This report is based on the work of a joint IMF/World Bank team that visited Brazzaville and Pointe Noire (Republic of Congo), Douala and Yaoundé (Cameroon), and Libreville (Gabon) in November 2014 and January 2015, to update the Financial Sector Assessment Program (FSAP) for the CEMAC conducted in 2006.

The short-term risk of a financial crisis appears low, but the assessment identified pockets of vulnerabilities. The financial sector is not well positioned to contribute effectively to the financing of the CEMAC economies, and it faces an intensification of risk factors related to geopolitical tensions and the fall in commodity prices.

Reform progress has been slow in addressing longstanding weaknesses, despite extensive technical assistance (TA), and the urgency for progress is heightened by recent macroeconomic developments. Firm action is required to foster the development of the financial sector while ensuring adequate oversight of risk factors. The reform agenda calls for granting greater operational autonomy to the regional financial agencies, and boosting their capacity to carry out the reform projects successfully.

Prudential regulations need to be upgraded, and regulatory forbearance should be avoided through effective enforcement. There is also considerable scope for enhancing the business climate, one of the weakest worldwide, and financial inclusion, which has been lagging behind.

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CONTEXT

Macroeconomic Risks in the Financial Sector

Over the past decade, primarily as a result of high oil prices, the CEMAC achieved robust economic growth, although lower than the SSA average, but insufficient to significantly reduce poverty. Countries launched wide-ranging public infrastructure programs needed to support regional economic activity, but large fiscal expansion reduced the fiscal buffers for coping with the negative oil price shocks. The economies are poorly diversified, and non-oil GDP growth is largely sustained by public expenditure and the services sector. Poverty and unemployment remain high, in particular among young people.

A poor business climate and weak governance are hampering financial sector development and its contribution to financing investments. Corrective actions in this regard are needed to improve the growth potential and competitiveness of the CEMAC economies.

The weakness of regional integration also limits the growth potential. Although the CEMAC has a common legal system (OHADA), a common external tariff, and a common currency, numerous tariff and non-tariff barriers hinder the flow of goods, services and persons. Intra-regional trade accounts for only 2 percent of all trade. Intra-regional financial transactions are also limited, compared with the volume of international transactions. By contrast, a certain increase is noted in intra-regional payments, along with an expansion in government securities issued at the regional level.

The drop in oil prices by about 60 percent between June 2014 and January 2015 has had a large impact on the CEMAC countries’ macroeconomic performance (Box 1). Oil revenue represents over 50 percent of the Union’s fiscal outlays and more than 80 percent of exports. The sharp decline in oil revenue is expected to force some countries to reduce budgetary spending, including public investment programs. Pressures on their treasuries could also lead states to use a portion of their deposits at the BEAC and in the banking sector, which could in turn weaken the liquidity position of some financial institutions. Such pressures could also lead to problems in paying suppliers and thus to an increase in the nonperforming loans (NPLs) of financial institutions.

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Box 1. BEAC Assessment of the Oil Shock Impact

According to the baseline scenario prepared by the BEAC, the oil shock impact would be as follows:

Real sector: The CEMAC is expected to record a 1.8 percent growth decline in 2015 owing to falling oil sector activity and the consequent retrenchment in capital expenditures. For 2016-17, growth is projected to recover to average about 7 percent. Inflation is expected to remain subdued at around 2.3 percent for the period 2015-17.

External sector: Over the period 2015-17, the current account deficit would deteriorate to 14.1 percent of GDP on average, and the international reserves coverage is projected to fall to an average of 3½ months of imports of goods and services.

Public sector and debt: The fiscal balance would decline to - 6.7 percent of GDP in 2015, -4.9 percent in 2016, and - 3.4 percent in 2017; financing needs should lead to a significant increase in debt.

Monetary aggregates and banking sector: The external coverage ratio would fall to 87.4 percent for the period 2015-17. However, it would plummet to 52 percent if the states’ financing requirements were only met on the domestic market. The banks’ liquidity levels should remain at comfortable levels.

