Freetown, SIERRA LEONE – A recent sectoral analysis by the Central Bank has revealed that the Commerce and Finance sector maintains its dominance in the non-performing loan (NPL) ratio within the banking sector. In the second quarter of 2023 (2023Q2), this sector, along with Business Services, Personal Services, and Construction, collectively accounted for 62.48 percent of gross loans.
Despite holding only 34.47 percent of the total gross loans, the Commerce and Finance sector reported the highest NPL ratio. In the same period, the Construction and Other Services sectors also contributed significantly to NPLs, with ratios of 28.03 percent and 10.04 percent, respectively.
Further examination of the NPL Trend and Loan Loss Provisions indicated a marginal increase in the proportion of non-performing loans to gross loans during the 2023Q2 review period. The NPL ratio rose by 2.84 percentage points, climbing from 13.1 percent in 2023Q1 to 13.4 percent in 2023Q2. Notably, loan loss provisions decreased by 20.0 percentage points, totaling NLe254.9 million in 2023Q2, down from NLe306.0 million in 2023Q1.
While the banking sector has demonstrated relative stability, maintaining key Financial Soundness Indicators (FSIs) above minimum thresholds, there was a slight deterioration in asset quality with the increase in Non-Performing Loans. The Central Bank attributed this stability to banks’ reliance on the Treasury Bills market, which positively impacted key FSIs.
However, the report highlighted an increase in Non-Performing Loans in 2023Q2, indicating a decline in asset quality. Government securities remained the largest asset category for banks, serving as the primary source of income. Although Treasury bill rates increased, deposits within the banking system experienced a marginal decrease in the same period. Treasury bill rates remained relatively high and increased for most of the quarter. ZIJ/4/12/2023