Financial Sector Assessment : Algeria
Over the past decade, Algeria has courageously attempted to modernize its financial system, despite social strife, and unique challenges posed by the large hydrocarbon sector. However, lending by state-owned banks, mostly to public entities, still...
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| Language: | English en_US |
| Published: |
Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2004/06/4945558/algeria-financial-sector-assessment http://hdl.handle.net/10986/15942 |
| Summary: | Over the past decade, Algeria has
courageously attempted to modernize its financial system,
despite social strife, and unique challenges posed by the
large hydrocarbon sector. However, lending by state-owned
banks, mostly to public entities, still dominates financial
intermediation, financial markets remain in their infancy,
and, implementation of regulatory reforms is lagging. And,
because of hydrocarbon-funded state support to borrowers and
lenders alike, the financial system appears stable, although
this "stability" carries high costs, and distorts
risk pricing and governance. The report emphasizes that to
alter these patterns, the authorities should push on
several, mutually reinforcing policy fronts: privatization
of all public banks over the medium term; improvements in
the banking system, namely banking operations, to cut
intermediation costs; stimulate a strong institutional
framework, and regulation of hydrocarbon-induced liquidity
and credit cycles, that curtail banks' risk-taking;
and, undertake longer-term reforms to stimulate the non-bank
financial sector. Nevertheless, the report also stipulates
that privatization should not attempt to recoup past
budgetary outlays, but prevent future ones, and let new
owners decide on investments, and cost cuts. Direct
budgetary support should replace lending to non-viable
State-owned enterprises (SOEs) and financial support to
public programs, such as housing or agriculture. Instead,
the government should consider replacing the current
guarantee subsidies, with direct budgetary financing of
public entities, whereas in managing their housing and
agriculture finance programs, the authorities should
consider alternative methods. Banking supervision, and
prudential regulation need strengthening in many core areas.
The Bank of Algeria (BA) as supervisor, can play a useful
role in the operational restructuring of public banks by
enforcing regulation to gain a firm handle on bank
profitability. But, while the ordinance on Money and Credit
of October 2003 contain some improvements, other provisions
could undermine BA's financial, and operational
autonomy. Financial system stability and development in
Algeria, have strong overtones of public debt, and
expenditure management, because of the policies that
regulate the effects of the oil cycle on bank liquidity, and
credit risks. |
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