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Just Other Articles - Reasons Why Local Banks in Cameroon Failed Within the 1980-1990 Peroid
Financial distress has afflicted numerous local banks IN Cameroon, many of which have been closed down by the regulatory authorities or have been restructured under their supervision. In
Cameroon banks such as the B.I.C.I.C. Meridian B.I.A.O. Cameroon Bank were closed
Many more local banks were distressed and subject to some form of
"holding action". Failed local banks accounted for as much as 23 per cent of total commercial
bank assets in Cameroon.
The c
The c
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
ost of these bank failures is very difficult to estimate: much of the data is not in
the public domain, while the eventual cost to depositors and/or taxpayers of most of the
bank failures which occurred between the 1988 to 2004 period will depend upon how much of the failed banks' assets are eventually recovered by the liquidators. The costs are almost certain to be substantial.
Most of these bank failures were caused by unprofitable loans. Areas affectin
Most of these bank failures were caused by unprofitable loans. Areas affectin
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
more
than half the loan portfolio were typical of the failed banks. Many of the bad debts were
attributable to moral hazard: the adverse incentives on bank owners to adopt imprudent
lending strategies, in particular insider lending and lending at high interest rates to borrowers
in the most risky segments of the credit markets.
Insider lending
The single biggest contributor to the bad loans of many of the failed local banks was insider lending. In at l
Insider lending
The single biggest contributor to the bad loans of many of the failed local banks was insider lending. In at l
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
ast half of the bank failures referred to above, insider loans accounted
for a substantial proportion of the bad debts. Most of the larger local bank failures in Cameroon,
such as the Cameroon Bank, B.I.A.O. Bank and B.I.C.I.C. Bank, involved extensive insider
lending, often to politicians. Insider loans accounted for 65 per cent of the total loans of
these local banks, virtually all of which was unrecoverable.
Almost half of the loan portfolio of one of
Almost half of the loan portfolio of one of
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
he local banks local banks had been extended to its directors and employees .The threat posed by insider lending to the soundness of the banks was exacerbated because many of the insider loans were invested in speculative projects such as real estate development, breached large-loan exposure limits, and were extended to projects which could not generate short-term returns (such as hotels and shopping centres), with the result that the maturities of the bank
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
ssets and liabilities were imprudently mismatched.
The high incidence of insider lending among failed banks suggests that problems of moral hazard were especially acute in these banks. Several factors contributed to this. First, politicians were involved as shareholders and directors of some of the local banks. Political connections were used to obtain public-sector deposits: many of the failed banks, relied heavily on wholesale deposits from a small numb
The high incidence of insider lending among failed banks suggests that problems of moral hazard were especially acute in these banks. Several factors contributed to this. First, politicians were involved as shareholders and directors of some of the local banks. Political connections were used to obtain public-sector deposits: many of the failed banks, relied heavily on wholesale deposits from a small numb
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
r of firms.
Because of political pressure, the small banks which made these deposits are unlikely to have made a purely commercial judgement as to the safety of their deposits. Moreover, the availability of micro deposits reduced the need to mobilize funds from the public. Hence these banks faced little pressure from depositors to establish a reputation for safety. Political connections also facilitated access to bank licences and were used in some cases
Because of political pressure, the small banks which made these deposits are unlikely to have made a purely commercial judgement as to the safety of their deposits. Moreover, the availability of micro deposits reduced the need to mobilize funds from the public. Hence these banks faced little pressure from depositors to establish a reputation for safety. Political connections also facilitated access to bank licences and were used in some cases
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
o
pressure bank regulators not to take action against banks when violations of the banking laws
were discovered. All these factors reduced the constraints on imprudent bank management.
In addition, the banks' reliance on political connections meant that they were exposed to pressure to lend to the politicians themselves in return for the assistance given in obtaining deposits, licences, etc. Several of the largest insider loans made by failed banks in Cam
In addition, the banks' reliance on political connections meant that they were exposed to pressure to lend to the politicians themselves in return for the assistance given in obtaining deposits, licences, etc. Several of the largest insider loans made by failed banks in Cam
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
roon
were to prominent politicians.
Second, most of the failed banks were not capitalized, in part because the minimum capital requirements in force when they had been set up were very low. Owners had little of their own funds at risk should their bank fail, which created a large asymmetry in the potential risks and rewards of insider lending. Bank owners could invest the bank deposits in their own high-risk projects, knowing that they would make large p
Second, most of the failed banks were not capitalized, in part because the minimum capital requirements in force when they had been set up were very low. Owners had little of their own funds at risk should their bank fail, which created a large asymmetry in the potential risks and rewards of insider lending. Bank owners could invest the bank deposits in their own high-risk projects, knowing that they would make large p
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
ofits if their projects
succeeded, but would lose little of their own money if they were not profitable
The third factor contributing to insider lending was the excessive concentration of
ownership. In many of the failed banks, the majority of shares were held by one man or one
family, while managers lacked sufficient independence from interference by owners in
operational decisions. A more diversified ownership structure and a more independent
managemen
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
might have been expected to impose greater constraints on insider lending,
because at least some of the directors would have stood to lose more than they gained from
insider lending, while managers would not have wanted to risk their reputations and careers.
