Capital Markets and Portfolio Investment

The government does not have foreign portfolio investments abroad and there is no domestic capital market or portfolio investment option, such as a stock market, in the country. Therefore, private sector investors have limited credit and investment options. The Central Bank of Liberia (CBL) uses financial instruments such as Treasury bills (T-bills) in an effort to develop a capital market. The CBL has successfully operationalized aspects of the Scriptless Securities Settlement System (DEPO/X) in combination with efforts to create a secondary market that would lead to a more vibrant financial market. The DEPO/X system is a well-organized electronic platform that supports the conduct of the FX Auction and processing of government securities. The CBL respects IMF Article VIII by refraining from implementing restrictions on payments and transfers for current international transactions. The CBL continues to promote interbank market, money market, secondary market, and investor’s education as well as public awareness. It drafted a framework on interbank lending and foreign exchange trading market (IFXM) and guideline on repurchase and reverse repurchase agreement (Repo).

Money and Banking System

According to the CBL, banking services within Liberia are provided by nine commercial banks, 90 branch outlets (payment windows/annexes), a development finance company and a deposit-taking microfinance institution. Eight of the commercial banks are foreign banks. There are numerous intermediate financial services providers across the country, such as licensed foreign exchange bureaus, microfinance institutions, credit unions, rural community finance institutions, and village savings and loans associations. The CBL reported that commercial banks’ balance sheets indicate strong growth in the performance of the banking sector in 2017; however, the growth was driven mainly by the depreciation of the Liberian dollar (LRD) against the United States dollar (USD). In 2017, total assets of the sector rose by 30 percent compared with 5 percent in the previous year and total deposits grew by nearly 20 percent compared with only 4 percent growth in 2016. The sector recorded an average capital position of USD 15.3 million, which exceeds the CBL mandatory minimum capital requirement of USD 10 million and represents an increase of 13 percent compared to the average capital for 2016; it also indicates excess liquidity and low profitability. Liquidity remains strong with a ratio of 42 percent, which is in excess of the CBL required minimum liquidity ratio of 15 percent; this excess liquidity indicates a lack of worthy investment opportunities in the economy, (Central Bank of Liberia, 2017 Annaul Report, https://www.cbl.org.lr/2content.php?sub=155&related=29&third=155&pg=sp). Non-interest income, such as fees and commissions, constitutes the largest portion of the banking sector’s income.

Non-performing loans and poor asset quality, which depress profitability in the sector, remain major challenges. The ratio of non-performing loans (NPLs) to total loans increased from 11.8 percent in 2016 to 13.6 percent in 2017, (Central Bank of Liberia, 2017 Annaul Report, https://www.cbl.org.lr/2content.php?sub=155&related=29&third=155&pg=sp). The current level of NPLs is partly influenced by the weak export sector and the low prices of Liberia’s primary export commodities. Commercial banks face persistent challenges in profit generation and loan repayment. In one attempt to address the situation, the CBL – with support from the Liberia Bankers Association and commercial banks – publishes the names of non-complaint and delinquent borrowers in daily newspapers; individual commercial banks sometimes publish both names and photographs. While financial institutions allocate credit on market terms to foreign and domestic investors, the historically high rate of NPLs has led banks to offer short-term (less than 18 months), high-interest rate loans between 12 and 20 percent. This constrains capital investment and limits new business development. There is no effective credit rating system and many firms lack business records or bankable proposals that are necessary for credit approval. Banks rely on the CBL’s Credit Reference System, a manually updated spreadsheet which is not yet automated. The Credit Reference System contains credit history and/or any derogatory information about certain creditors and it provides credit information on borrowers to commercial banks and non-bank financial institutions. The CBL also has a collateral registry, mostly used to vet and support MSMEs, which has been digitized.

Foreign banks or branches are allowed to establish operations in Liberia, and are subject to prudential measures or other regulations set out by the CBL. There are no clear or definitive rules on hostile takeovers. The obstacles to domestic travel including an insufficient and poorly maintained road network, lack of affordable electricity, and unreliable communication links increase the risk in accepting collateral outside Monrovia. The unreliable land title system also hampers access to credit in general. Alternative financial services are available, such as Rural Community Finance Institutions (RCFIs) and digital financial services including mobile money services. The RCFIs are involved in the payment of civil servants’ salaries, particularly teachers and health workers in rural regions; they also provide salary-based loans, and money transfer services including remittances and mobile money transactions. In 2017, mobile money activities expanded nationwide as agent networks and users increased. There are two mobile money providers: Lonestar Cell MTN and Orange Communication.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment (e.g., remittances of investment capital, earnings, loans, lease payments, or royalties). Liberian law allows for the transfer of dividends and net profits after tax to investors’ home countries. The 2010 Investment Act allows unrestricted transfer of capital, profits, and dividends “through any authorized dealer bank in a freely convertible currency.” Therefore, funds associated with any form of investment can be freely converted into any world currency. The CBL’s regulation concerning transfers of foreign currency stipulates that every business house, entity, or individual wishing to make a foreign transfer of funds may do so without limitation of amount to be transferred; however, the amount to be transferred must have been in an entity’s bank account for no less than three banking days prior to the transfer. Though conversion restrictions do not exist, the CBL currency auctions are often oversubscribed, and there could be considerable delays associated with attempts to exchange large sums of money.

Liberia has a floating exchange rate system with both LRD, known as “Liberty” notes, and USD used as legal tender. The exchange rate is determined by market supply and demand. Large-scale business and government transactions are conducted in USD , while retail or day-to-day routine transactions are conducted largely in LRD. Contracts and tax agreements are typically specified in USD , and more than 70 percent of taxes are paid in USD . The USD can be freely exchanged for LRD in commercial banks, licensed foreign exchange bureaus, petrol stations, and large supermarkets. It is advisable for foreign investors to conduct foreign exchange operations with commercial banks or established licensed forex bureaus.

The Annual Report on Exchange Arrangements and Exchange Restrictions, published by the International Monetary Fund (IMF), describes the foreign exchange regimes of every IMF member: https://www.imf.org/en/Publications/Annual-Report-on-Exchange-Arrangements-and-Exchange-Restrictions/Issues/2017/01/25/Annual-Report-on-Exchange-Arrangements-and-Exchange-Restrictions-2016-43741

Remittance Policies

There are no recent changes or plans to change Liberia’s investment remittance policies to affect access to foreign exchange. Generally, there are no legal time limitations on remittances or on the inflows or outflows of funds for remittances of profits or revenue. Due to the limited number of correspondent banking relationships, bank fees related to currency exchange and wire transfers can be high. In general, corporations can remit as much as USD 1 million through commercial banks. Transferring banks are required to file normal cash transaction reports with the CBL. Depending on the amount to remit and the bank(s), the wait-period to remit each type of investment returns range from a few hours to three business days. However, individuals without a bank account are limited to two over-the-counter transfers of up to USD 5,000 within a 30-day period. The CBL instituted thresholds for suspicious transactions for which banks must exercise customer due diligence and know your customer (KYC) rules. The thresholds are USD 25,000 and above for individuals, and USD 40,000 and above for corporations. Liberia does not engage in currency manipulation tactics. The channels through which remittances are sent in Liberia are Western Union, Money Gram, RIA Money Transfer, and wire transfer. 25 percent of inward remittances in USD must be cashed out in LRD. There are also some non-bank money-transfer outlets known as “hawala” systems, which informally transfer money, mainly to neighboring countries.

Sovereign Wealth Funds

The government does not maintain a Sovereign Wealth Fund (SWF) or other similar entity.