Reasons why local banks in Cameroon failed within 1980-190 Peroid

Reasons why local banks in Cameroon failed within 1980-190 Peroid

may suffer financial hardship many local banks in Cameroon, many of which have been closed by regulatory authorities or was restructuring under their supervision . at

banks such as Cameroon B.I.C.I.C. Meridian B.I.A.O. Shares in Bank of Cameroon
The
Many of the most distressed local banks are subject to some form of

"Action of the Decade." And formed local banks failed to reach 23 per cent of the total business

bank assets in Cameroon

The cost of these failures of banks is very difficult to estimate: a lot of data is not in

the public sphere, while the final cost to depositors and / or taxpayers in most

bank failures that occurred between 1988 to the period of 04 will depend on the amount of the failed banks' assets "are recovered in the end by the liquidators. Costs would almost certainly be great.

Most of these bank failures caused through loans unprofitable. areas affecting more

portfolio than half of the loan was typical of the failed banks. Many of the bad debt was

attributed to moral hazard: Negative on the bank owners incentives for the adoption of wisdom

lending strategies, particularly lending inside and lending at high interest rates to borrowers

in the most dangerous sectors of the credit markets.

lending from the inside

and was the largest single shareholder in many of the bad loans of failed local banks

lending from the inside. In at least half of the bank failures of the above, and formed a loan from the inside

a large proportion of bad debt. Most of the major domestic banks failed in Cameroon,

such as Bank Cameroon, B.I.A.O. Bank and B.I.C.I.C. Bank from home and broad involved

lending, often to the politicians. Formed loans from home 65 per cent of the total loans of

these local banks, almost all of which was non-refundable.

has been extended almost half the size of the loan portfolio of one of the local banks and local banks to their directors and employees. The threat posed by lending inside for aggravated the safety of banks because many of the loans from the inside invested in speculative projects such as real estate development and penetration exposure limits large loan, was extended to projects that can not generate revenues in the short term (such as hotels and shopping centers), and as a result benefits assets and liabilities of the bank were identical fool.

and the high lending rate from the inside of the failed banks indicate that the ethical problems

risk was sharp, especially in these banks. Several factors have contributed to this.

first, and politicians participated as shareholders and directors of some of the local banks.
Used
political contacts to get the deposits of the public sector: many of the failed banks,

heavily dependent on wholesale deposits of a few companies.

Because of political pressure, and small banks, which made these deposits it is unlikely to be

business judgment purely for the safety of their deposits issued. Furthermore it,

availability of small deposits, reducing the need to mobilize funds from the public. Subsequently
Faced
these banks a bit of pressure from depositors to establish a reputation for safety.
Also it facilitated
political contacts to get bank licenses were used in some cases for

bank regulators pressure not to take action against the banks when violations of banking laws

have been discovered. All of these factors reduced the restrictions on the bank's prudent management.

In addition, the banks rely on political connections meant that they were for

pressure to lend themselves to politicians in exchange for assistance in obtaining

deposits, licenses and many other of the largest home loans made by failed banks in Cameroon

it was prominent politicians.

Second, most of the failed banks have not capitalized, due partly to a minimum
The
capital requirements in force when it was too low prepared. The owners were a little

their own funds at risk should their bank fail, resulting in a lack of consistency in a large

potential risks and benefits of lending from the inside. Bankers from investing in bank deposits

in high-risk projects their own, knowing it will bring big profits if their projects

he succeeded, little money, but you will lose if you were not profitable

The third factor contributing to the lending from the inside and the excessive concentration of

ownership. In many of the failed banks, the majority of shares held by one man or one

family, while lacking sufficient independence managers of intervention by the owners in

executive decisions. More diverse and more independent ownership structure
It might have been expected to impose greater restrictions on lending from the inside
management,

because at least some of the board members have stood to lose more than they gained from

lending from the inside, while the managers will not have wanted to risk their reputations and careers.

rise in the cost of funds means that local banks had to generate high profits

assets. For example, by charging high interest rates on loans, with consequences on the quality of

loan portfolios. Local banks will inevitably suffer from a bad choice of

borrowers, many of who have been rejected by foreign banks (or can be

they had applied for a loan) because they do not meet the strict standards of creditworthiness

he demanded of them. Because they had to charge interest rates on loans to compensate for the higher

higher costs money, and it was very difficult for local banks to compete with foreign

banks to borrowers, "Prime Minister" (ie, for borrowers with credit-worthiness). As a result,
The fragmented
credit markets, with many of the local banks operating in the most risky

segment, borrowers Service prepared to pay the interest rates on loans high as they could reach any

alternative sources of credit. And it includes high-risk borrowers of other banks that were

short of liquidity and are willing to pay market interest rates above the inter-bank deposits and

loans. We are all experienced in Douala and Yaounde how some local banks were heavily exposed to finance homes, all of which collapsed in large numbers in the 190s.

As a result, the plight of the bank because of the domino effects over

local banks' loans to each other.

within the credit market sectors served by the local banks, there was probably

good quality (ie creditworthy) borrowers as well as poor-quality risks. But service

borrowers in this segment of the market requires a strong evaluation of loans and monitoring

systems, not least because of media defects sharp: the quality of borrowers

financial accounts are often poor, many borrowers lack a proven track record of successful business,

etc. The problem for many of the failed banks that did not have sufficient

experience to check and monitor borrowers, and thus the distinction between good and

bad risks. In addition, credit procedures, such as documentation loans and loans

securities, internal control, and was often very poor. These managers and executives

banks often lack the necessary expertise and experience.

recruitment and staff good banks often difficult for local banks because the established

usually we can offer talented administrators to the bank better job opportunities. Furthermore it,

rapid growth in the number of banks exceeded supply

experienced and qualified bank officials

macroeconomic instability to some extent contributed to these failures ..

exacerbated the poor quality of loans by local banks, which faced problems

macroeconomic instability. Signed periods of inflation is very high and volatile in Cameroon, before the devaluation of the CFA franc. With liberalized interest rates, and the nominal lending rates are also high, with real rates fluctuating between positive and negative levels, often a way that can not be predicted, given the vagaries of inflation.

macroeconomic instability has had two important consequences for the loan

quality of local banks. First, high inflation increases the volatility of trading profits

because of the inability to predict, but it usually involves a high degree of variability in the

increase in the prices of goods and services for which constitute rates

general price index. The likelihood that companies will make losses rise, as well as the possibility of

it will make a profit is not expected. This intensifies both bad choice and disincentives for borrowers to take risks, and therefore the likelihood of loan defaults.

second result of high rates of inflation is that it makes loans more difficult to assess

bank, because the survival of potential borrowers rely on predictable

developments in the overall rate of inflation, the individual components and exchange rates and

interest rates. Moreover, asset prices are likely to be extremely volatile under such well

circumstances. Thus, the real value of the future security of the loan is also very uncertain.

categorically, we should not be scared when we see small financial houses multiply in the economic capital of Cameroon, Douala and Yaounde today, everyone, and to participate vigorously in the banking sector, it is just a result of these failures, a huge bank recorded in the past years.

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