The Cameroonian Banking and Financial environment has not seen many changes in the area of the practice and the law relating thereto since our last contribution. We have in consequence, attempted an update of the salient features characteristic of Banking and Finance in this issue.
1. SIZE AND MATURITY OF THE BANKING AND FINANCIAL SYSTEM IN CAMEROON
The Financial Institutions that fall within the ambit of the 1985 ordinance relating to the formation of credit establishments and Presidential Decree No 9011496 of November 9, 1990 defining a 'Credit Establishment' are relatively few, especially when one takes into consideration the size of the banking sector in the Western World and even some Third World Countries with better regulated and more competitive banking sectors. However, the Republic of Cameroon has one of the highest number of institutions that carry out bank related business in the Central African Sub-Region. The Country as noted, hosts the headquarters of the Bank of Central African States. With the withdrawal in late 1984 of the business licence of the International Bank of Africa Cameroon (IBAC) and the creation of the Highland Bank, there exist nine principal licensed Commercial Banks in the Country at this moment. There are:
B.I.C.I.C. - Banque International Pour le Commerce et de
l'Industrie du Cameroon.
S.G.B.C. - Societe Generale des Banques au Cameroun.
B.M.B.C. - Banque Meridien B. LA.O. Cameroun.
S.C.B.C. - Standard Chartered Bank of Cameroun.
Amity - Bank of Cameroon SA.
S.C.B. - CL - Banque S.C.B. Credit Lyonnais du Cameroun.
C.C.E.I - Caisse Commune d'Epargne et d'investissment.
H.C.B.C. - Highland Corporation Bank Cameroon.
C.A.C. - Credit Agricole du Cameroun.
The Banks on request are authorised by the Ministry of Finance and Economy to open branches and agencies in different parts of the country. As a matter of fact most of these banks have branches and periodic offices all over the National territory. This same Ministry of Finance and Economy is the sole competent authority that grants authorisations.
It is worth noting that there are a series of credit institutions whose activities do not really tie in with those of Commercial banks but which fall under the Presidential Decree of November 1990 defining Credit Institutions. The Banks and the said Credit Institutions do carry out routine banking transactions and operations to satisfy the needs of their respective clients. Commercial bank activities like accepting deposits, allowing customers the use of cheques, granting credit and overdrafts, foreign exchange transactions and operations, acting as agents for customers, providing safe custody for valuables, etc. are not peculiar concepts to the Cameroonian banking system although some of these are not well developed and the public not properly sensitised to the various services put at their disposal by these institutions.
Recent trends in western banking have induced some banks in the country to introduce new products to the Cameroon banking system. Some of these include insurance and lodging schemes launched in conjunction with Insurance companies. Automatic teller machines and a valiant local traveller's cheques the (flash cash) operated by C.C.E.L banks are some of the innovations to speed up clientele service and improve customer satisfaction.
Most banks have begun to understand that the development of a dynamic and personalised clientele department is very essential for their very survival. The serious lapses surrounding cheques clearance whether within the city or up country are alarming.
It is expected that in the next few months this situation which is gradually improving will witness very great improvement with the adoption of modern and sophisticated communication networks by most of these banks in the country.
1. REGULATION FRAMEWORK
Cameroon like any other African Country has a number of regulatory bodies that regulate the banking system in the country. There is the BE4C (Bank of Central African States) which clearly defines the monetary policy of the sub-region. Within BEAC, there is the Central African Banking Commission or 'Commission Bancaire de l'Afrique Centrale' best known by its French acronym COBAC. As seen in the previous write up, COBAC though considered as an arm of BEAC is an institution vested with supra-national powers whose decision can abrogate national texts relating to Banking. This commission has a supervisory role over all the banks and financial institutions of the Central African Sub-Region and sees to it that these banks respect the texts governing banking at the national as well as the Sub-Regional level. This Commission which was created by a convention signed by the six BEAC member states in October 16, 1990 is also empowered to penalise banks that do not adhere to applicable texts governing them. By virtue of section 13 of the convention, the commission can even withdraw the business licence of a bank and ask it to cease its activities immediately as was the case with the International Bank of Africa Cameroon (IBAC) recently and the First Investment Bank (F.LB.) in May 1993.
Section 29 of the 1985 ordinance stipulates that "Credit Institutions" in Cameroon are placed under the tutelage of the Ministry of Finance and the Economy. By virtue of this section, it is clear that the Cameroon Government through its Ministry of Finance and Economy regulates banking activities in Cameroon.
There is also the National Credit Council, the national commission for the control of banks and Financial Institutions and the National Professional Bankers Associations all bodies created by the presidential Decree of February 8, 1978. These organisations are placed under the Ministry of Finance and play a statistical role in the Banking sector of the economy.
2. REGULATORY ISSUES
A. Confidentiality and professional secrets
Being institutions that thrive on public confidence, the issue of confidentiality and professional secrets is cardinal to their existence. Section 45 of ordinance No 851002 of 31 August 1985 is quite explicit in prohibiting any Board member, officer or employee of a Bank from divulging any information emanating from the activities of the bank, even if requisitioned to do so except otherwise ordered by the courts, the Ministry of Finance, COBAC, the National Credit Council and BEAC.
