Monrovia – A major investigation by FrontPageAfrica has uncovered that Liberia is in danger of losing further assistance from the International Monetary Fund owing to a recent controversial decision by the Central Bank of Liberia to guarantee loans to two struggling banks under the guise of bolstering financial sector stability. FPA has learned that the sticky issue for the IMF and some international stakeholders is that the move was done without proper procedures.
By Rodney D. Sieh, [email protected]
The crux of the saga was triggered as far back as August 2020 when Sapelle International Bank Liberia Limited (SIBLL), sealed a deal to take over the GN Bank Liberia Limited, a member of the Group N’doum (GN), headquartered Ghana. That purchase was approved by the Central Bank of Liberia (CBL) recently to operate under the license as SIBLL.
Similarly, in January 2024, Global Bank Liberia Ltd, another struggling bank was taken over by Bloom Bank Africa (Liberia) Limited (BBALL).
During the acquisition of Global Bank, Bloom uncovered the pending suit between Global and businessman George Kailondo Oil and Gas company. The bank insisted they would not purchase due to the pending lawsuit, prompting the Central Bank to step in and sign an MOU to indemnify Bloom if Global lost its legal case against Kailondo. The Supreme Court ruled for Kailondo against Global and awarded him US$2.3 million in damages with the cost of proceedings.
At the time, both purchases were seen as giving a jolt to two poorly run bruising bad non-performing loans.
A Tricky Predicament
In a bid to mitigate the losses during their purchase transactions, the CBL went on to guarantee that it will cover some of the Non-Performing Loans and dole in millions to cover the losses on the FIB-GN Bank—SBLL loans.
Where it gets tricky is that the guarantee is not considered reliable, and SIB had already depleted its reserves to the CBL.
Regarding Global Bank, it was also poorly managed and had bad Non-Performing Loans, and court cases.
Global was then sold to Bloom Bank, but the Central Bank once again provided carte blanche guarantees to cover losses, including a lawsuit against Global Bank by one of its customers, businessman, George Kailondo for damages due to failure to reconcile the customer account. Bloom Bank lost the case, and now the plaintiff is seeking payment.
The CBL is now required to pay an initial amount of $2.3 million (SC) and potentially more for other lawsuits.
Additionally, FPA has learned that the CBL has paid $705k representing 25% to Kailondo. However, there is concern around weak supervision, with a recommendation for the Central Bank to review the liquidity and capital positions of commercial banks daily and not wait until they are in trouble before intervening.
Furthermore, some economists and financial analysts say there is a need for the CBL and the shareholders of the banks to recapitalize based on their liquidity position.
This is why criticisms are being voiced against the CBL’s role in providing guarantees in the name of financial sector stability without proper procedures, suggesting that Executive and Legislative branches should be involved in such decisions.
There is also a growing call for accountability for those breaking the laws and a mention of the reserve requirements policy. All of this has serious implications for the CBL reputation and could negatively affect GOL’s new program with the IMF.
In the wake of all of this, the IMF is reportedly concerned about the process under which the CBL went to guarantee loans to the two banks.
The Fund may have to ask several questions: when was this crisis in SIB known since under the CDC IMF program nothing was said about SIB to the IMF? Is this an abrupt overnight banking crisis and if it is not why was data not presented by CBL to the IMF? More importantly, what is the size of the rescue package and what are the preconditions? Have there been changes in the management of the Bank? The Boakai administration risks entering a program with the IMF if speedy clarity is not provided on these issues. FrontPageAfrica has further gathered that without an IMF, the Unity Party-led administration has no credible chance of macroeconomic stability and international support.
Liberia has been a member of the IMF since March 28, 1962, benefiting from much of the institution’s loans to various projects.
The IMF provides financial support to countries hit by crises to create breathing room as they implement policies that restore economic stability and growth. It also provides precautionary financing to help prevent crises. IMF lending is continuously refined to meet countries’ changing needs.
The IMF lends under concessional and non-concessional arrangements or can provide outright loans. A lending arrangement, which is similar to a line of credit, is approved by the IMF Executive Board to support a country’s economic and financial program. The arrangement requires the member to observe specific terms and be subject to periodic reviews in order to continue to draw upon it.
