Before the release of the $400 million lending package, the World Bank issued a report indicating that non-performing loans (NPLs) continue to rise. The report identified two major causes: politically motivated lending and weak credit management. It highlighted that, as of December 2023, NPLs had surged by 20.7% year-on-year, representing 9% of the total loan portfolio. Contributing factors included lax definitions of NPLs, inadequate accounting standards, and regulatory forbearance. The report also pointed out that the aggregate banking Capital Adequacy Ratio (CAR) stands at a low 11.64%, with at least 16 banks being undercapitalized and receiving waivers from the central bank.
Additionally, the report criticized the regulatory framework for lacking independent operational leadership and expertise. It noted that the interventions by the central bank, such as mergers and capitalization using state funds, are not an effective long-term solution. The World Bank called for an upgrade in regulatory and supervisory capacities to align with international standards, aiming to restore market confidence. Furthermore, the report observed the growth of private sector credit.
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