Cameroon is part of the Central African Economic and Monetary Community (CEMAC), which, according to the International Monetary Fund's (IMF) 2006 Financial System Stability Assessment (FSSA) on CEMAC countries, has a common banking supervisory authority and central bank, the Central African Banking Commission (COBAC) and the Bank of Central African States respectively. As stated in the same assessment, COBAC is the only supervisory authority for banks in the region. In its 2000 Report on the Observance of Standards and Codes for Cameroon, the IMF found that Cameroon complied only partially with the Basel Core Principles (BCPs) and indicated that while the regulatory framework was fairly well developed for the banking sector in the country, important shortcomings remained. The report noted that of the 30 BCPs (since Principle 1 is divided into 6 sub-principles), Cameroon was fully or broadly compliant with 18. A more recent (2006) assessment by the IMF points to severe shortcomings with regard to COBAC's independence as a regulator, its resources, and its ability to impose sanctions and thereby take corrective actions against non-complying banks. Furthermore, the report notes that although the prudential and regulatory framework has been updated and strengthened in the CEMAC region, it is still not fully in line with international standards. Weaknesses remain, in particular with regard to the capital adequacy ratio, large exposure limit, and provisioning. Overall, the IMF's 2006 assessment indicates worrisome shortcomings with COBAC's supervisory authority, as well as in the regulatory and prudential framework in the CEMAC countries.

General Overview

In its 2000 Report on the Observance of Standards and Codes (ROSC), the International Monetary Fund (IMF) found that the legal and regulatory framework in Cameroon was "compliant or largely compliant" (p. 2) with 18 of the 30 Basel Core Principles (Principle 1 is divided into 6 sub-principles), and that four of the Basel Core Principles (BCPs) were not applicable to Cameroon. However, the 2000 IMF report noted that, while Cameroon partially complied with the BCPs, important shortcomings remained with regard to the independence and resources of the supervisory authority, the Central African Banking Commission (COBAC). Indeed, although COBAC is legally independent, the Governor of the Bank of Central African States (BEAC) is also chairman of COBAC and participates in the nomination of banking commissioners to the BEAC's board. Furthermore, COBAC depends on the BEAC for its financial and human resources. The IMF report advised giving priority to COBAC in the budget allocation of the BEAC.

Cameroon is part of the Central African Economic and Monetary Union (Communauté Economique et Monétaire de Afrique Centrale, or CEMAC), which, according to the IMF's 2006 Financial System Stability Assessment (FSSA) on the CEMAC region, has a common Banking Supervisory Authority and Central Bank. These are, respectively, COBAC and the BEAC. Although the prudential and regulatory framework has been updated and strengthened in the CEMAC region, it is still not fully in line with international standards. The 2006 IMF assessment indicates worrisome shortcomings in COBAC's supervisory authority. Indeed, COBAC's supervisory and regulatory powers are limited by its shortage of staff, resulting in poor enforcement capacity, and its powers to impose sanctions are not conducted in a timely manner. Furthermore, COBAC lacks institutional independence due to the interference of national authorities in banking supervision and the role of national finance ministries in the issuance or withdrawal of bank licenses. Weaknesses also remain with regard to the capital adequacy ratio, large exposure limits, and provisioning. Credit concentration might also lead to credits and interest rate risks, according to a 2007 IMF report on Selected Issues. The 2006 IMF assessment recommended increasing COBAC's institutional independence "by reducing further the role of the national finance ministries in the licensing process, and ensuring a greater diversification of the COBAC's commissioners," (p. 17) as well as doubling the number of COBAC's staff. It also advises enforcing sanctions in a timely manner and gradually increasing the minimum capital adequacy ratio above 8 percent. COBAC is currently training its staff to prepare for the implementation of Basel II, as stated in the 2006 IMF FSSA.

The banking system in Cameroon has relatively low public sector participation and constitutes the largest part of the financial sector, as noted in a 2004 U.S. Department of Commerce (DoC) Doing Business report. Furthermore, there are ten commercial banks in Cameroon, with total assets amounting to USD 2.4 billion. According to the 2007 IMF report on Selected Issues, Cameroon has the largest financial system of the CEMAC, accounting for 55 percent of total financial assets.

The Principles

1. (1) Clear responsibilities and objectives for each supervisory agency.

FC

According to the 2000 IMF ROSC, Cameroon is "compliant" with this principle. The IMF report suggested modernizing the activities of COBAC and reviewing the supervisory process on a regular basis. Furthermore, COBAC is the only body responsible for supervising Credit Institutions in the CEMAC countries, as noted in the 2006 IMF FSSA on the CEMAC region.