Source: BEAC.

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The worsening of the security situation related to the crisis in Central African Republic (CAR) and Boko Haram’s activities in the northern part of Cameroon could also affect economic activity. The expectation of higher risks could affect investment in new projects and commercial activity, with ensuing adverse effects on financial sector stability and profitability.

Structure and Performance of the Financial Sector

The CEMAC’s financial sector is dominated by commercial banks, and in some countries large microfinance institutions (MFIs); foreign banks manage about 50 percent of the total assets. The banking sector is heterogeneous, segmented, and strongly concentrated: on average, the three main banks in each country hold more than 70 percent of the assets despite the arrival of new foreign players.

Financial depth has improved somewhat since 2006. At end-2013, banking assets in the CEMAC represented 26.3 percent of the CEMAC’s GDP, compared with 15.7 percent in 2004. The ratio of private credit to GDP, at 10 percent, increased less quickly. For the most part, loans are granted for short and medium terms, and demand deposits represent the bulk of banks’ resources. The ratio of credit to deposits also increased, going from 57 percent in 2010 to 67 percent in 2013. The Cameroonian and Gabonese markets shares have declined, with Congo and Equatorial Guinea becoming larger.

Access to formal banking services is however lower than in comparable SSA countries. Credit to the private sector, as percentage of GDP has increased since the last FSAP but still remains low in a regional comparison. Financial inclusion is limited and less than 15 percent of adults are bank account holders, which is lower that the SSA average. The level of income affects access to financial services. Bank lending is preferably to customers whose wages are deposited in an account with them and large enterprises receive most of bank loans (80 percent). Surveys of potential bank users find as constraints relatively high minimum deposit requirements compared with income, the high costs of the services, and the distance from the nearest bank branch (Findex database, 2012). In addition, access to savings and to traditional bank financing are comparatively more difficult for the poor and for women in the CEMAC. The mix of all these constraints results in an extremely limited access to financial services in the CEMAC.

The bank business model shows little diversity and a limited match with developmental needs. Loans to connected parties, reflecting the ownership structure of local banks, have been the main contributor to past bank crises and remain a source of risks for locally owned banks. The banks’ overall ample liquidity and the absence of regular publication of the banks’ financial statements contribute to the limited development of the money market. Electronic banking services are beginning to be offered but are still embryonic, and the cost of electronic funds transfers is much higher than that in comparators, for example, in East Africa. The microfinance sector is relatively well developed in three countries (Cameroon, Congo, and Chad) and offers financial services to households and SMEs not using the banking system.

Financial intermediation and access to credit remain hampered by a number of structural constraints. The barriers include, in particular, inadequate functioning of the judiciary, the absence of appropriate guarantee instruments, and the lack of credit reporting. To reduce these barriers, the BEAC envisages developing a payment problem information center at the regional level, but the authorities should implement more wide-ranging reforms.

Overall, the banking sector is profitable, with wide differences across countries, and differentiation depending on the size of the institutions (the smaller banks being less profitable). After plunging in 2009, the banking sector’s profitability recovered gradually up to levels close to those noted in 2004-05. In 2013, the return on equity (ROE) averaged 19.3 percent, compared with 16.9 percent in 2005. The profitability of Cameroonian banks, on the decline between 2010 and 2012, settled in 2013. Congolese and Gabonese banks show relatively comfortable and stable profitability. A downward trend is observed for the banks in Equatorial Guinea and Chad. The political crisis in CAR led to a collapse of bank profitability. The large banks show relatively strong profitability as opposed to the small banks whose return on equity (ROE) was highly negative in 2013. Of the eleven state-owned banks, five recorded losses in 2013.

Interest and fees account for nearly the same share of revenues, which illustrates the low level of banking diversification. Cameroon is an exception: fees are relatively large, whereas the interest margin is near double the revenue from fees in CAR. The low level of operating expenses for the banks in Equatorial Guinea is also noteworthy. The evolution in the average cost of credit has been negligible: interest rate margins stood at 7.1 percent in 2013 (lower than in 2011).

