NewsWest AfricaSierra Leone: Weaning banks off government finance


Posted on Monday, 16 September 2013 15:39

Sierra Leone: Weaning banks off government finance

By Gemma Ware in Freetown

Sierra Leone's small businesses may be the winners. Photo©Daniel Wallis1/ReutersA halt on state borrowing should force banks to start offering cheaper loans to the struggling private sector.

Sierra Leone's banks are being forced to rethink their strategies as a government decision to stop borrowing domestically has had a knock-on effect on their profits.

Banks have traditionally feasted on treasury bills (T-bills) – short-term government debt returning high rates of interest.

These high rates offered them little incentive to give cheap credit to the private sector – crippling small businesses' ability to borrow.

Growth of credit to the private sector slowed to 7.3% in 2012, compared to 22.6% in 2011, according to the Bank of Sierra Leone.

the private sector should be in a position to go and negotiate with the banks

The decision to stop feeding the banks with T-bills has had a dramatic effect on rates.

By 6 June, rates that used to be more than 20% were at 4.6% for 91-day T-bills, 8.7% for 182-day and 10.2% for 364-day papers.

"Since we were not offering any securities for sale [...] there was competition to get them. The rates started going down," explains central bank governor Sheku Sesay.

"[Bankers] are reformulating strategies because everybody's primary income source is treasury bills" says Claudius Bart-Williams, chief executive of financial advisory firm Pennarth Greene and newly appointed chair of Standard Chartered in Sierra Leone.

He estimates that the country's banks on average have 50% of their assets in high-earning T-bills.

"With the drop in the rates, you're operating on a third of your previous income, maybe even a quarter of your income level of before," he says.

Bart-Williams predicts it will lead to better customer service from banks, but he worries that some may have to cut back on costly branch networks.

He is confident that banks will eventually pass on the lower rates to their customers.

Sesay says that the banks are already starting to offer more competitive rates to businesses and that there is real competition for customers.

"It is a very interesting moment," he says.

But he is aware that the banks are now awash with liquidity and that the central bank needs to find a way of "mopping up that liquidity so that it doesn't become inflationary."

Gladys Strasser-King, president of Sierra Leone's Chamber of Commerce, says "the private sector should [now] be in a position to go and negotiate with the banks to get very good loans."

But for now, she says, businesses have yet to see cheaper lending. Yet Strasser-King wears two hats and she is also chair of the board of the Sierra Leonean subsidiary of Nigeria's UBA.

She said the bank would "obviously" have to change its strategy now as a result of the reduction in T-bill rates, though she would not be drawn on how. ●

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