[Tribune] Foreign dominated banking system: How DR Congo can take advantage of it


By Gedeon Kalombo Ntambwe*

After holding its first peaceful power transfer in its history in 2019,  the biggest sub-Saharan country had made one of the biggest democratic moves in its history and set itself in a new direction. The Congolese banking system has always been highly shaken by the political events and a continuous conflict in the Eastern part of the country causing a standstill in the development of the sector countrywide. More so, the country has seen its banking sector overwhelmed by foreign banks (list of banks table below). Though this may be perceived negatively on the surface, there are several long-term economic benefits to be extracted from such a condition when analysing the situation in-depth.

List of banks in DRC.

Bank Majority Shareholder Shareholder’s country of origin Local/Foreign Bank
Equity Commercial Bank of Congo (Equity BCDC) Equity Group Kenya Foreign
 FBN Bank DRC SA First Bank of Nigeria Nigeria Foreign
 Citibank Citi Group USA Foreign
 Standard Bank Congo StanChart Group SA Foreign
 Rawbank Rawji Group of Companies Congo Local
 Ecobank RDC Ecobank Transnational Inc Togo Foreign
 Trust Merchant Bank Robert Levy Belgium Local
 Afriland First Bank Afriland First Bank Cameroon Foreign
 Access Bank DRC Access Bank plc Nigeria Foreign
 Solidaire Banque SA Akram Mourad Portugal Local
 SofiBanque Abdallah Wazni Grande Bretagne Local
 Advans Banque Congo Advans SA Sicar Luxembourg Foreign
 Bank of Africa RDC BMCE Maroc Foreign
 United Bank for Africa Congo DRC UBA Group Nigeria Foreign
 BGFIBank DRC BGFI Group Gabon Foreign

11 foreign banks against 4 local banks. Source: Banque Centrale du Congo

Improving access to international capital

Foreign banks are known to be great catalysts for foreign investment inflows. This is mainly due to their roles in reducing information asymmetry thereby lowering barriers to investing abroad. A Foreign dominated banking system in this case implies that foreign banks have information about most local firms and individuals. This position gives those banks an upper hand in terms of consultancy. Foreign banks with investment banking arms may go even further to advising investors on investing in their various host countries. For instance, we witnessed the Kenya-DRC trade fair as an attempt to steer up business bonds between DRC and Kenya spearheaded by Equity BCDC. It should also be expected to see efforts to strengthen business bonds between DRC and the other countries whose banks seem to embody growing market share in their long-term planning for DRC. However, the biggest bank in terms of banking assets is a local bank. Rawbank holds the biggest share of assets, then comes the two biggest foreign banks operating in the country; Equity BCDC and FBN Bank as second and third respectively. This structure implies that most foreign banks in the country are not targeting specific niche markets, they aim to dominate the banking sector in DRC. Hence, it should be expected to see foreign banks creating stronger business bonds between their host countries and home countries, setting Congolese firms up for foreign capital.

Development of banking supervision and legal framework

The Congolese banking system has for long been lagging behind in terms of the legal framework and banking supervision. This is mainly due to the limited capacity of the Congolese central bank to carry out its mandate. For instance, due to the high level of dollarisation in the country, the central bank’s monetary policy has been inefficient. Furthermore, the country has not been able to adopt international regulatory and supervision standards such as the Basel because there is a high financial infrastructure deficiency. In a move to improve central banking in the country, the government has decided to carry out the IMF restructuration recommendations. Looking at the novelties and advanced banking practices that foreign banks might bring to the economy, the Congolese central bank will also need to upgrade its regulatory capacity to be able to efficiently supervise and regulate foreign banks as these compose more than half of its banking systems. For instance, big players in the banking sector originate mostly from countries having partially adopted Basel II or III. Hence, the Congolese banking sector should consider looking ahead towards Basel as a standard to enhance its supervisory capacity. This implies that an efficient legal framework will have to be put into place both: in terms of an upgrade of legal texts to accommodate novelties and financial depth; and in terms of interpretation and application of the legal text.

