Banking Regulations and Legislation in Cameroon have been designed to assure the stability of the Banking system and this involves a diverse range of rules, and regulations. Below are graphical highlights on key areas on the Cameroon Banking Industry.
OVERVIEW OF THE BANKING SYSTEM
MAIN CHARACTERISTICS OF THE BANKING SYSTEM
- The total number of banks in Cameroon are 7, after the closure/liquidation of Meridien-BIA0 Bank in September 1996.
- Banks in Cameroon are all Commercial Banks ; mainly handling traditional banking functions, lending short term and specialising in short-term self-Iiquidated trade finance.
- Apart from AMITY, CCEI and Standard Chartered Banks, which are privately owned, the other 4 banks have government participation of between 35% to 83% and heavily influenced by the latter. The Banking Industry in Cameroon is most heavily undercapitalised and if the required provisions were made would reflect huge negative net worths.
- However, since 1985, government has surrendered its right of pre-emption and the Banks are up for privatisation (Standard Chartered Bank being the first example).
- The risk of another bank (Credit Agricole) going underground is very imminent if urgent and focused action is not taken.
- The history of Cameroonian formal banking is very recent In fact it is less than 50 years old and its origins are traced to the later era of colonialisation ie. during the post second world war French and English mandate rule in Cameroon.
2) REGULATORY BODIES AND OTHER ORGANISATIONS AND ASSOCIATIONS
COBAC (The Banking Commission for the six Central African Member States)
MINEFI: The Ministry of Finance and Economy
NCC: The National Credit Council
BEAC: The Central Bank for the Central African States
APECCAM: The Banking and Credit/Finance Association
The finance Ministry controls all Banking activities especially :
Terms and conditions for Banking services.
Receives applications for licensing and/or the appointment of General Managers for Banks and Financial Institutions, and passes same to COBAC for approval/rejection and the latter has up to six months to so decide.
In conjunction with the National Credit Council and the Governor of the Central Bank rules on the following:
- The minimum capital for banks and finance houses.
- On the conditions for opening up branch offices.
- On Anti-trust issues and collaboration amongst the institutions etc
The Central Bank performs the role of a Regional Central Bank as indicated above as well as issues notes etc .. It further offers the clearing houses for the banks. But however for its functions of directing monetary policy and acting as lender of the last resort, it falls well off the mark.
REGULATORY ENVIRONMENT
The authoritative document on Banking regulations is the COBAC text dated 17/01/1992 harmonising banking regulations in the six member states.
The text :
- Describes banks and other financial institutions.
- Provides for the licensing procedure for such institutions, as well as the appointment of their key executives (GM/DGM)
- It further provides the approval procedures for banks' auditors.
- It then stipulates on the controls to be effected, the reporting procedure and sanctions to contravening institutions.
The text further lays out certain prudential guidelines for their operations.
- On the required minimum paid-up capital/capital adequacy
- On risk sharing
- For provisioning/risk coverage,
- On liquidity ratios etc
The 1985 banking ordinance provides for building societies amongst others. No special text exists for their regulation but overall they would fall under the purview of the COBAC regulations.
- The law does not expressly prohibit certain banking practices but by omission and or
implication, the following appear to be covered in general terms by the Penal Code ;
- Money laundering
- Constructive capital/currency exports
- Bureau d'echange
- Holding of undue credit balances in nostro accounts for periods over one month.
An existing bank may be acquired by merger or acquisition. Since the enactment of the 1985 ordinance, there is no restriction on ownership, hence the existence of 1OO% privately owned banks and the possibility to have off-shore offices in the country.
ANNEXURE A.
Our regulatory environment is very dynamic. By a communique dated December 6, 1996, the Secretary General of the Cameroon Association of professional credit establishment (APECAM) informed the public that banks will henceforth respect scrupulously the decision which is of general application of the National credit council instituting the obligatory crossing of cheques in Cameroon well before their issuance. This is commonly known as "crossed-cheques".
Advance crossing means that a bank before delivering cheque booklets to its clients must oppose two parallel lines on the back side of each cheque.
In Principle pre-crossing of cheques restricts the transmission of cheques, because it prevents the holder of a pre-crossed cheque from freely withdrawing cash/getting cash payment at the bank counter on presentation of the cheque.
Nevertheless, this is only effected on the beneficiaries of such cheques and not on persons operating accounts in the bank.
4 BANKING LEGISLATION
Generally, in the area of case law, the banking laws that apply are either those in France or in England for the Francophones and anglophones respectively.
The most current piece of legislation in the matter, however, and which applies to the whole country is the banking ordinance of 1985.
The latest amendment pertained to ownership of banks and the government's withdrawal of its right of pre-emption.
The ongoing reforms include :
- The recent liquidation of Meridien BIAO.
- Privatisation of the other banks (Standard Chartered recently fully owned by the group ie. buying over the government's 35% holding).
- Down-sizing, if not mergers.
- Training of the staff of the judiciary to be better placed to appreciate matters brought before them having a sophisticated, if not ordinary banking/Financial complexion.
