate Mali’s financial sector, with some 97 percent of financial sector assets. Private credit/GDP stood at 21.8 percent in 2013, placing it above the median for Africa (17.4 percent) and for all low-income countries (16.4 percent). Domestic deposits/GDP, at 23.1 percent, is roughly in line with the median for low-income countries (23.5 percent). 31. Trade and commerce represents the largest sectoral exposure of the banking sector, with 33% of total credit, followed by manufacturing (17%). The mining sector, which accounts for more than two-thirds of Malian exports, is largely financed offshore. Figure 5: Sectoral Distribution of Credit (12/31/2013) Agriculture and Fisheries Extractive industries Manufacturing Water, Electricity and Gas Construction and Public Works Source: BCEAO. 32. Banks’ holdings of Government securities is rising faster than credit to the private sector. While there does not seem to be a crowding out of private sector credit at the moment, this could certainly arise in the future. Under current laws and regulations, WAEMU government securities are tax-exempt, zero-weighted for capital purposes, and can be refinanced at the BCEAO at any time, currently at very favorable rates (2.5-3.5 percent, below rates paid on savings accounts, time deposits or inter-bank borrowings). In light of this, bank holdings of government securities have been growing quite rapidly (+37 percent in 2013). The most recent Malian bond issue (3 years, Feb. 2015) yields 5.5 percent, which equates to - 16 - a taxable yield of around 8.2 percent. This is higher than current lending rates for top corporate clients, even without considering the differing capital requirements. The zero-weighting of WAEMU government securities may also result in an overstatement of capital adequacy of the banking system, insofar as there is not a zero risk of default by sovereigns in the region. 33. Sixty-five percent of lending in Mali is short-term9, and firms find it difficult to finance their longer-term investment needs. This in turn can be attributed to both higher risks on term lending, as well as funding and regulatory constraints. Flaws in contract enforcement and the secured transactions framework make it difficult for banks to recover loans or realize security, so they prefer to finance short-term, self-liquidating transactions with identified cash-flows. Furthermore, a prudential norm in WAMU requires that 50 percent of medium and long-term assets be covered by medium and long-term liabilities (this was reduced from 75 percent in 2014). Prior to the relaxation of the restriction on term transformation, this norm was a binding constraint on investment finance, as many banks were at or even above the ceiling, Without complete bank financial data for 2014, it is difficult to know if this remains the case. The regional bond market has not been tapped by Malian banks, and it is not clear if Malian banks would be able to raise funds on the market. Somewhat surprisingly, a representative of the Bankers Association indicated that a bond issue could be interpreted by the local market as a sign that the bank was in financial difficulty. 34. Banks in Mali have traditionally provided credit to a relatively limited universe of companies, and were able to earn comfortable spreads on this traditional client base. However, with new entrants and healthier banks, competition for these companies has increased, putting downward pressure on lending rates. A positive result of recent competitive pressures is that banks are actively looking for new and more profitable lending opportunities among retail clients (primarily urban salaried workers) and SMEs. As a result, lending to the largest 50 borrowers has been declining, falling from 60 percent of the total portfolio in 2012 to 39.4 percent as of December 2014. 35. There are a number of obstacles to improving financial intermediation and outreach. The low level of financial inclusion and credit to the private sector can be attributed to weaknesses in the legal, judicial and regulatory framework for financial sector development, as well as to factors which go beyond the scope of financial sector policy and need to be addressed in the broader economic, social and political context. National and regional authorities are aware of these obstacles, and are taking steps to remedy many of them, such as the establishment of a regional private Credit Information Bureau (BIC), improvements to the secured transactions framework, and regulatory reforms. Major obstacles include the following: i. Weaknesses in contract enforcement and deficiencies in the legal and judicial framework that impede loan recovery. All banks indicated that their biggest challenge 9 Short-term credit is defined in the UEMOA as under 2 years. - 17 - in expanding and diversifying credit is that they cannot rely on the commercial courts to enforce contracts or recover loans. ii. Deficiencies in the secured