Other trends in the banking landscape since the 2006 FSAP have been as follows: (i) a sharp increase in the number of state-owned banks, from 2 to 11, with others planned in several countries. In 2014, state-owned banks accounted for nearly 11 percent of banking sector assets, compared with 3.6 percent in 2005; (ii) the sector concentration: the three main banks manage 50-90 percent of bank assets, depending on the country, and two groups originating in the CEMAC own one-third of the banking assets; and (iii) the arrival or development of new players headquartered in SSA countries and the Maghreb (respectively, 13 and 9 percent of sector’s assets).

Follow-up of the 2006 FSAP

The initial 2006 CEMAC FSAP identified institutional and capacity constraints undermining the effectiveness of the regional financial agencies, including material deficiencies in the legal and judicial framework; poor quality of financial data; weak financial market infrastructure; limited institutional autonomy of the COBAC compounded by inadequate staffing; poor conformity with international standards; and weak systemic liquidity frameworks at the BEAC.

The 2006 FSAP was also followed by wide-ranging IMF and World Bank technical assistance (TA) programs in support of the actions initiated by the authorities. The technical assistance related to increasing staff bank supervisory capacity at the SG-COBAC, improving the accounting and internal control systems at the BEAC, building the BEAC’s capacity to manage systemic liquidity and the foreign exchange reserves, and assisting the member countries in public debt management. The Central African Regional Technical Assistance Center (AFRITAC) contributed to these actions in the areas of banking supervision and public debt management. The African Development Bank provided support in the area of securities markets.

Progress in addressing the findings of the 2006 FSAP was held back due to several factors, including: delays in the recruitment or appointment of professional staff at the BEAC and SG-COBAC; lengthy processes for adopting CEMAC regulations; and difficulties in building a consensus for reforms. Delays in the reform agenda at the regional level have led some member states to move forward even though a regional approach would have been preferable.

Stress Test Results

The stress tests show a high vulnerability to credit risks specific to the CEMAC (fiscal imbalances in response to the oil shock and a degradation of security), especially for the banks with main activity within the CEMAC. However, the team’s analysis, and supervision more generally, are limited by weaknesses in the quality and reliability of financial data: supervisory returns are poorly verified; capital positions may be overstated given the weak regulatory framework on lending to connected parties and the definition of regulatory capital; and the weights applied to some transactions do not always reflect the risks associated to the underlying assets.

Most notably, the stress tests show the predominance of credit risk. In the event of an extreme macroeconomic scenario leading to 15 percent of the performing loans becoming non-performing, only 58 percent of all the banks would comply with the solvency ratio (currently, 80 percent of the banks comply with the minimum level of 8 percent). Yet, immediate capital shortfalls would be contained (less than 0.50 percent of regional GDP). The vulnerability to credit risk is amplified in the event of weak sectoral credit diversification, which is generally the case for banks whose business is concentrated in the CEMAC: only 18 percent of those banks would be in compliance with the solvency ratio after the shock, compared with 65 percent and 76 percent respectively in the case of banks operating in SSA and those operating internationally.

The results of the other unitary shocks are as follows:

• The banks are highly vulnerable in case of deposit withdrawals, due their heavy reliance on volatile sight deposits (representing close to 80 percent of their liabilities) for their funding. Following a 25 percent decline in deposits, the weighted average of the regulatory liquidity ratio would fall to 66 percent, against 138 percent before the shock. Banks in Cameroon, Gabon, and Chad are the most vulnerable, their respective ratios being 49 percent, 50 percent, and 65 percent. However, it is worth noting that the banks have large current account amounts available at the central bank which could be used to mitigate the liquidity risk.