1.(2) Operational independence and adequate resources.

NC

In its 2000 ROSC, the IMF rated Cameroon as "broadly non-compliant" with this principle due to a lack of adequate resources, in particular human resources. According to the same report, although COBAC is legally independent, the Governor of the BEAC is also the chairman of COBAC, and participates in the nomination of banking commissioners to the BEAC's board. Furthermore, COBAC depends on the BEAC for its financial and human resources. The IMF report advised giving priority to COBAC in the budget allocation of the BEAC. According to the 2006 IMF FSSA on the CEMAC region, COBAC's independence is threatened by the significant role of finance ministries in the issuance or withdrawal of licenses, and commissioners' official positions in the national ministries. The IMF expressed concern over the increasing gap between COBAC's missions and its resources. The IMF report advised increasing COBAC's institutional independence "by reducing the role of the national finance ministries in the licensing process, and ensuring a greater diversification of COBAC's commissioners". It further recommended doubling the number of COBAC staff and introducing rules for the winding-up of Credit Institutions. Following the 2006 IMF report, CEMAC authorities responded that the COBAC would be assigned some of the staff recruited at end-2005 by the BEAC.

1.(3) A suitable legal framework for authorization and ongoing supervision.

II

In its 2000 ROSC, the IMF rated Cameroon as only "broadly compliant" with this principle due to a lack of regulation in the microfinance sector. The IMF report noted that regulations were in the process of being drafted. However, according to the 2006 IMF FSSA on the CEMAC region, although the prudential and regulatory framework has been updated and strengthened, it is still not fully in line with international standards. As part of an action plan to update the regulatory framework, the IMF report recommends increasing "the institutional independence of COBAC by reducing further the role of the national finance ministries in the licensing process, and ensuring a greater diversification of the COBAC's commissioners," (p. 17) as well as doubling the number of COBAC's staff. It also advises enforcing sanctions in a timely manner and gradually increasing the minimum capital adequacy ratio above 8 percent. Despite the 2000 compliance level accorded by the IMF, subsequent information indicates a less than positive regulatory framework for COBAC, and there is little recent information publicly available addressing Cameroon's compliance with this Principle.

1.(4) A suitable legal framework to address compliance with laws as well as safety and soundness concerns.

II

In its 2000 ROSC, the IMF rated Cameroon as only "broadly compliant" with this principle due to a lack of speed in exercising regulatory powers. The IMF report recommended drafting a law on market discipline and corporate governance. According to the 2006 IMF FSSA on the CEMAC region, although the prudential and regulatory framework has been updated and strengthened, it is still not fully in line with international standards. As part of an action plan to update the regulatory framework, the IMF report recommends increasing "the institutional independence of COBAC by reducing further the role of the national finance ministries in the licensing process, and ensuring a greater diversification of the COBAC commissioners," (p. 17) as well as doubling the number of COBAC's staff. It also advises enforcing sanctions in a timely manner, and gradually increasing the minimum capital adequacy ratio above 8 percent. Similar to Principle 1(3), despite the 2000 compliance level by the IMF, subsequent information indicates a less than positive regulatory framework for COBAC, and there is little recent information publicly available addressing Cameroon's compliance with this Principle.

1.(5) Legal protection for supervisors.

FC

According to the IMF 2000 ROSC, Cameroon is "compliant" with this principle. The IMF report noted that COBAC staff were given "immunity from prosecution for their job-related acts."

1.(6) Arrangement for sharing of information between supervisors and protection of confidentiality of shared information.

II

In its 2000 ROSC, the IMF rates Cameroon as "broadly compliant" with this principle. The IMF report recommended establishing stricter procedures with regards to information gathering and confidentiality. However, there is little recent information publicly available addressing Cameroon's compliance with this Principle.

2. Clearly defined permissible activities for banks and control of the use of the word 'bank'.

II

In its 2000 ROSC, the IMF rates Cameroon as "broadly compliant" with this principle. The IMF report recommended enforcing "the regulation on misuse of the word "bank" and sale of banking products and services by institutions without a banking license." However, there is little recent information publicly available addressing Cameroon's compliance with this Principle.