transactions framework, which make it difficult for banks to register, perfect and realize security interests in moveable and immovable collateral. Serious deficiencies in land titling and registration, the absence of an electronic collateral registry for moveable collateral and the inability to enforce collateral outside of the slow and unpredictable judicial system all serve as deterrents to expanding credit. iii. The high level of informality in the economy. An ILO survey on informality conducted in 2002 estimated that 94 percent of Malians were in the informal sector, the highest percentage in Africa. Most firms, and in particular SMEs, operate largely in the informal economy and on a cash basis, which makes it difficult for banks to extend credit to them. iv. The lack of timely and complete credit information on borrowers and potential borrowers. Existing systems run by the Central Bank (Centrale des risques et Centrale des bilans) do not provide timely, complete and accurate data. Mali has just passed legislation allowing a new, private regional credit bureau (BIC) to operate, and it is scheduled to begin operations shortly. v. Poor or non-existent financial reporting, and lack of financial or managerial capacity among small entrepreneurs, which limit their access to formal finance. vi. Low population density and vast rural areas, coupled with poor physical access and infrastructure, which deter branch expansion and make it difficult for banks to reach large segments of the population; vii. The lack of organized supply chains: To overcome the challenges of contract enforcement and mitigate credit risks, banks seek to structure credit so that they have an identified source of repayment, and cash-flows that they can capture directly. This has been done successfully for the cotton supply chain, but most agricultural and other supply chains are not organized to allow for such structured credit (see Technical Note on Agricultural Finance). viii. The scarcity of long-term resources, which makes it difficult to finance investment. Banks funding consists overwhelmingly of demand and short-term time deposits, and institutional investors such as life insurance companies typically do not keep long-term deposits in the banking system. Banks are constrained in the amount of term transformation they can do, both by risk considerations and by regulation. - 18 - SME Finance 36. In the absence of an agreed national or regional definition of SMEs10, and very limited information regarding either the supply or demand of SME financing, it is difficult to reach informed conclusions or policy recommendations tailored to the Malian context. In fact, many observers—both in financial institutions and the broader private sector noted that the concept of SMEs did not really exist in Mali because, with very few exceptions, all Malian enterprises are micro, small or medium enterprises. It was noted that many of the top 50 borrowers which have historically dominated bank lending are in fact family-owned trading businesses with only a handful of employees. If the authorities wish to promote finance to underserved firms, it will first be necessary to come up with an agreed definition (or definitions) of micro, small and/or medium enterprises, and to collect regular supply and demand-side data to inform policymaking and monitor progress towards achieving greater financial inclusion. 37. The Government has recently taken the initiative to create a guarantee fund to promote access to finance to SMEs. The Private Sector Guarantee Fund (Fonds de Garantie pour le Secteur Prive, or FGSP) is a new Non-Bank Financial Institution that will offer partial risk guarantees to banks and financial institutions for loans to SMEs. With an initial capital of FCFA 4.8 Billion, government and government agencies have a majority shareholding in the Fund, though six banks, one private company and the employers federation (Conseil National du Patronat, or CNPM) are minority shareholders. It has been granted a license as a Financial Institution, and is subject to prudential regulation and supervision by the BC. The Fund will provide partial risk guarantees to lenders covering up to 50 percent of the risk of loans to SMEs for amounts of between FCFA 10 million to FCFA 500 million. In addition, the Fund will assist entrepreneurs and lenders in analyzing and presenting bankable projects, and provide follow-up monitoring and technical assistance. There are no restrictions in terms of sectors, and the Fund can guarantee both short-term working capital and longer-term investment loans. 