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Annual Report January - June 2000
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2. Supervision Of Banks and Other Financial Institutions
To ensure the soundness of the financial sector, the Bank of Sierra Leone has continued with the financial sector reform programmes. The Banking Act 2000 which was enacted in May 2000 gives additional powers to the central bank to supervise and regulate financial institutions in accordance with international standards and practices. Furthermore, in a bid to meet with the challenges and the development in the financial sector, a draft "Other Financial Services Act" is at an advanced stage of being enacted to bring all other Non-bank Financial Institutions (insurance companies excluded) intermediating in the financial sector under the direct regulatory supervision of the Bank of Sierra Leone.
A seminar was organised for the Directors and shareholders of commercial banks to sensitise them of their responsibilities under the new Act.
A sensitisation workshop on "The need for the Regulation and Supervision of Other Financial Institutions" was also conducted at which all key players were invited to participate.
(a) Licensing
The First Discount House Sierra Leone Limited was granted a provisional license under Section 2 (1) of the Banking Amendment Act of 1978 to start discount house business in Sierra Leone effective 14th February 2000. The establishment of the Discount House is considered as a big step towards the financial deepening of the money market in the economy.
The licenses of the Union Trust Bank, Rokel Commercial Bank and Standard Chartered Bank were each renewed for a period of three years whilst that of the First Merchant Bank was renewed for a period of six months. Approval was also granted to Rokel Commercial Bank, First Merchant Bank and Sierra Leone Commercial Bank to increase their branch network in Freetown and the provincial towns. Rokel Commercial Bank opened two branches one in Freetown and another in the Provincial town of Bo. Sierra Leone Commercial Bank and First Merchant Bank opened a branch each in west end and east end of Freetown respectively. Union Trust Bank was also granted approval to open two outlets in Freetown; one in the west end of Freetown and the other in the east end of Freetown.
(b) Onsite Examination and Follow-up
Statutory Examinations of all commercial banks and the First Discount House were carried out during the year 2000 with specific and systemic issues highlighted.
Follow-up examinations of commercial banks were carried out with a view to ensuring that steps have been taken to address the issues raised during statutory examinations and anomalies discovered from appraisals of periodic returns.
Fact-finding exercises on the operations of some of the identified Other Financial Institutions were also carried out during the year 2000.
(c) Banking Sector Performance 2000
There was an expansion in the banking sector resources from Le172.69 bn in December 1999 to Le203.97 bn; a rise of Le31.28 bn or 18.20 per cent.
Deposits rose by Le13.80bn from Le120.59bn in 1999 to Le134.39bn and accounted for 44.09 per cent of the increase in resources. Of this increase Demand deposits (both local and foreign) contributed 15.19 per cent having risen from Le85.91bn to Le90.66bn.
The shareholders' funds increased from Le27.63bn in 1999 to Le43.07bn (up Le15.44bn) of which paid-up capital increased by Le0.52bn from Le5.50bn to Le5.93bn as at end December 2000. As a result, the capital adequacy ratio increased to 25.25 per cent from 22.70 per cent indicating that the banking sector is satisfactorily capitalised.
The growth in the banking sector's assets was reflected in the cash items, other assets and fixed assets. There was a slight reduction in investments in Government securities from Le72.82bn to Le72.76bn, a drop of Le0.06bn.
The gross credit portfolio of the banking sector increased by Le5.45bn to Le33.31bn from Le25.86bn; an increase of 21.10 per cent. As a result of the improvement in the performing debts, the net credit portfolio increased from Le11.13bn to Le15.55bn, as increase of Le4.42bn i.e. 39.71 per cent. The ratio of non-performing loans to gross advances improved to 38.90 per cent at end December 2000 from 56.40 per cent at end December 1999. There was an improvement in the operational performance of the banking sector. Pre-tax profit increased by 95.2 per cent to Le18.90 bn in December 2000. Income from investments in government securities, which has remained a major source of income for the banks accounted for 19.46 per cent (1999:39.8 per cent) of total operating income. Retained earnings also increased to Le6.9bn from Le3.2bn in 1999. Both Return on Assets (ROA) and Return on Equity (ROE) improved to 16.13 per cent and 53.96 per cent from 13.3 per cent and 44.4 per cent respectively.
The banking sector continued to maintain a high liquidity position although it realised a marginal fall from 109.5 per cent at December 1999 to 96.95 per cent at December 2000. The cash reserve ratio increased slightly to 26.85 per cent from 26.51 per cent.
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