• Exposures to direct foreign exchange and interest rate risks are limited. The immediate impact on the bank’ balance sheets of devaluation of the CFA franc against the euro, or of a depreciation or appreciation of the CFA franc against the U.S. dollar, would be small. While lack of data prevents the assessment of a secondary effect (impact on borrower creditworthiness), the low level of borrower indebtedness denominated in foreign currency suggests limited direct vulnerability. The banks’ direct exposure to interest rate risk is also very limited: the valuation of assets and liabilities is not very sensitive to interest rate changes because of the scarcity of tradable securities in the bank’s balance sheets.

• The largest MFIs, like the banks, are mostly exposed to credit risk. They would no longer comply with the solvency ratio following a 15 percent transition of performing loans to NPLs. However, a drop of up to 30 percent in their deposit base would not threaten their ability to comply with the liquidity ratio.

• A recalibration of risk weights, so that they reflect better the risks associated to the underlying assets, would affect negatively the solvency of the banks.

• BCP assessment, weighting of loans and the nature of the deductions applicable to certain categories of loans divert from prudent practices. In order to evaluate the impact of regulations aligned with Basel rules, the mission recalibrated banks’ prudential ratios. Only 69 percent of the banks would comply with the solvency ratio once risk weights are recalibrated so as to ensure a better alignment of CEMAC rules with Basel.

The results of the stress tests exercise and of the analysis of the financial statements of credit institutions point to a few measures to be considered to better align the supervisory framework of the COBAC with the specificities of the CEMAC: (i) given the banks’ widely varying risk profiles, it would be advisable to implement the Basel pillar II approach, as this would allow the COBAC to adjust capital requirements on the basis of the bank’s risk profile; (ii) given the growing role of banking groups in the CEMAC, it is important to operationalize quickly the framework for consolidated and cross-border supervision; (iii) the reduced weights applied to some assets for the calculation of the solvency ratio should be revised so that they reflect more accurately their risk profile; and (iv) large MFIs should be subject to an enhanced supervisory framework, closer to the one in place for the banks.

FINANCIAL STABILITY POLICY FRAMEWORK

Actions of the Central Bank

The pressure on countries’ public finances and on the CEMAC’s external position as a result of the current macroeconomic conjuncture call for strengthening the BEAC’s ability to manage systemic liquidity proactively. At this time, the monetary programming framework in place at the BEAC is not as flexible as it should be. Moreover, the imperfect pooling of cash balances by some states at the BEAC (in particular of the financial flows related to the oil sector) complicates systemic liquidity management by the BEAC.

These challenges emphasize the urgent need to bring to completion the reform of the monetary policy framework. The following key actions are recommended:

• Strengthen the internal functioning of the BEAC. The strengthening of the BEAC’s internal controls and its accounting system, when completed to the satisfaction of the oversight bodies, will make it possible to return the chairmanship of the BEAC board of directors to the governor, together with the adoption of a governance structure for the BEAC which combines the three pillars of modern central banking, namely independence, transparency, and accountability. It is also critical to revisit the rules and practices for the selection and appointment of the BEAC’s top officials (national and head office directors and other senior staff), in order to ensure that appointments by the BEAC authorities are based on candidates’ professional qualifications and experience, while at the same time maintaining a balanced national representation.

• Strengthen the systemic liquidity forecasting and management framework. The work already started at the BEAC should be completed as a matter of priority. This will involve a close coordination with the national authorities in charge of government cash flow management.

• Initiate the reform of the monetary policy operating framework. The multiplicity of monetary policy instruments blurs the readability and transparency of the BEAC’s actions. It is therefore urgent to streamline the framework, along the lines of past recommendations made in the context of Fund technical assistance. This effort should also include actions to develop the government securities market; a regional committee under the aegis of the BEAC should be established to this effect.

• Put in place a lender of last resort framework distinct from the monetary policy operating framework.