3. Criteria for structure, directors, operating plan, controls, financial condition and capital base.

ID

In its 2000 ROSC, the IMF rated Cameroon as "broadly compliant" with this principle. According to the same report, although COBAC has the authority to sanction credit institutions, to revoke banking licenses, and to decide on liquidation of banks, it shares responsibilities in the granting and withdrawal of licenses with the national finance ministries. The IMF report suggested giving COBAC the sole responsibility for bank licensing. In its 2006 FSSA on the CEMAC region, the IMF reiterates its concern about the role of national finance ministries in the granting and withdrawal of licenses, and recommends reviewing conditions for licensing applications for credit institutions, senior management, and external auditors. Following the 2006 IMF report, the CEMAC authorities responded that national finance ministries had no discretionary power with regard to the issuance and withdrawal of licenses. The CEMAC authorities however declared their intention to amend legislation to take the FSSA recommendations into account.

4. Authority to review and reject transfer of ownership.

FC

According to the IMF 2000 ROSC, Cameroon is "compliant" with this principle, and no further corrective action is required.

5. Authority to review major acquisitions and investments.

II

In its 2000 ROSC, the IMF rated Cameroon as "broadly compliant" with this principle, and no further corrective action was required. However, in its 2006 FSSA on the CEMAC region, the IMF recommended requiring the reporting of acquisition plans to allow COBAC to oppose or review them. The IMF reports (2000 and 2006) offer conflicting remarks, and there is little other information addressing Cameroon's compliance with this principle.

6. Minimum capital adequacy requirements (meet Basle Capital Accord for internationally active banks).

NC

In its 2000 ROSC, the IMF rated Cameroon as "broadly non-compliant" with this principle, stating that the minimum solvency ratio was too low and that significant operational risks were not taken into account. It recommended raising the minimum capital adequacy ratio to 8 percent, in line with international standards. According to the 2006 IMF FSSA on the CEMAC region, although the capital adequacy ratio has been gradually moved to 8 percent, it does not reflect existing levels of risk in the CEMAC countries. The IMF report recommends gradually increasing the minimum capital adequacy ratio above 8 percent, and updating risk weights.

7. A method exists for the evaluation of procedures related to loans, investments and portfolio management.

NC

In its 2000 ROSC, the IMF rated Cameroon as "broadly non-compliant" with this principle. The IMF report did not give any further recommendations with regards to this principle.

8. Policies, practices and procedures for evaluating the quality of assets and the adequacy of loan loss provisions and reserves.

II

In its 2000 ROSC, the IMF rated Cameroon as "broadly compliant" with this principle, citing a lack of loan classification on a case-by-case basis. According to the 2006 IMF FSSA on the CEMAC region, full provisioning for non-performing loans is "only required after three to four years, which is too slow a pace" (p. 17). The report advises Cameroon to "gradually shorten automatic provisioning deadlines" (p. 28). It also recommends cross-examining external auditors after their inspections and systematically reviewing their reports. Following the 2006 IMF report, the CEMAC authorities responded that "the minimum mandatory provisioning times are considered to be appropriate to the CEMAC legal environment" (p. 29). The IMF reports (2000 and 2006) offer conflicting remarks and there is little other information addressing Cameroon's compliance with this principle.

9. Prudential limits and management information system on concentration of exposure.

NC

In its 2000 ROSC, the IMF rated Cameroon as "broadly compliant" with this principle. The IMF report recommended improving the formalization and organization of risk management information systems. According to the 2006 IMF FSSA on the CEMAC region, although the prudential framework has been updated and strengthened, it is still not fully in line with international standards. Furthermore, credit institutions are able to lend "up to 45 percent of their own funds to a single borrower, and as much as 90 percent to companies that COBAC recognizes as being of national importance" (p. 27). The IMF report advised reducing the current large exposure limit to the 25 percent ceiling recommended by the Basel Committee. It also suggests eliminating "the provisions which increase the limit to 90 percent for certain companies recognized as strategic" (p. 28).

10. Arm's length rule and monitoring for connected lending.

NC

In its 2000 ROSC, the IMF rated Cameroon as "non-compliant" with this principle. In its 2006 FSSA on the CEMAC region, the IMF recommended expanding the definition of connected persons. Following the 2006 IMF report, the CEMAC authorities responded that they deemed it to be unnecessary for "credit institutions and States to be included among possible connected parties" (p. 29).

11. Policies and procedures for country risk and transfer risk.

II

Per the 2000 IMF ROSC, this principle is not applicable to Cameroon.

12. Measuring and monitoring market risk. Limit and/or specific capital charge on market risk exposure.

NC

In its 2000 ROSC, the IMF rated Cameroon as "broadly non-compliant" with this principle. In its 2006 FSSA on the CEMAC region, the IMF recommends introducing a regulatory framework in relation to market risks.