38. As the Fund has just started operations, it is too early to assess whether it will be successful in achieving its objectives. A detailed feasibility study was conducted prior to its establishment, and it is a market-friendly intervention that holds promise for alleviating at least some of the obstacles to financing faced by SMEs and lenders. Assistance in putting together financing proposals and follow-up technical assistance to SMEs are valuable components of the package the Fund offers. However, there are some aspects of its current business model that may need to be re-visited to maximize its potential impact and additionality: 10 In Mali, the tax authorities (Direction Generale des Impots) define small companies as those whose turnover is under FCFA 50 Million, and medium enterprises as those with turnover between FCFA 50 million and FCFA 1 Billion. However, this categorization is not used or reported by financial institutions. At the Community level, an SME Charter is under discussion by the WAEMU Commission, which is expected to establish an agreed definition of SME for the region. - 19 - i. In order to be eligible for guarantees, banks and FIs must agree to a blanket cap on the interest rate that they will charge to borrowers who benefit from the guarantee. These caps vary between 8.5 and 9.0 percent, well below the usury rate of 15 percent for banks and 24 percent for FIs. These rates are below the average rate paid by borrowers in 2013 (9.5 percent), so are unlikely to be sufficient to encourage banks to lend to what they perceive to be riskier SMEs with little or no credit history. Indeed, the usury rate itself may limit banks’ appetite to lend to new or risky ventures. ii. The guarantee fees charged (risk premium of 1 percent p.a. on outstanding guarantees to be paid by the lender, and 2 percent flat to be paid by the borrower) are uniform rather than risk-based. iii. The 50 percent cap on the guaranteed amount may need to be increased for new or riskier ventures. iv. The shareholding is currently dominated by the State, and no private sector shareholder has more than a very small shareholding. A more significant stake by the private sector would be desirable to ensure buy-in and policies that meet the requirements of the beneficiaries. 39. Inadequate credit reporting systems in WAEMU have restricted access to credit, as lenders do not have the tools needed to assess the creditworthiness of new borrowers. They have also no doubt contributed to the rather high level of NPLs in the banking sector. Until now, WAEMU countries have had access only to a public credit registry at the BCEAO. This has provided limited information (negative information and current outstandings to banks), and the information provided has not always been timely or complete. Cognizant of the problem, new laws have been passed at both the regional and national levels to establish a new private credit information bureau (BIC) that is intended to fill the current gaps in credit reporting. The national law was just passed in April, 2015, and the BIC is not yet operational, but if properly implemented, it should help in broadening access to credit in the region. 40. Leasing, a form of term finance that is particularly well-suited to financing the investment needs of SMEs, is undeveloped in Mali. There is a single specialized leasing company in Mali, Alios Leasing, which specializes in leasing truck and commercial transport vehicles (90 percent of the portfolio). A second specialized lessor, Equibail, has been incorporated into a division of Bank of Africa, as it was deemed too small to operate as a stand- alone entity. Leases represented under 1 percent of credit provided by banks and non-bank financial institutions as of end December 2013, and has been declining in relative and absolute terms. 41. Leasing has not taken off in Mali, despite a large unmet need for financing plant and equipment11, due to the lack of appropriate enabling legislation. There is no specific 11 IFC conducted a demand survey on leasing in Mali in 2011, which showed a large unmet demand for leasing. - 20 - legislation on leasing in Mali, although regional WAEMU financial regulation is flexible and allows both specialized financial institutions and banks to offer leasing products. The Banking Law of 2008 refers to leasing as a credit product. This ambiguity has resulted in inconsistent and inappropriate treatment of recoveries and taxation of lease products. The two major issues are: i. Procedures for recovery of leased property in the event of default by the lessee are cumbersome. Lessors are not treated as the owners of the leased property, and must go through the same time-consuming recovery procedures as other creditors. There are no simplified or expedited procedures for recovering leased property, and lessees can stay recoveries in the courts. Further, because ownership of the lessor is not recognized, the lessor often requires mortgages or liens on the leased property, which further increases costs and complexity. ii. The current tax treatment of leasing is unfavorable. This includes unfavorable VAT treatment, as well as double transfer taxes on the leased equipment (upon purchase by the lessor and again on transfer to the lessee). 