The high cost of funds meant that the local banks had to generate high earnings from their assets; for example, by charging high lending rates, with consequences for the quality of their loan portfol
The high cost of funds meant that the local banks had to generate high earnings from their assets; for example, by charging high lending rates, with consequences for the quality of their loan portfol
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
os. The local banks almost inevitably suffered from the adverse selection of
their borrowers, many of who had been rejected by the foreign banks (or would have been
had they applied for a loan) because they did not meet the strict creditworthiness criteria
demanded of them. Because they had to charge higher lending rates to compensate for the
higher costs of funds, it was very difficult for the local banks to compete with the foreign
banks for the "prime"
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
borrowers (i.e. the most creditworthy borrowers). As a result, the
credit markets were segmented, with many of the local banks operating in the most risky
segment, serving borrowers prepared to pay high lending rates because they could access no
alternative sources of credit. High-risk borrowers included other banks which were
short of liquidity and prepared to pay above-market interest rates for inter bank deposits and
loans. We all experienced in Doual
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
and Yaounde how some of the local banks were heavily exposed to finance houses which collapsed in large numbers in the 1990s.
Consequently, bank distress had domino effects because of the extent to which local banks lent to each other.
Within the segments of the credit market served by the local banks, there were probably good quality (i.e. creditworthy) borrowers as well as poor quality risks. But serving borrowers in this section of the market require
Consequently, bank distress had domino effects because of the extent to which local banks lent to each other.
Within the segments of the credit market served by the local banks, there were probably good quality (i.e. creditworthy) borrowers as well as poor quality risks. But serving borrowers in this section of the market require
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
strong loan appraisal and monitoring
systems, not least because informational imperfections are acute: the quality of borrowers'
financial accounts are often poor, many borrowers lack a track record of successful business,
etc. The problem for many of the failed banks was that they did not have adequate
expertise to screen and monitor their borrowers, and therefore distinguish between good and
bad risks. In addition, credit procedures, such as the docume
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
tation of loans and loan
securities and internal controls, were frequently very poor. Managers and directors of these
banks often lacked the necessary expertise and experience.
Recruiting good staff was often difficult for the local banks because the established banks could usually offer the most talented bank officials better career prospects. Moreover, the rapid growth in the number of banks outstripped the supply of experienced and qualified bank offi
Recruiting good staff was often difficult for the local banks because the established banks could usually offer the most talented bank officials better career prospects. Moreover, the rapid growth in the number of banks outstripped the supply of experienced and qualified bank offi
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
ials.
Macroeconomic instability to an extent contributed to these failures;
The problems of poor loan quality faced by the local banks were compounded by macroeconomic instability. Periods of high and very volatile inflation occurred in Cameroon, just before the devaluation of the FCFA. With interest rates liberalized ,nominal lending rates were also high, with real rates fluctuating between positive and negative levels, often in an unpredictable manner, be
Macroeconomic instability to an extent contributed to these failures;
The problems of poor loan quality faced by the local banks were compounded by macroeconomic instability. Periods of high and very volatile inflation occurred in Cameroon, just before the devaluation of the FCFA. With interest rates liberalized ,nominal lending rates were also high, with real rates fluctuating between positive and negative levels, often in an unpredictable manner, be
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
ause of the volatility of inflation .
Macroeconomic instability would have had two important consequences for the loan
quality of the local banks. First, high inflation increases the volatility of business profits
because of its unpredictability, and because it normally entails a high degree of variability in
the rates of increase of the prices of the particular goods and services which make up the
overall price index. The probability that firms will make
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
losses rises, as does the probability
that they will earn windfall profits .This intensifies both adverse selection and adverse incentives for borrowers to take risks, and thus the probabilities of loan default.
The second consequence of high inflation is that it makes loan appraisal more difficult for
the bank, because the viability of potential borrowers depends upon unpredictable
developments in the overall rate of inflation, its individual components,
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
xchange rates and
interest rates. Moreover, asset prices are also likely to be highly volatile under such
conditions. Hence, the future real value of loan security is also very uncertain.
Conclusively ,we should not be scared when we see micro financial houses multiplying in the economic capital of Cameroon, Douala, and Yaounde today, all, heavily involved in the banking sector, it is merely as a result of these huge bank failures recorded in the past years
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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