The current pressures on the external position of the CEMAC also reinforce the need to strengthen the BEAC’s reserve management framework, and to have its key components validated by the Ministerial Committee, including: (i) the methodology for assessing the optimal level of international reserves; (ii) the structure of the reserves portfolio; and (iii) the methodology for determining the remuneration of the deposits by CEMAC member states. Current arrangements could be amended towards an assets-liabilities approach, whereby the remuneration of the deposits would reflect the return on the assets in which they are invested. The implementation of the above principles governing the framework for foreign exchange reserves management should remain under the responsibility of the Monetary Policy Committee-MPC (e.g., actual calculation of the optimal level of reserves, of the structure of the reserves, and of the remuneration of deposits, and setting the strategic allocation of reserves).

Financial Stability Framework

The recently established financial stability framework needs to be made fully operational. While overtime a fully developed institutional framework for macroprudential policies will be useful, at this juncture the priority should be given to strengthening the microprudential supervision framework; clarifying the BEAC’s role (including establishing a lender of last resort function); adopting a mechanism for identifying banks and MFIs of systemic importance; strengthening of the framework for monitoring financial stability through the conduct of stress tests in coordination with the SG-COBAC; and undertaking analysis of the channels of contagion between the macroeconomic and financial sectors.

CRISIS MANAGEMENT AND SAFETY NETS

Crisis Management and Resolution

The recently adopted regulation for crisis management and resolution is a significant progress, but needs supporting measures. After a lengthy process, drawing on the lessons of recent banking crises (Box 2), a new regulation was adopted in 2014 by the MC. Two main points deserve the authorities’ attention:

• The special restructuring provisions create for the resolution authorities, under CEMAC, COBAC, UMAC, and MC Regulations, far-reaching powers that have not yet been tested, and that could be challenged in court.

• The actual implementation of the new arrangements requires supporting measures to: (i) specify the criteria for initiating special restructuring operations, and especially regarding the assessment of whether or not a bank is of systemic importance; (ii) specify the provisions aimed at safeguarding the interests of parties that believe they have incurred losses greater than those they would have suffered in the context of liquidation under ordinary law; (iii) protect the interests of the funding entities (the deposit insurance fund - FOGADAC and the states) by recognizing their preferential rights over those of other creditors; and (iv) clearly establish the obligation for the FOGADAC and the COBAC to take legal action against shareholders and executives responsible for bank failures caused by anomalous or fraudulent management actions.

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Box 2. Lessons of the Recent Banking Crises

The treatment of the most recent banking failures offers a broad catalogue of the risks likely to arise in dealing with problem banks.

National authorities did not always intervene in a well coordinated manner with the COBAC.

The rescue of insolvent banks with public funds was not timely and not always based on the proven systemic importance of the banks.

The maintenance of shareholders in the capital of banks being restructured with public funds enabled them to limit their contribution to the losses, whereas the banks’ failure largely resulted from loans granted to entities in their group.

The lack of legal backing in the measures taken opened the door to judicial appeals by the shareholders, leading to the excessive lengthening of the resolution process

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The legal framework should also be supplemented by mechanisms for consultation and coordination among all the authorities potentially concerned by the failure of complex financial groups with cross-border business. These additions should entrust to the COBAC a prominent, if not exclusive, role over the other authorities in the region, so as to ensure: (i) the indispensable speed in decision making; and (ii) the consistency of the options implemented by the national authorities concerned by the failure of a group operating in several jurisdictions of the region. The improvement of the current regulations should be accompanied by the formulation of clear procedures assigning to each pertinent authority, including the FOGADAC, a specific role in the selection of available options, and in the decision-making and implementation processes.

The ordinary resolution arrangements applicable to institutions that are not of systemic importance should also be reviewed. The powers assigned as regards disciplinary and restructuring matters are not established clearly enough to be legally unquestionable. The criteria for the use of those powers should be specified to ensure that interventions are gradual and match the seriousness of the given situation.

The following key measures are recommended:

• The mandate given to the COBAC as the resolution authority should be explicitly established.

