Congo Premier Halts Aid to Struggling Bank as Franc Weakens

  • Prime Minister says loans to BIAC are weakening currency
  • Government, central bank have had series of clashes over BIAC

Democratic Republic of Congo Prime Minster Augustin Matata Ponyo ordered the central bank to halt loans to struggling Banque International Pour l’Afrique because they’re contributing to the franc’s weakness, according to a statement from his office.

The central bank, which took over statutory management of BIAC in May, has loaned the Kinshasa-based bank 125 billion Congolese francs ($126 million) over the past four months in an effort to deal with a continuing liquidity crisis and save customer deposits. Ponyo’s office said that officials at BIAC and the central bank had allowed account holders to withdraw deposits, despite controls, by creating funds at the central bank that aren’t backed by collateral, according to the statement.

“Drastic measures to stop this financial mafia installed at BIAC with connections to the central bank” are required, Ponyo’s office said in the statement dated Monday. “The creation of money out of nothing through BIAC has had a negative impact on the economy.”

The central bank’s officials followed due procedure when they provided loans to BIAC, spokesman Plante Kibadi said in an e-mailed response to questions.

“The BCC cannot install a mafia, much less encourage money creation,” he said.

A BIAC director who asked to remain anonymous said all queries are being referred to the central bank.

Policy Clashes

The order by Ponyo is the latest in a series of clashes between his office and the central bank over management of BIAC, which was Congo’s third-biggest lender by assets before the crisis began. BIAC had been under the supervision of the central bank for six months, when in February the government instructed the central bank to cut a 44 billion-franc credit line to the lender as part of a series of measures to support the franc. The decision caused a rush by depositors to withdraw savings, leading to a management change in March, before the central bank took control in May.

The central bank reinstated an overdraft facility of 56 billion francs with the government’s approval in March, but has since provided a further 72.7 billion francs in lending, 63 billion of which has come through tax payments to the Treasury on behalf of BIAC depositors otherwise unable to access their funds, according to the statement.

Ponyo said the creation of the money contributed to the further depreciation of the franc over the past two months. The statement followed a meeting between Ponyo, the ministers of finance, budget and economy, and the central bank governor on Sunday.

The franc has weakened 6.2 percent so far this year, according to central bank data, as the collapse in commodity prices reduces foreign-exchange earnings. Congo is Africa’s biggest producer of copper, the world’s largest source of cobalt and mines other natural resources including oil and gold. At the close of trading on Monday, the currency was trading at 956 per dollar.

The banking industry in Africa’s biggest copper producer has been trying to rebuild consumer trust since average inflation of 684 percent during the 1990s and the collapse of several banks wiped out many people’s savings. The economy has grown at more than 7 percent a year for the past five years and the country now has 18 lenders. The slump in the prices of copper, oil and other key exports is threatening to check that growth, reducing foreign-exchange reserves and increasing pressure on the local currency.

The central bank is currently looking for new investors to save BIAC through recapitalization.

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