5. ESTABLISHING A BANKING OPERATION
Only commercial banks exist in Cameroon, and all of them are public liability companies, though shares are not listed. The registration and incorporation procedures are herewith summarised.
The promoters must forward the following in two copies against acknowledgement of receipt to the Ministry of Finance and Economy.
- The draft Memorandum and articles of Association.
- The least of shareholders.
- A business plan, budget, organigram and proposed network (of branches)
- Proof of deposit of the required paid -up capital and finally
- The names of proposed GM/DGM along with the following:-
- Copy of Birth Certificates
- 2 passport-size photos
- A certificate of non-conviction dated not later than 3 months.
- A CV (resume)
- Copies of Diplomas.
- Minutes of Board meeting so appointing the GM/DGM.
- A certificate of residence
- A valid residence permit for foreigners.
The above documents are sent to COBAC and if within 6 months, the answer is in the affirmative, the Ministry of Finance and Economy issues the licence. COBAC's silence at the end of the 6 months period is taken as favourable response.
The licence is published in the official Gazette and in at least a prime newspaper. The National Credit Council further grants the new institution a registration number which must feature in all future correspondence made by the bank or finance house.
Once the licence is granted, the new bank has up to 12 months to start operations failing which the licence will be withdrawn.
The financial institutions include :-
The difference between EU and non-EU banker is non-applicable
- Insurance/re-insurance companies.
- Hire-purchase/leasing companies.
- A real estate company.
- A loan fund for investing in real estate.
- An investment corporation.
- A recouvries corporation.
As earlier stated, no ownership restrictions exist; shareholders have holdings in banks, and voting rights are per share. There are no special provisions for foreign owned or foreign bank branches, save that they must be licensed as per the procedure mentioned above.
6 PERSONAL AND CORPORATE BANKING
Procedure for opening new accounts would include:
- Minimum initial deposit (varies with banks as little as nothing and up to $20.000 in others)
- Status reports.
- Photocopies of IDs /Passports/residence permits.
- Certificate of Incorporation, Memorandum and articles, Business license, minutes of Board appointing manager as well as his powers;
Bank charges are many and regulated by MINEFI. In summary they include;
- Lending rate is approx. 17%
- FX commissions: between 1. 5 - 4% in both selling and buying rates.
- Others, on average 1.5% on transaction amount.
- Deposit rates : 8% Maximum. Fater bank rate 4.5%
Effective January 1st 1996, a single borrower's limit must not exceed 45% of the banks capital funds. Retail banking services mainly:-
- Deposits, withdrawal and small loan facilities.
- Travellers cheques/bank draft and other money transfers.
- Cheque certifications.
- Custody etc ..
7 LIQUIDITY REQUIREMENT
There is no clear cut capital adequacy requirement for liquidation. Whoever is designated as the liquidator by COBAC, will eventually ensure that depositors receive compensation. Deposit insurance does not exist in Cameroon.
The are no specific guidelines on capital movement.
8 EQUITY REQUIREMENT AND LENDING LIMITS
A text provides for the minimum share capital requirement per type of Credit establishment. For Banks, the fully paid-up capital is $2 Million. It is being proposed to be increased to $4 million.
No legally fixed legal reserve requirement exists in the Cameroon banking industry. The capital adequacy ratio is 8%. Generally, very detailed and complex calculations are provided to arrive at the respective prudential ratios, which we think are above our scope.
The lending limits are:
- Total loans to one borrower must not exceed 45% of capital funds
- Total loans to borrowers representing over 15% of capital funds, must when totalled not exceed the total of net capital
The lender's i.e., the bank's liability comes up quite frequently. The courts and the public usually see in the bank a source of making huge money through fraudulent and directed judgements.
However, a text exists which authorises banks to seek redress directly to the President of the Republic when such decisions are taken.
There are no protections schemes in the form of deposit insurance or reserve asset requirements exist save the prudential regulations in place and monitored by COBAC - the Banking police.
ACCOUNTING REQUIREMENTS
There is a common accounting standard, the "OCAM" to which all member states adhere to. COBAC has at moment come up with an accounting chart, procedure for account consolidation and publishing of accounting information for the authorities and the public at large-
After these accounting procedures are determined and adopted by COBAC, they are sent to the Ministry of Finance and Economy and latter to be published in the official gazettes of the respective countries.
All relevant and exact information must be published in the statements, as any incorrect facts or omissions that distort the sincerity of the statements will be re-ordered rectification by the competent Authorities.
9 AUDIT REQUIREMENTS
Generally speaking, there is no precise requirement relating to general provisions as far as banking and the law in concerned. However, auditors do look at the credit portfolio on individual basis and make provisions to cover risk of loss. In case of bankruptcy, there is a buffer which give general provisions to cover unidentified risk as well as portfolios to cover such risk
However, there is no rule of thumb for such provision eg. different banks have different percentages.