• Financial groups operating in the CEMAC should be structured around a holding company subject to consolidated supervision and the resolution framework.

• The objectives and priorities governing special restructuring should be more explicitly established.

• The COBAC should require at least the systemic banks to elaborate Recovery and Resolution Plans.

• The COBAC should immediately undertake the analysis of the legal resolution frameworks governing the foreign groups carrying out a systemic activity within the CEMAC.

DEVELOPING THE FINANCIAL SECTOR

Financing of the Economies

Financial inclusion represents a major challenge in the CEMAC. The World Bank’s 2011 Findex survey showed that only 12 percent of adults had a bank account, one half of the average noted in SSA, with great disparity within the region. The BEAC and the COBAC should put into place a management chart that can be used to measure and monitor financial inclusion in all its dimensions. It would also be helpful to undertake surveys through interviews and polls that can give a better idea of the financial capacity of households and the barriers (on the demand side) to progress as regards financial inclusion.

Customer relations and the services offered to individuals have slightly evolved. Individuals in the formal sector are a major source of deposits, but the share of credit going to them is steady (15 percent). These financing operations take the form of overdrafts and consumer loans (consistently backed by wages) whose maturity is often 3-4 years. The use of payment cards is limited; remote banking is only now being developed. The rapid growth of financial services targeting households has revealed shortcomings in the consumer protection framework that deserve further attention.

Microfinance plays a significant role in the CEMAC. Most MFIs are authorized to take deposits. The microfinance sector though remains weak, especially with an extremely high average rate of outstanding payments, at 22 percent. Excessive exposure to connected parties, barely or poorly identified, is a common issue, and the ongoing liquidation of some MFIs, triggered by severe governance problems and affecting thousands of low-income savers, has highlighted the need to strengthen the supervision and crisis management arrangements for MFIs.

Credit to SMEs is negligible and growing only slowly. While little reliable information is available, SMEs financing by the banks seems to be stagnant. The MFIs, which serve a somewhat different population of SMEs, are increasing their financing operations; rates are in the range of 9-18 percent for banks and 15-25 percent for MFIs. Leasing is a key source for the financing of capital goods in those countries where a specific legal and institutional framework has been established (Cameroon and Gabon).

The low level of term financing from domestic banks reflects concerns about risks and the size of bank balance sheets (for large projects), and the lack of long-term resources. Moderate progress has occurred since 2006 in medium- and long-term domestic bank financing. The above-mentioned problems related to the business climate as well as the sociopolitical uncertainties in some countries led the banks to focus on high-grade borrowers for whom the risks are better managed. The structure of their resources is also a constraint, as these are composed largely of demand deposits. In the absence of a reference interest rate index, fixed-rate loans expose lenders to interest-rate risk. Development institutions have been created (or are planned) to remedy these weaknesses; they should strictly adhere to the best international practices which requires considerable effort.

Housing credit is still only marginally developed in the CEMAC and remains far short of the needs. Along with exogenous constraints (limited use of the banking system, lack of affordable housing, large portion of the labor force in the informal economy), major barriers are created by the poor credit climate itself. The lack of long-term resources also explains the great prudence of the commercial banks and contributes to the rise in the cost of credit. Microfinance does not offer solutions that match the needs, despite sporadic progress. The temptation persists to replace the market by government interventions instead of tackling the causes of its inefficiency. Progress was achieved recently in land management from the legal and operating perspectives.

Improving the business climate and financial environment to facilitate access to households and SMEs to finance is essential and some reforms can be implemented quickly. The processes of registration, transfer, and notarization of property deeds should be streamlined and the associated costs and delays reduced in order to facilitate the use of real estate as collateral. Strengthening creditor rights (in particular when they have assets) and the establishment and modernization of unified collateral registries would allow SMEs to use a broader range of securities to access credit. This would also allow banks to reduce the required levels of collateral and prevent “opportunistic” defaults. The modernization of the credit information systems is also essential and can bear results quickly. The BEAC and the COBAC should monitor financial inclusion and the pricing of financial services. Regulatory measures have been taken to reduce the cost of financial services that could be complemented by a review of the value-added tax regime. Strengthening transparency, redress mechanisms, and financial education will improve consumer protection. The rules on governance and internal control of banks and MFIs regarding connected parties transactions need to be strengthened and enforced to reduce the risks of financial crises. Finally, public interventions should not be designed to replace financial institutions, but to encourage interventions by them.