42. Specific legislation should be enacted to provide a sound legal basis and ensure an appropriate fiscal and recovery regime for leasing. There are essentially three options for enacting such legislation: it can be done at the national level, through financial legislation at the WAEMU level, or through a uniform act of OHAD that would apply to all 17 OHADA countries. OHADA is aware of the need, but the process and timeframe for enacting new OHADA legislation is long. BCEAO is also cognizant of the need, and has approached the World Bank Group for technical assistance on developing legislation, with a view to developing a draft by September 2015. If neither OHADA or WAEMU were to act, however, Mali can pass a national law (this has been done in certain other WAEMU or OHADA member countries. Financial Inclusion 43. Mali’s high poverty levels and large landmass make financial inclusion a challenge. It has been improving in recent years, but remains low, with just 12.4 percent of the population over 15 having a bank account (up from 7.4 percent in 2009, and slightly above the WAEMU average of 12.2%). When other types of financial institutions and services are included, however, the picture appears brighter. As shown in table 8 below, if microfinance institutions, digital financial services, postal savings and others are included, the figure reaches nearly 50 percent at end 2013. However, these Central Bank figures do not account for individuals with accounts at more than one type of institution, so the broader financial inclusion numbers--derived by merely adding account holders of different types—are no doubt overstated. - 21 - Table 8: Financial Inclusion Indicators-% of Malians> 15 yrs 2009 2010 2011 2012 2013 Accounts with Commercial banks 7.3 9.3 11 13 12.4 Microfinance Institutions 12.7 15.7 14.5 13.5 20.4 Broader FI12 20 25 25.5 26.5 32.8 Broader+electronic money providers 20 27.4 31.4 35.9 47.9 Source: BCEAO. 44. The latest Findex demand survey (2014) indicates that Mali lags behind peer group comparators on most key measures of financial inclusion. In some areas (credit, savings) numbers have deteriorated since the last survey conducted in 2011. These factors can be at least partly attributed to Mali’s geographic characteristics and the conflict that occurred between the two surveys. Select Indicators for Mali, sub-Saharan Africa, and all low-income countries are given in Table 9 below. Table 9: Financial Inclusion Indicators- in % of adults > 15 Mali SSA LIC Financial Institution Account-2014 13.3 28.9 22.3 Financial Institution Account-2011 8.2 23.9 21.1 Mobile Account 11.6 11.5 10.0 Has debit card 4.0 17.9 6.6 Has debit card (2011) 1.8 15.0 6.3 Saved at a FI in past year 2.9 15.9 9.9 Saved at a FI in past year (2011) 4.5 14.3 11.5 Borrowed from a FI 2.7 6.3 0.6 Borrowed from a FI-2011 3.7 4.8 11.7 Source: Findex 2014. 45. The rapid growth in mobile money holds promise for bringing financial services to Mali’s remote rural areas. Countries throughout the world are discovering the power of branchless banking and the use of new technologies to reach individuals who are costly and difficult to serve through conventional branch banking. Mali has a particularly challenging environment, given its large land area and large, remote rural areas. A key to increasing 12 Broader financial inclusion includes postal accounts and national savings accounts - 22 - financial inclusion is to find appropriate low-cost distribution systems for low value, high volume transactions. Mobile phones, which have a high penetration in Mali, present such an opportunity, and mobile banking is one of the only areas in which Mali performs relatively well vis-à-vis its peers. While no Findex data was available for 2011, growth in mobile banking was particularly rapid in 201413, which is not reflected in the figures above. Currently, WAEMU has a bank-led model for mobile financial services, but regional authorities are expected to allow non-bank payment service providers in the near future. Orange Money, which currently operates under a licensed bank (BICIM) and is by far the largest provider of mobile payments in Mali, has indicated it intends to apply for a license as an electronic money provider. 46. Existing mobile banking services need to be broadened from basic mobile payment services to a more comprehensive menu of remittance, savings, credit, and insurance products. At present, mobile money is used primarily for person-to-person transfers and cash-in, cash-out transactions, though bill payments and other services are available. Further work is needed to expand the agent network, acceptance points and usage. Providers are already working with several NGOs and donors to provide social transfers to beneficiaries. Providing near-universal access to these services will reduce informality in the economy, and will deepen and broaden the financial sector. 