Both internal and external auditors have a great role to play in the Cameroon banking system. While the external auditors carry out an independent review of the financial statements and report to shareholders, the internal auditor is part of the management control set up. They abide by the procedures and policies set up by management. They equally carry out review of these procedures as well as financial records from the point of view of internal control.
The external auditor's have certain rights and duties to perform in the event of a dismissal, the external auditor needs to make a statement in the shareholders meeting. They all enjoy protection given to them by statutes. The internal auditors role is defined by management.
Banks generally are subject to the supervisory control of COBAC, BEAC, APECCAM etc .. COBAC in fact complies with certain prudential ratios and it is up to COBAC to decide how often to audit a particular bank. However, all banks are expected to submit a formal annual report to COBAC and various supervisory bodies.
It is believed that auditors are independent and their opinion would be impartial and objective. Therefore, people tend to rely on the accuracy of auditor's report. The degree of reliance depends on the quality of the auditing firm and persons who carry out the audit.
Auditors owe a duty of care to their clients and breach of such duty either negligently or fraudulently, would call for damages. This could either be against the firm for vicarious liability or against the persons who carried out the audit.
10 PUBLICATION REPORTING AND OTHER FILING REQUIREMENTS
In Art 30 of the COBAC text, banks and financial institutions have to forward to the Monetary Authority (MINEFI), BEAC and COBAC in prescribed standard form and within specified periods, required information, justifications and clarification.
Publication of the financial statement of banks is obligatory, though financial engineering is characteristic. The law further provides for and at least every month for the balance sheets of banks to be published in any of the leading local newspapers.
As earlier indicated, the regulatory bodies are empowered to when they deem appropriate, call for rectification or include facts which if left out, would seriously undermine the veracity of financial statements.
There are two types of tax returns. Simplified returns and full returns. The latter applies to all banks. The tax returns must be certified by member of Institute of Chartered Accountant and submitted by the 30th of September each year ie. after the end of the fiscal year. All banks are expected to close their accounts at the end of June. (Insurance companies close their account on 31st December)
B-BANKING SECRECY
In Cameroon, Banking secrecy is contained in the Internal Regulations of each bank and even on employment contracts, and staff signatures there are a total of full respect thereof. It is in this same guise that banks seek to prevent insider trading. Cameroon penal code in its section 74 and 310 lays down the penalties for such breach of confidentiality.
COBAC is also called upon to respect banking confidentiality in the exercise of its functions.
No elaborate law exists in Cameroon on money laundering. At the bottom-left of each bank note is written: "les auteurs ou complices de falsification ou de contrefacon de billets de banque seront punis conformement aux lois et actes en vigueur", Section 211 of the Cameroonian penal code provides sanctions for counterfeit notes and coins. This in general terms covers this area.
But with the flux of what is commonly known as "Faymen" in Cameroon, and Douala International Airport increasingly serving as a stop over for Nigerian drug/cocaine dealers from India and Afghanistan etc... the moment is ripe for the government to upgrade/enforce existing laws on money laundering.
Banks generally are and in compliance with banking secrecy, reticent on disclosures. But when the regulatory authorities, a court decision or inter-professional practice (credit reports etc..) warrant it, banks would disclose the required information.
11 MONETARY CONTROLS
The general monetary controls that banks respect (or ought to) are within the reporting / publishing and control functions of the regulatory authorities. In particular they have to report to the regulatory authorities on :-
- Monthly statement or cheques without cover to the N. C. C.
- A quarterly statement of all loans. Casual overdrafts short mid and long term loans, contingents etc .. and dud and nonperforming loans. This enables the NCC to publish the " Centrale des Risques ".
- Details on deposit mix, per bank and by branch.
- The every ten (10) day report to BEAC on the external position ie. NOSTRO Account balances. This is to enable the authorities to monitor against excessive holdings abroad.
Cameroon is an Exchange Control Zone for all currencies other than the French Franc. For transfers in FF.., it suffices that a declaration is made at the remitting bank which later reports the transaction to the control of .face.
For other currencies however, a prior exchange control authorisation must be obtained from MINEFI and its branches. It is often obtained, even though at a price.
However, foreign investors' worries are watered down as the law protects the repatriation of their capital, dividends and pensions etc.
In a few weeks up to the devaluation of the FCFA in January 1994 and ever since then, the Central Bank has been confusing FF and non FF transfers. In fact increasing reliance is being placed on "commercially-backed" transfer covers and not merely "speculative/financial" transfer - covers. Hence, supporting documents such as letters of Credits, bills of lading, final invoices etc are more readily accepted by BEAC to cover/fund nostro accounts.
12 OFFSHORE BANKING
Offshore banking was allowed by the 1985 ordinance. Its licensing and operational formalities are same with the other banks and financial institutions. As yet, there is no such office in Cameroon.
The private banking system does not operate separately, as corporate and private banking operations are handled by all banks.
NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought for specifics.
For further information contact Mr Nico Halle, Tel: +237 42 64 79 or Fax: +237 43 26 34 or enter text search 'Nico Halle Law Firm' and 'Mondaq Business Briefing'.
