Capital Market and Portfolio Investment

The Congolese financial system has recovered from the 2009 crisis but is now at a crossroads. Although reforms have been launched, the system remains small, heavily dollarized, characterized by fragile balance sheets, and cumbersome to use. The GDRC backed away from its short-lived (2013-2016) de-dollarization program, and further reforms are needed to strengthen the financial system, support the expansion of the financial sector, and spur economic growth. Shock resilience is undermined by inadequate risk-based controls, weak enforcement of regulations, low profitability, and excessive reliance on demand deposits. The system is also characterized by a significant concentration of credit and exposure to systemic failure in the event of the insolvency of a large borrower.

Financial inclusion is increasing, but substantial progress is needed to develop payment systems, facilitate the use of financial services, and strengthen regulation of the non-banking sector. Consolidation and strengthening of microfinance along with reform of the insurance and pension sub-sector could facilitate the expansion of financial services and attract long-term investors.

The DRC’s capital market remains underdeveloped and consists mainly of the issuance of treasury bonds. There are no stock exchanges operating in the country, although a small number of private equity firms are actively investing in the mining industry.

The institutional investor base is poorly developed, with only an insurance company and a state pension fund as participants. The Central Bank of Congo (BCC), developed a market for short-term bonds, but most of these bonds are bought and held by local Congolese banks. In the absence of private debt securities, the fixed-rate market is limited to government-issued treasury bonds with maturities of up to 28 days traded through commercial banks.

Access to the primary market is limited to commercial banks holding securities accounts at the BCC and all investors, including institutional and individual investors, must submit bids through banks. Commercial banks, which dominate the investor base, may trade in treasury bills in the secondary market, but in order to do so bids and prices for which they agree to trade must be transparent and publicized. There is no market for derivatives in the country.

The DRC suffers from a weak and fragile financial infrastructure. National payment systems are not governed by central legislation, although the DRC’s National Payments and Settlement Committee is in the process of proposing legal reform through a draft bill that was proposed in 2016, has been adopted by the DRC Senate, and, as of the date of this report, is before the National Assembly for a second reading.

The Central Bank worked for a decade to implement reform on the national payment system via a gradual and interactive approach that identified and corrected deficiencies at each stage. This culminated with the Central Bank inaugurating in September 2017 an automated system that supports customer transfers, regulation of monetary policy operations, and the processing of transactions for the regional payment system-REPSS, set up by COMESA member countries. The system also includes an interbank automated clearing module for check payments, collections, and bills of exchange.

Borrowing options for small and medium enterprises (SME) are limited. Maturities for loans are usually limited to 3-6 months, and interest rates typically hover around 16-18 percent. The weakness of the legal system, the often cumbersome business climate and the difficulty in obtaining inter-bank financing discourages banks from providing long term loans. There are limited possibilities to finance major projects in the domestic currency, the Congolese franc (CDF). The Central Bank sets minimum capital requirements for local banks in CDF or its equivalent in USD . Prior to 2016, the average was roughly USD 12 million per bank, but the economic downturn prompted the Central Bank to mandate an increase to USD 30 million by January 2019. Foreign currency deposits account for almost 90 percent of bank holdings.

Portfolio investment is absent in the DRC. Cross-shareholding and stable shareholding arrangements are also not common. There are occasional complaints about unfair privileges extended to certain investors in profitable sectors such as mining and telecommunications.

Money and Banking system

The Congolese financial system is growing but remains fragile and operates primarily through the BCC. The financial sector is comprised of 17 licensed banks, a national insurance company (SONAS), the National Social Security Institute (INSS), one development bank, SOFIDE (Societe Financière de Development), a savings fund (CADECO), 102 micro finance institutions and cooperatives, 72 money transfer institutions which are concentrated in Kinshasa, Kongo Central, North and South Kivu and the former Katanga provinces, three electronic money institutions, and 23 foreign exchange offices. There is no secondary equity or debt market.

The Congolese Central Bank currently works with three correspondent banks, namely, Commerzbank, Credit Suisse and the Bank for International Settlements-BIS. All foreign banks accredited by the Congolese Central Bank are considered Congolese banks with foreign capital and fall under provisions and regulations covering the credit institutions’ activities in the DRC.

The financial system is mostly bank-based with aggregate holdings of banks estimated at USD 5.1 billion, about 95 percent of the overall holdings of the financial system. Bank deposits account for about 90 percent of total deposits, with the balance held by microfinance institutions. Among the five largest banks, four are local and one is controlled by foreign holdings. The five largest banks hold almost 65 percent of bank deposits and more than 60 percent of total bank assets.

Bank financing is dominated by the collection of deposits, nearly 90 percent of which are denominated in U.S. dollars and held in demand accounts. Bank operations are highly dollarized and financed largely by demand deposits. Nearly 95 percent of loans are in dollars, and clients are mainly companies seeking working capital primarily for daily operations and import/export activities. National and local government entities have significant balances in some banks (deposits in dollars used for investments) and also borrow funds from a few banks to finance administrative expenses. Statistics on non-performing loans do not seem reliable. According to the BCC's regulatory framework many banks only record the balance due rather than the total amount of the non-performing loan.