Any breach of the above disposition is punishable by law as a penal offence according to section 55 of the same ordinance in addition to whatever disciplinary sanctions that may be decided.
B. Capital adequacy
The minimum statutory capital requirement for a commercial bank is fixed at F.CFA one billion in accordance with Article 1 of Decree No 9011470 of 9 November 1990. Article 2 of the same Decree stipulates that proof of the one billion F.FCA paid up share capital must be available before depositing a request to obtain an operating licence.
The paid up capital serves as a basis for a number of ratios defined by COBAC in determining the 'health' of the banks. It is however more prudent to use the concept of net worth rather than capital per se in evaluating banks.
Section 18 of the ordinance, lays down that "credit establishments should respect management norms defined by the monetary authorities aimed at guaranteeing the liquidity and solvency as well as the equilibrium of their financial structure". Dispositions of this nature are very general and sometimes leaves banks in confusion as to what to do in specific circumstances. This is because, there is no single detailed text that governs the day to day functioning of banks. Some circulars and Ministerial orders are usually enacted to meet pressing exigencies. The 1985 ordinance makes mention of 'management norms defined by the monetary authorities'. It should be noted that the monetary authorities are still to enact an elaborate and all embracing legal text on banking norms. However, certain circulars from the Bank of Central African states (BEAC), Presidential Decrees and Ministerial orders resolve some loopholes created by this situation in the banking sectors.
C. Lending limits
In Cameroon, a commercial bank is authorised to lend up to twenty times its net worth. It may however not lend more than 15% of its net worth to shareholders, Board members, management and staff put together.
If engagements to any particular client is above 15% of the net worth of the bank, then total lending to all such clients grouped together should not exceed 8 times the net worth of that establishment. The COBAC requirement also states that no bank should lend more than 45% of its net worth to any single client.
This directive though welcomed, places some limitations on banks with a broad-based popular capital structure wherein shareholders are discouraged from conducting their business affairs with a particular bank they invested in.
D. Lender liability
All credit facilities granted either to a physical or legal person by a bank in Cameroon can be covered by collateral security.
- Liquidated credit or loan granted to a client by any bank can be transferred or assigned.
- Mortgage deeds are executed by notary public who are Banisters and Solicitors in the Anglophone sector of the country (the former British Cameroons) unlike those in Francophone Cameroon (the former French Cameroon) who remain distinct from Barristers and Solicitors.
According to Article 25 of the 1985 ordinance it is possible to avoid the cumbersome ordinary French civil law procedure of foreclosure by stipulating in a mortgage deed that in case of a default in payments, the property hypothecated by the deed will be sold by auction through a simple court order. The legal ways through which a loan can be secured in Cameroon include a deed executed by a notary public, pledging your salary of fixed revenue or a life Insurance Policy.
E. Pricing of deposits and loans
The banks have always had their interest rates fixed and adjusted by the National Monetary Authority, usually in collaboration with the Central Bank (BEAC). Within the last few years, at the same time as the restructuring of the Banking system and the implementation of the financial programmes backed by the L M.F. and the World Bank, there has been an impressive tendency to simplify the structure and liberalise interest rates. However, the Central Bank, by a decision of its board of Directors, was authorised to revise its interest rate for operations initiated by the Banking system whenever the monetary situation of the zone so warrants. Banks are authorised to freely negotiate deposit interest rates with their clients while remaining within the guidelines fixed by the monetary authorities. This at times means Commercial banks attract huge sums of money from the public in the form of deposits.
F. Foreign exchange transaction
Cameroon offers a lot of flexibility to carry out foreign exchange transactions. A recent Presidential Decree of November 1995 however, interposed the Societe Generale de Surveillance (S.G.S.) - a Third Party Inspection Certificate Organisation between business operations and the Customs Department.
Usually foreign exchange transactions denominated in French Francs pose no particular problem since the CFA Franc has a fixed parity with the French Francs at 1F.F. = 1OOF.CFA.
FRANC ZONE COMMERCIAL OPERATION FINANCIAL OPERATION AMOUNT FCFA 1 - 999.999 - Domicile Transfer declaration form invoice with Bank 1.000.000 and above - Submit invoice to SGS. Import declaration form is issued and customer deposits in the Bank Same as Above for domiciliation. OUTSIDE THE FRANC ZONE COMMERCIAL FINANCIAL Same as in Franc Zone. Exchange control Authorisation
In late 1993, the monetary authorities limited the convertibility of the Central African Region CFA Francs to the member states of BE4C thus, divorcing the convertibility notably of the Central African CFA to the West African CFA.
All of the commercial banks offer at least some degree of foreign bank operations. It should be noted that apart from a few 100% local banks, most of the commercial banks have parent companies and affiliate/correspondent banks outside the country. This helps in facilitating international monetary transactions. Most of the banks in the country today are headed by foreigners. However it is important to take note of the following :
- The CFA Franc has a fixed parity rate with the French franc :100 CFA.Fr = 1F.Fr (one could say that the Cameroonian currency is lied to the French currency).