47. While product development and promotion is the responsibility of private sector providers, the government has an important role to play in promoting the use of digital financial services. One way of accelerating change is to shift bulk payment streams from cash to digital platforms, including government payments such as wages and other government-to-person (G2P) payments such as pensions, and social transfers; government to business payments (G2B), and person to government (P2B) flows such as fees and taxes. Insofar as possible, the government should minimize or eliminate the use of cash, and shift all payments to bank accounts or electronic money accounts, thus providing a major impetus to broader financial inclusion. 48. Recent regulations requiring banks to offer certain banking services free of charge will make banking services more affordable, and may help to promote greater financial inclusion. In October 2014, new regulations were issued which require banks to offer 19 banking services free of charge. Most (though not all) of the services on the list are free in most parts of the world (cash deposits and withdrawals, intra-bank transfers and ATM withdrawals, monthly statements etc.). Recurring charges for routine operations eat into savings and discourage individuals—particularly lower-income groups with irregular income streams--from opening or using bank accounts. 13 Orange Money currently has 2500000 accounts, roughly twice the number of electronic money accounts given for all providers end 2013. - 23 - VII. Recommendations 49. The Table below summarizes the mission’s key recommendations to promote a stable, inclusive and efficient banking sector which contributes to economic growth and development. Table 10: Main Recommendations Main Recommendations Responsibility Priority ST/MT Banking regulation and oversight In advance of implementation to Basle II/III and BCEAO; BC H ST adoption of IFRS, consider requiring classification of loans after they are 90, rather than 180 days past due; Consider reducing single obligor limit from 75 BCEAO; BC; H MT to 25 percent of capital Council of Ministers Introduce consolidated cross-border supervision BCEAO; BC M MT Ensure further move to single treasury account BCEAO; MoF M ST (Phase II) is done in a manner that does not cause liquidity problems or result in a reduction of credit to the economy Disclosure, Transparency and Consumer Protection Strengthen disclosure by requiring standardized BCEAO; BC M MT methodologies to calculate and disclose total costs or returns and minimum contents of terms and conditions Strengthen dispute resolution mechanisms by BCEAO; BC M MT setting minimum standards for internal complaints handling at FIs; and establishing an effective, speedy, and a low-cost alternative dispute resolution mechanism Publish and disseminate more frequent, timely BCEAO; BC M MT and detailed information on the banking sector in a readily accessible format Consider requiring banks to write-off doubtful BCEAO; BC M MT loans after a reasonable time has passed - 24 - Broadening and deepening markets Conduct periodic demand-side surveys of firms GoM M MT and individuals on finance to better inform policy Pass a specific leasing law that will address, Regional M ST inter-alia, tax and recovery issues that are and/or national hampering the development of leasing authorities (WAEMU Council of Ministers or OHADA, and Mof) Reconsider certain measures that encourage BCEAO, H M banks to invest in government securities rather Council of than credit to the private sector (tax-exemption, Ministers 0 risk weightings) Promote wider usage of digital financial services Private sector .H MT by shifting bulk payment streams from cash to providers & digital platforms, including government users; payments such as wages, pensions, and social Government transfers; government to business payments and (G2B), and person to government (P2B) flows Government such as fees and taxes. agencies Reconsider interest rate caps and uniform risk GoM, FGSP M ST premia on guarantees issued by FGSM. Encourage greater private sector shareholding. Financial markets infrastructure Implement recent law on Credit Information MoF, BIC, H ST Bureau APBEF, utilities and other users - 25 - Appendix 1: Financial Soundness Indicators 2009 2010 2011 2012 2013 Capital Adequacy CAR 7.7 13.7 11.7 11.4 12.9 NW/total assets 4.6 7.5 8.3 7.7 7.9 Asset Quality Gross NPLs/total loans 25.4 18.9 18.6 21.5 19.3 Net NPLs/total loans 11.6 8.4 6.5 8.7 8.3 Provisions/gross NPLs 61.4 60.6 68.8 63.4 62.1 Net NPLs/net worth 82.9 44.8 38.7 50.8 52.1 Profitability Ave. cost of borrowed 1.9 1.9 1.8 1.9 1.8 funds Ave. int. on loans 9.8 9.4 10.0 9.9 9.5 Gross interest margin 7.9 7.5 8.2 8.0 7.7 ROA 0.6 1.4 1.7 1.3 1.2 ROE 6.8 8.6 14.9 12.5 14.1 non-int.exp./net bk. inc. 63.1 59.6 56.5 57.5 59.6 Liquidity Loan-to-Deposit ratio 72.2 82.6 88.0 88.5 89.7 Liquid Assets/Total Assets 33.8 32.7 36.7 34.8 34.4 Liquid Assets/ST liabilities 61.2 92.9 89.4 90.0 98.0