In recent years, Liberia has benefited immensely from the IMF. In November 2021, the IMF Executive Board approved a four-year Extended Credit Facility (ECF) arrangement with Liberia, with a total access of SDR 155 million (about US$214.30 million). This arrangement allowed for an immediate disbursement of SDR 17 million (US$23.64 million).
As of December 10, 2023, the International Monetary Fund (IMF) had an outstanding loan of SDR 85,000,000 (about US\$110.7 million) to Liberia under its Extended Credit Facility (ECF) arrangement. The IMF Executive Board approved the four-year arrangement on December 11, 2019, with total access of SDR 155,000,000 (60% of quota)
Daunting, Unanswered Questions
The recent allegations involving the CBL issuing guarantees for liabilities in the purchase transactions of two commercial banks without following proper procedures, including Legislative approval raises daunting questions, amid concerns that the liabilities on which the guarantees were issued are due.
Some international stakeholders point out that the issuance of carte blanch guarantees by the CBL Board to cover losses at insolvent commercial banks requires an immediate investigation.
Reports indicate that SIBLL has depleted its reserves with the CBL, while Bloom Bank lost a court case and is facing demands for payment from the plaintiff. Furthermore, there are active lawsuits against Bloom Bank.
Financial analysts say, as the custodian of Liberia’s monetary policy, the CBL is not intended to be a charity institution in the name of financial stability. Furthermore, the Board had no right to issue these guarantees without the proper involvement of the Legislature. The Constitution and laws provide proper procedures for addressing the issuance of guarantees, which should include the Executive and Legislature.
The saga comes as Liberia is currently mired in debt. By the end of December 2022, Liberia’s total debt grew to US$2.03 billion. The external component of the total debt stock constituted about US$1.13 billion(55.85 %) while domestic debt constituted about US$896.68 million (44.15%) according to the 2022 annual public debt and management report.
Additionally, the country’s economic freedom score is lower than the world and regional averages. Liberia’s economy is considered “repressed” according to the 2024 Index.
According to the Index of Economic Freedom: Liberia’s economic freedom score is 49.9, making its economy the 144th freest in the 2024 Index of Economic Freedom. Its rating has increased by 0.3 point from last year, and Liberia is ranked 35th out of 47 countries in the Sub-Saharan Africa region. The country’s economic freedom score is lower than the world and regional averages. Liberia’s economy is considered “repressed” according to the 2024 Index.
Many international observers say, while dealing with stressed banks is a major concern of the IMF, the Fund normally takes a conservative view toward safeguarding public resources. For example, if a bank or financial institution must be saved, it has to be a systemically relevant bank whose failure will occasion ‘systemic challenges’ for the broader banking sector.
IMF Not Up to Speed on CBL Move
Economists opined that for the IMF to buy in on such a ‘rescue plan’ it must meet the full standards of transparency and credible governance, with the FUND being heavily involved, which has not been the case in the ongoing controversy.
The Fund normally digs in deep on the corporate culture of a failing bank to assess whether it is reckless corporate governance that landed the bank into problem, using the financial indicators and data from the bank gauge the causes of the bank’s problems.
For now, it is unclear to what extent the IMF may have been involved in the attempt to rescue SIB if such a rescue has been made.
In recent past, under the former Coalition for Democratic Change administration, the IMF was heavily involved in a systemically important financial institution in which GOL resources were used to salvage the financial institution.
Under the Weah government, the rescue plan was a major pillar of the just-ended IMF program under the CDC administration. Analysts are quick to point out that in order for the IMF to enter a new program under the JNB administration the full details of any loan to SIB would have to be disclosed and the governance around such rescue plan would be overly scrutinized.
The Fund may have to ask several questions: when was this crisis in SIB known since under the CDC IMF program nothing was said about SIB to the IMF? Is this an abrupt overnight banking crisis and if it is not why was data not presented by CBL to the IMF?
More importantly, what is the size of the rescue package and what are the preconditions? Have there been changes in the management of the Bank? The Boakai administration risks entering a program with the IMF if speedy clarity is not provided on these issues. FrontPageAfrica has further gathered that without an IMF, the Unity Party-led administration has no credible chance of macroeconomic stability and international support.