- An authorisation is needed by any citizen to convert the CFA into any other currency. This authorisation can be granted at provincial level by the monetary authorities of that province.
- The BEAC CFA Franc is not convertible outside its zone of issue; for example a banknote of the bank of Central African States cannot be used in the zone of the Bank of West African States, which also issues the CFA Franc.
3. ISSUES RELEVANT TO JURISDICTION
Any bank that intends to bring an action against any client for the foreclosure of mortgaged properly must do so at the High Court of the place where the land is situated. Recoveries in Anglophone Cameroon are governed by English law while those in Francophone Cameroon are governed by French Law. Attempts are being made to harmonise the laws that govern recoveries in the country by enacting laws that are applicable both to the Anglophone and Francophone parts of the Country. A somewhat successful attempt has been law No 891021 of December 29, 1989 simplifying the procedure for recovery of liquidated debts. This has replaced the English Civil procedure of "summary judgement" or 'undefended list formerly applicable in the Anglophone zone of the country and governed by Order Three of the rules of the Supreme Court. It is worth noting here that the courts vested with original trial jurisdiction are the Courts of First Instance and the High Courts while the Courts of Appeal and the Supreme Court remain Courts with appellate jurisdiction. Recovery or claims of above 5 million CFA francs are dealt with in the High Courts while the Courts of First Instance are competent for claims below CFA Francs 5 million.
As already mentioned, much recourse is made to foreign law as a result of Cameroon's colonial past but the monetary authorities in the Sub-Region and the Country are doing much to alleviate the situation. The BEAC authorities intend to harmonise all banking laws in the six member states. The harmonisation and application of banking laws and regulations in Cameroon in particular and in the Central African Sub-Region in general has been effected in a somewhat incomplete manner. This is because all the countries in the central African Sub-Region are erroneously treated as wholly French-speaking countries. All banking legislation is French-oriented. The Bi-jural structure of the Republic of Cameroon is hardly taken into consideration. When the BEAC authorities are making mention of procedure they will obviously refer to French Civil procedure. The new banknotes that were issued by the Central Bank for Cameroon in 1993 and 1994 have no English words on them, unlike the previous banknotes, which were bilingual in character. This is really a lamentable situation, as the anglophone section of the country is systematically marginalised and treated as if it shares one legal system with the Francophone section.
4. RESTRICTION ON OWNERSHIP OF BANKS
The ordinance of 1985 is relatively clear as to the question of who can or who cannot own a bank in Cameroon. A vague answer to the question would be found in Section 3 of the Ordinance, which lays down that no bank can exist in the country without the appropriate licence from the monetary authorities.
The Decree of November 9, 1990 defining credit Institutions in its first section stipulates that banks must have legal personality.
It is clear from the foregoing that no individual on his own can obtain a licence in his or her name to create a bank. It had also been said that there is a minimum share capital required from the promoters and shareholders of a bank for it to be licensed, which capital should be completely paid up before the bank goes operational With the enactment of law No 901031 of August 10, 1990 organising and liberalising commercial activity in the country and with the restructuring of the banking sector of the economy there is now the possibility for foreigners to own majority shares in a banking establishment (law No 901019 Supra). This was not the case before as it was the opinion of the Government that banking institutions play a very important role in the development of the country, which objectives were not really the preoccupation of foreigners, who are more interested in profit-making. Unlike before the restructuring of the banking sector of the economy that started ust before 1990, there are now fewer restrictions on the ownership of banks in the country as the two key words are now liberalisation and privatisation. Over the years it has been proved that a lot of Government intervention and participation in the management and ownership of banks is more dangerous and disadvantageous for the banks in particular and for the economy in general The liquidation of Cameroon S.A., SCB Bank, BIAOC Bank, First Investment Bank and so on are glaring examples.
5. REGULATORY OUTLOOK
With globalisation, increasing complexity of the Banking environment, growing awareness via better education, communication systems and influx of Western Banking, certain regulatory changes have been welcomed in the field of Banking and finance in Cameroon. The Heads of State of the six countries that make up the Central African Economic and Customs Union by a treaty signed in NDJAMENA (Tchad) on March 16, 1994 transformed this body into the Central African Economic and monetary community, better known in French as Communaute Economique et Monetaire de l'Afrique Central (CEMAC) and the monetary Union of Central Africa (UMAC). Within the framework of UMAC therefore the Bank of Central African States will define the monetary policy of the region both UMAC/BEAC will witness an increase in its powers in dealing with monetary matter related issues within the Central African Sub-Region though the States will still not witness a complete disappearance of powers.
However, an earlier convention signed by the BEAC Member States in 1992 (the January 17, 1992 convention) set guidelines for the harmonisation of rules and legislation governing banking in the African Sub-region. The intention of this convention is to create an atmosphere or a situation where local legislation governing banks and banking in each BEAC member states is in conformity with guidelines set by the Bank of Central African States with the creation of the Central African Monetary Union (UMAC) therein speculation that most local legislation governing banking in the Central African Sub-Region shall be replaced by laws and conventions passed UMAC in the near future.
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'.
