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Annual Report 1999 - Sierra Leone - The Economy
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(ii) Inflation
The erosion of confidence in the economy and shortage of goods were further reflected in the inflation figures for 1999. The monthly rate of inflation was a high 74.40 per cent in January 1999 when there was a short supply of goods and services following the invasion of the capital. Thereafter the prices dropped steadily every month as things gradually returned to normal. Significant monthly increases in the price index in July, September and December reflected the increases in the prices of petroleum products in July, late August and December. The year-on-year rate of inflation for end-December 1999 stood at 36.74 per cent as against -5.58 per cent for end-December 1998. In January 1999, the year-on-year rate of inflation recorded its highest monthly level of 44.75 per cent.
Click on table/chart for bigger image
Click on table/chart for bigger image
(b) Supervision of Banks and other Financial Institutions
The Bank of Sierra Leone has continued with the financial sector reform programme. The Bank of Sierra Leone Act 2000 in line with International Standards of Central Bank practice has been passed in parliament whilst the Banking Bill enhancing the power of the Bank of Sierra Leone to regulate and supervise the Commercial Banks is being debated. A legislation empowering the Central Bank to commence regulatory supervision of identified Other Financial Institutions is being drafted and expected to be enacted in 2000.
(i) Licensing
The First Merchant Bank of Sierra Leone Limited was granted a license to commence banking business in Sierra Leone with effect from 23 August 1999. The license for Sierra Leone Commercial Bank Limited was renewed for 3 years.
(ii) Onsite Examinations and Follow-up
Statutory Examination of all commercial banks was carried out during 1999 and systemic and specific issues highlighted. Among the systemic issues were:
- High proportion of contaminated credit portfolio; and
- Non-submission of audited financial statements by customers for proper credit appraisal and monitoring.
The specific issues were:
- Poor credit administration;
- Ineffective implementation of Internal Audit findings and recommendations to improve efficiency and enhance internal control procedures;
- Unavailability of job descriptions for staff; and
- Unavailability of a comprehensive training program to address the training needs of staff and promote human resource development.
Follow-up examinations of commercial banks were carried out with a view of ensuring that steps have been taken to address the issues raised during statutory examinations and anomalies discovered from appraisals of periodic returns.
(iii) Banking Sector Performance 1999
Despite the lull in economic activities the review period experienced an expansion in the banking sector resources from Le113.53bn in December 1998 to Le172.69bn in December 1999; an increase of Le59.16bn or 52.1 percent.
Deposits rose by Le38.76bn from Le81.83bn to Le120.59bn and accounted for 65.5 percent of the increase in resources. Of this increase, Demand deposits contributed 61.3 percent having risen from Le29.34bn to Le 53.05bn.
Deposits rose by Le38.76bn from Le81.83bn to Le120.59bn and accounted for 65.5 percent of the increase in resources. Of this increase, Demand deposits contributed 61.3 percent having risen from Le29.34bn to Le 53.05bn.
The Shareholders' Funds experienced an upward movement from Le17.63bn to Le21.83bn (up Le4.2bn) of which paid-up capital increased by Le3.54bn from Le1.96bn to Le5.50bn as at end December 1999. As a result, the capital adequacy ratio increased to 22.7 percent from 15.4 percent indicating an increase in the banking sector's cushion for unforeseen losses.
Growth in assets was reflected in investments, cash items, other assets and fixed assets. Investments, mainly Treasury Bills that rose from Le42.36bn to Le72.82bn, absorbed 51.5 percent of the increase in resources.
On the contrary the banks' credit portfolio (gross) declined by Le1.99bn (6.8 percent) from Le27.85bn in December 1998 to Le25.86bn in December 1999. However, as a result of the increase in non-performing debts together with their attendant effects (an increase in provisions for bad debts and interest in suspense), the credit portfolio (net) declined by Le 4.67bn (29.9 percent) from Le15.80bn in December 1998 to Le11.13bn in December 1999. The ratio of non-performing loans to gross advances deteriorated to 56.4 percent at end December 1999 from 43.8 percent at end December 1998. Consequently the interest suspended and loan loss provisions increased to Le14.7bn in December 1999 from Le12.0bn in December 1998. The rebel incursion of January 6 1999 accounted mainly for the further deterioration in the credit portfolio while the continued insecurity in the country accounted for the slow pace in economic activities and the contraction of credits to the private sector.
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