Financial Infrastructures

The capital market remains embryonic and fragmented. The market includes the regional stock exchange (BVMAC), supervised by a regional body (COSUMAF), as well as a parallel mechanism in Cameroon, with a stock exchange (Douala Stock Exchange, DSX) and a supervisor (CMF). The coexistence of two separate mechanisms, regional and Cameroonian, was already highlighted in 2006. In practice, the survival of the two mechanisms depends on financial support from the public sector. The long-ongoing actions to unify the mechanisms should be completed quickly, first starting with the establishment of a unique central securities depository (CSD).

Since the 2006 FSAP, the BEAC has made good progress with the establishment of a Real Time Gross Settlement (RTGS) system, and an automated clearinghouse. Delays in establishing an efficient retail payments market (which has a negative effect on economic development and financial inclusion), will be absorbed only with a proactive approach by the BEAC. Electronic money’s potential for development is extremely significant, and the BEAC should improve the monitoring of its development in the CEMAC. The BEAC should also strengthen its oversight function, so as to be able to supervise the systems of systemic importance as well as to fulfill its mission of supervision, monitoring, and strategic encouragement of retail payments.

More reliable, detailed credit reporting is a key factor for facilitating proper risk control by financial institutions and therefore for financial inclusion. It is important to improve coordination of the multiplicity of uncoordinated regional and national initiatives, a source of redundancies that weakens the chances of success of those initiatives. The establishment of an efficient, coherent regional credit reporting system will require consensus and the participation of a wide range of public and private players, as well as a commitment from the public authorities, and in particular from the BEAC.

Anti-Money Laundering and Combating the Financing of Terrorism

The CEMAC faces significant money laundering and terrorism financing risks. In the implementation of effective AML/CFT policies, the authorities face structural and sectoral challenges that are conducive to money laundering operations: a predominance of informality and the use of cash in the economy, a small portion of the population using the banking system, unreliability of identification documents and lack of register computerization, highly porous borders, and money laundering in the real estate, banking, funds transfers, manual foreign exchange operations, and microfinance.

The Central African Anti-Money Laundering Task Force (GABAC), despite serious efforts, has not yet been recognized as a Financial Action Task Force (FATF)-style regional body (FSRB). The GABAC has made efforts to launch a program of mutual assessments, organize regular task force meetings, and prepare typology exercises on AML plans in Central Africa. The GABAC began a process of close cooperation with the FATF, with a view to obtaining FSRB status; that process is currently frozen because of delays in the GABAC’s adoption of procedures for transparent financial management.

The following actions should be undertaken as a matter of priority:

• Complete, as soon as possible, the process of recognizing the GABAC as a FSRB, providing it with procedures for transparent financial management;

• Put the FIUs in Congo and Equatorial Guinea into operation;

• Set up, within each state, an effective inter-ministerial committee responsible for drafting a national AML/CFT policy defining priorities for action by each player, short and medium-term quantitative objectives, and means of action;

• Draft, in each member state, a comprehensive and structured criminal justice policy for AML/CFT and the principal offenses, including corruption and the embezzlement of public funds, that would include the combating of money laundering in criminal proceedings.

• Make funds transfer companies subject to a mechanism for licensing/registration and for supervision; and

• Increase the appropriate financial, technical, and human resources of regional and national supervisors of the financial and non-financial sectors, for gradual and effective implementation of AML/CFT risk-based supervision and ensure supervisors have and use a broad range of powers to enforce AML/CFT requirements.