ALGIERS, 20 March 2021 – Algerian banks are extremely exposed to risk from the COVID-19 pandemic and moderately low oil price environment, a recent report shows.
The assessment is an admission that measures taken by the government to mitigate risks have not been as effective as anticipated.
The Bank of Algeria announced several measures in March 2020 to limit the impact of any pandemic-induced crisis on businesses and the banking sector.
The measures included a moratorium on loan repayments that remains in place until the end of March 2021, a reduction in capital adequacy requirements, and a greenlight to lower reserve requirements.
Algerian bank lending is highly concentrated in lending to SOEs, at 51 percent of total banking-sector loans, with state-owned banks accounting for 99.8 percent of loans to the public sector.
Government guarantees on some bank loans mightily mitigate the risks for banks that exceed 25 percent of the financial institution’s capital base and are directed towards project funding.
The International Monetary Fund (IMF) says state-owned enterprises (SOEs) account for a majority of the loans which are in the oil and gas, construction, and tourism sectors.
The IMF has projected a more optimistic oil-price outlook as of mid-March 2021 but warns that the construction and tourism sectors are likely to be slow to recover from the global COVID-19-virus pandemic, driving increased credit risk for public banks.
Experts project that Algerian banks will require recapitalisation in the near term.
The IMF projects that a tier-1 capital adequacy ratio (CAR) of 15 percent and a 9 percent ratio of shareholders’ equity to total assets, will be required for the Algerian banking sector to maintain an ample capital buffer.