Commercial Banks' Trade-offs in the Democratic Republic of the Congo Between Financing the Real Economy and Investing in Domestic and Foreign Government Securities: Identification of Key Determining Factors (African Scientific Journal)

Summary

• Commercial bank deposits in the DRC increased from $859 million in 2007 to $6,272 million in 2019, representing a growth of nearly 629%.p.5
• Volume of bank credits allocated to the economy grew by 17,6 % between 2023 and 2024.p.5
• The econometric study uses a panel data approach covering 7 commercial banks in the DRC across the 2018-2024 period.p.2
• Under Instruction No. 14 of the Central Bank of Congo, commercial banks are mandated to maintain a minimum solvency ratio of 10%.p.14

Key insights

1. Commercial bank asset allocation between lending and financial investments in the DRC is driven primarily by prudential regulations, liability structure, and risk-return management.p.2
2. Central Bank of Congo Instruction No. 14 sets prudential standards across seven categories, including minimum capital, regulatory capital, solvency, credit risk, market risk, operational risk, leverage ratio, and risk division.p.5
3. The Central Bank of Congo enforces a 100% liquidity coverage requirement that must be maintained permanently across all currencies, in domestic currency, and in foreign currencies.p.19
4. Larger balance sheet size and higher collected client deposits tend to encourage financial investments, especially during economic expansion phases.p.2
5. Bank profitability measured by ROA and ROE positively influences financial investment allocations due to lower capital consumption.p.2
6. A deterioration in loan portfolio quality through higher non-performing loans imposes capital constraints and slows down credit growth.p.2