Transactions involving correspondence with associated foreign banks represent a significant part of the activities of DRC banks. Correspondent accounts represent more than 30 percent of bank assets and more than 95 percent of interbank market activity. They allow banks to settle transactions denominated in dollars, reflecting efforts to limit risks. The profitability of the banks is fragile and has deteriorated over the last year, reflecting high operating costs and exchange rates. Fees charged by banks are a major source of their revenues.

The DRC has roughly USD 3.7 billion in deposits in the banking system, up slightly from 2016. An estimated USD 10 billion of savings exist outside of banks. Most deposits in the formal system are U.S. dollar-denominated. A slight increase in bank penetration occurred after 2011 as the GDRC switched public employee payments from cash to bank transfers.

Bank penetration is roughly 6 percent or about 3.9 million accounts, which places the country among the most under-banked nations in the world. Based on its strategic plan, the BCC seeks to reach more than 20 million bank accounts by 2030. Banks are increasingly offering savings accounts that pay approximately 3 percent interest, but few Congolese hold savings in banks. According to the Banking Association of Congo (ACB), of an estimated 65 percent of the population that saves, only 4.7 percent do so through a bank.

The overall balance sheet of the banks amounted to roughly USD 5.3 billion in 2017. Credit volume is estimated at roughly USD 1.9 billion in comparison to USD 2.3 billion reached in 2016, a decline of 18 percent. Credit remains scarce, short-term, and highly concentrated. From 2012 to 2016, credit volume was only 13 percent of GDP. Domestic credit granted by banks declined from USD 2.4 billion in 2016 to USD 1.9 billion in 2017. Microfinance institutions also experienced a decline during the same period, from USD 136 million to USD 126 million. The largest depositors in the banking system are private enterprises and households with 46 and 43 percent of deposits, respectively. Public enterprises, central administration and local administration deposits are estimated at seven percent, four percent and one percent respectively.

Foreign Exchange and Remittances

Foreign Exchange

As part of broad economic reforms begun in 2001, the DRC adopted a free-floating exchange rate policy and lifted various restrictions on business transactions, including in the mining sector. The international transfer of funds takes place freely when channeled through local commercial banks. On average, bank declaration requirements and payments for international transfers take less than one week to complete.

The BCC is responsible for regulating foreign exchange and trade. The only currency restriction imposed on travelers is a USD 10,000 limit on the amount an individual can carry when entering or leaving the DRC. The GDRC requires that the BCC license exporters and importers. The DRC’s informal foreign exchange market is large and unregulated and has tended to offer exchange rates not widely dissimilar from the official rate. In practice, the nation’s economy remains highly dollarized.

On September 25, 2014, new foreign exchange regulations were put into place by the BCC. Among other things, these regulations declared the Congolese franc (CDF) as the main currency in all transactions within the DRC. Payment of fees related to education, medical care, water and electricity consumption, residential rents, and national taxes were mandated to be paid in CDF. In the last several years, this requirement has been relaxed and where the parties involved and the appropriate monetary officials agree, exceptions may, and routinely are, made.

Any payments exceeding USD 10,000 must be executed within the banking system, unless there is no presence of banking entities. The largest, albeit rare, banknote in circulation is the CDF 20,000 note (approximately USD 12.36). Far more common are the CDF 500 and CDF 1,000 notes worth approximately USD 0.30 and USD 0.61 respectively. U.S. banknotes printed after 2008 are readily accepted in virtually all transactions, with the exception of one-dollar bills. Banks provide accounts denominated in either currency. In September 2013, the GDRC embarked on a process of “de-dollarizing” the economy by requiring that tax records be kept in CDF and tax payments from mining companies be paid in CDF. In March 2016, however, as a result of a dollar shortage, the GDRC began requiring mining and oil companies to pay their customs fees and taxes in U.S. dollars.

The value of the Congolese franc remained stable at approximately 920 francs to the US dollar between 2012 and 2015, but depreciated against the US dollar by 23.7 percent in 2016 and 23.6 percent in 2017. Similarly, the annualized inflation rate, which was stable at an average 1.4 percent from 2013 through 2015, increased to 23.6 percent in 2016 and 54.7 percent 2017. The economic forecast calls for continuing inflation and currency depreciation over the long term, but the currency has remained stable since August 2017. As of April 2018, foreign exchange reserves totaled USD 1 billion or 4.2 weeks of import cover in comparison to the 2017 level of USD 859 million 2.9 weeks of cover). If government revenues from the extractive sectors continue to increase, the Central Bank will again have the option to support the CDF and maintain currency stability. (Note: Macroeconomic data for the DRC often vary according to the source. This document sources inflation, foreign exchange reserve, GDP growth, and currency exchange rate data from Central Bank of Congo data bases. End Note)

Remittance Policies

Although there is no legal restriction on converting or transferring funds related to investment, new exchange regulations will increase the time for in-country foreigners to repatriate export and re-export income from 30 to 60 days. The BCC is the legal authority controlling and providing the legal framework on foreign exchange in the DRC. Foreign investors may remit through parallel markets when they are legally established and recognized by the BCC.

Sovereign Wealth Funds

The DRC has no reported Sovereign Wealth Funds.