Algeria’s banking sector is adequately capitalised and profitable

ALGIERS (Capital Markets in Africa) – The International Monetary Fund indicated that Algeria’s banking sector is adequately capitalised and profitable. It noted that the capital adequacy ratio of banks operating in Algeria increased from 18.9% at the end of 2016 to 19.6% at end-2017, while their Tier-One capital ratio declined from 16.3% at end-2016 to 15.2% at end-2017 as a result of higher credit growth. It also pointed out that the banks’ return on assets was at 2% and their return on equity reached 17.8% in 2017. Also, the Fund noted that the banks’ liquidity declined last year, with the sector’s liquid assets accounting for 54% of short-term debt at the end of 2017, down from 58.4% of short-term debt at end-2016. Still, it said that the banks’ liquid assets were sufficient to cover their short-term liabilities.

Further, it noted that the banks’ non-performing loans (NPLs) ratio grew from 11.9% at end-2016 to 12.3% at end-2017. But it considered that the banks’ NPLs are moderate and well-provisioned, and expected the NPLs to decline as the government repays its arrears. In parallel, it indicated that the large liquidity injections in the banking sector, mainly from Banque d’Algérie’s refinancing operations and from lower legal reserve requirements, have supported the banks’ liquidity, which could increase credit growth and loosen lending standards. As such, it encouraged the authorities to conduct stress tests more frequently, as well as to introduce counter cyclical capital buffers to protect the banking sector against losses that could be caused by cyclical systemic risks.