Improvement of the quality of financial services.

Foreign banks’ entry into an economy is expected to impact the quality of financial services at various levels. Three main financial services quality improvement can be looked at:

–          The competition effect will steer local banks to improve cost reduction and speed up banking operations.

–          Efficiency of credit allocation as credit assessment is done through many layers of screening.

–          The introduction of advanced financial techniques and products.

As foreign banks try to replicate group-level products and techniques to harmonise services, they bring in layers of loan screening as a way to improve credit allocation. Furthermore, domestic banks will try to improve services as competition pressure will thrust them into innovative means. The Congolese banking system should see a growing banking agency networking and other financial inclusion innovations as a way to tap into the DR Congo unbanked population and other innovations to unlock the big potential in the country.

Banking soundness and stability

The banking soundness and stability of the DRC can be boosted with the high number of foreign banks as their loans are not always based on the capital adequacy of the local subsidiary. Foreign banks can easily mobilise funds from the parent company. This allows foreign banks to reduce the pattern of tightening and easing lending in the local banking sector. Furthermore; they are more likely to consider the overall group reputation before considering withdrawal of invested capital from a market. Due to the aforementioned reasons, foreign banks tend to drive confidence to the banking sector and prevent it from a bank run. This can be observed when BGFIBank’s financial situation deteriorated, and the Group’s involvement stabilised its subsidiary and avoided any form of financial distress.

Efficiency of the banking system

Foreign banks are associated with the efficiency of the banking system in emerging economies. In DR Congo, the high percentage of foreign banks should then reflect in the technology and skills transfer. Most foreign banks tend to invest heavily in technology to achieve high efficiency in services offering, this brings new competencies and skills sets. In an economy where the interaction between the job market and the education system is high, the new skills and technology can enhance the education curriculum. For instance, recent years are seeing most foreign financial institutions favouring chartered professionals and the recent promotion of the French institution named Ecole Superieure de la Banque. This may result in local educational institutions trying to acquaint students with such content to boost their competitiveness in the market. Foreign banks will then easily grow the number of locals adequately trained to be able to reduce their expenses on expatriate hires currently found within their local subsidiary.

Integration with the regional and international financial markets.

Market integration happens when there is a linkage between two or more markets. The DRC is currently trying to tap into regional and international financial markets and their current situation is proving to be the best opportunity to achieve financial market integration. Foreign banks as discussed above tend to bring best practices, cutting-edge technology and open access for local firms to access regional and international finances. This in turn births the engineering of newly created or adapted foreign products.

For instance, the Equity BCDC agricultural loan products are one such type of adapted product. The FBNMonie product is an example of product adaptation and technology transfer. However, for the DRC to fully harness the full potential of its foreign-dominated banking sector, there is an urgent need to invest in institutional development and infrastructure quality. Hence the dire need to strengthen the necessary institutions, draft a clean infrastructure development roadmap, and do away with policy inconsistencies.

The DRC strongly needs long-term investment whereas the banking sector is mainly focused on short-term loans. This expresses the low-level confidence that the banking sector has towards the quality of local institutions of the economy and their expectations in terms of legal upgrades. One legal upgrade that opened doors to a new market that banks are yet to consider is the liberalisation of the insurance market. The latter provides for both local and foreign banks to engage in bancassurance. While the market is new in the country, some foreign banks have expertise in bancassurance and could soon be counted among those to usher in such new lines of financial products.

About the Author 

Gedeon Kalombo Ntambwe is a reconciliation officer in the Import-Export department of FBNBank DRC. An accomplished analyst, he graduated from Great Zimbabwe University in 2017 with a Bachelor of Commerce in Banking and Finance. In March 2020, he obtained a Certificate in Actuarial Science from the Australian National University


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