Algeria Bank Governor warns against adverse effects of oil price slump on Algeria’s financial capacity

The Governor of the Bank of Algeria, Mohamed Laksaci, has warned against the deleterious effects of the continuing slump in oil prices on the financial capacity of Algeria to withstand shocks on the external balance of payments.

“The current foreign exchange reserves enable Algeria to deal with shocks pertaining to the balance of short-term external payments.

However, this ability to withstand shocks will fade swiftly if oil prices remain at low levels for a long period of time,” said Laksaci who presented on Monday a report on the financial and economic trends in the country before members of the National People’s Assembly or Lower House of Parliament.

The overall balance of payments showed a deficit of USD 1.32 billion in the first half of 2014 against a surplus of USD 0.88 billion in the same period of 2013. The country’s official foreign reserves plummeted to USD 193.269 billion at the end of June 2014 after rising to USD 194 billion at the end of 2013.

Referring to figures and indicators recorded in the previous years in terms of comparative assessment, Mr. Mohamed Laksaci further said that banks operating in Algeria have consolidated their financial soundness indicators during the first nine months of 2013, while continuing their efforts in provisioning. 

“The solvency ratio of banks is still significant at nearly 20% in September 2013, while the two liquidity ratios remain high as the end of 2012,” he said when presenting a paper on the main monetary trends and reported during the first nine months of 2013. 

He stressed in this context, the level of non-performing loans reported by banks was down from 19.05% of total loans granted at the end of 2010 to 16.08% at the end of September 2011. “This improvement is due to the combined effect of lower levels of non-performing loans and the increase in outstanding loans,” he said. 

Laksaci affirmed that the operational framework for forecasting and monitoring of bank liquidity by the Bank of Algeria was consolidated in the first half of 2011, contributing to the effective conduct of monetary policy. 

Regulations regarding the identification, measurement, management and control liquidity risk was enacted by the Council of money and credit in May 2011.The regulation establishes a minimum liquidity ratio for banks and financial institutions must comply at all times. “The assessment made by the Bank of Algeria since June 2013 indicates that banks in the market satisfy this requirement,” he argued. 

Mr Laksaci also noted that the management of flexible exchange rates by the Bank of Algeria contributes “effective” external financial stability.