13. Comprehensive risk management processes.

NC

In its 2000 ROSC, the IMF rated Cameroon as "non-compliant" with this principle. The IMF report noted that many important risks had not been considered in the regulations.

14. Adequate internal controls.

II

In its 2000 ROSC, the IMF rated Cameroon as "broadly compliant" with this principle and recommended improving the regulatory framework by incorporating rules on an audit committee and the independence of directors. According to the 2006 IMF FSSA on the CEMAC region, internal control regulation has entered into force in 2003 but is still "unevenly" (p. 27) applied. The IMF report advised conducting the internal controls that were scheduled for 2006 and ensuring the follow-up to the implementation of regulations. The IMF reports (2000 and 2006) offer conflicting remarks and there is little other information addressing Cameroon's compliance with this principle.

15. Strict "know-your-customer" rules and high ethical and professional standards.

NC

In its 2000 ROSC, the IMF rated Cameroon as "non-compliant" with this principle, citing a lack of provisions related to money laundering. The 2005 U.S. Department of State report asserts that, following the 2001 terrorist attacks in the U.S. and subsequent United Nations resolutions, CEMAC countries formed the Central African Action Group Against Money Laundering to draft a common anti-money laundering (AML) law. However the AML and Combating the Financing of Terrorism (CFT) framework is still not fully operational, leaving Cameroon vulnerable to money laundering and terrorist financing. According to the 2006 IMF FSSA on the CEMAC region, "significant steps were taken by the COBAC and the banking sector to implement the regional framework for AML-CFT" (p. 4). However, as noted in a 2007 IMF report on Selected Issues, its implementation is "hampered by unclear assignment of responsibilities between regional agencies and national authorities" (p. 36). The 2006 IMF report further recommended putting in place Financial Intelligence Units (FIUs) in the CEMAC region.

16. Effective supervisory system consisting of on-site and off-site supervision.

II

In its 2000 ROSC, the IMF rated Cameroon as "broadly compliant" with this principle and pointed to the lack of resources to conduct adequate and timely on-site and off-site supervision as a shortcoming. However, per the 2006 IMF FSSA on the CEMAC region, COBAC's lack of human resources has altered its credibility and effectiveness. Its lack of regulatory enforcement capacity has also reduced the frequency and quality of on-site and off-site supervision. However, there is little further information publicly available addressing Cameroon's compliance with this Principle.

17. Regular contact with bank management and understanding of bank's operations.

II

In its 2000 ROSC, the IMF rated Cameroon as "broadly compliant" with this principle, citing a lack of communication with bank management. The IMF report suggested improving COBAC's "communication and cooperation with the supervisory boards and the external auditors of the banks." The IMF report also recommended strengthening relations with the board of directors to improve corporate governance and internal supervision by the board. Banks should be required to report their prudential regulation irregularities to the COBAC. According to a 2007 IMF report on Selected Issues, banks are reluctant to finance small and medium-sized enterprises due to the inadequate legal and judicial framework in Cameroon, as well as poor corporate governance and accounting standards. In spite of the 2000 compliance level by the IMF, there is little recent information publicly available addressing Cameroon's compliance with this Principle.

18. Analytical reports and statistical returns on solo and consolidated basis.

FC

According to the IMF 2000 ROSC, Cameroon is "compliant" with this principle, and no further corrective action is required. In its 2006 FSSA on the CEMAC region, the IMF recommended issuing "the instructions required to implement existing regulations on a solo and on a consolidated basis" (p. 28).

19. Independent validation of supervisory information through on-site examination or external auditors.

II

In its 2000 ROSC, the IMF rated Cameroon as "broadly compliant" with this principle. The IMF report suggested improving COBAC's "communication and cooperation with the supervisory boards and the external auditors of the banks." Despite the 2000 compliance ranking by the IMF, there is little recent information publicly available addressing Cameroon's compliance with this Principle.

20. Ability to supervise on a consolidated basis.

II

Per the 2000 IMF ROSC, this principle is not applicable to Cameroon.

21. Consistent accounting policies and practices that provide a true and fair view of the financial condition of the bank.

NC

In its 2000 ROSC, the IMF rated Cameroon as "broadly non-compliant" with this principle. The IMF report recommended increasing the role of external auditors. It also advised the BEAC to issue publications and disclosure requirements for banks. According to the 2006 IMF FSSA on the CEMAC region, COBAC is responsible for setting regulations and accounting standards for Credit Institutions through the transposition of the Organization for the Harmonization of African Business Law rules. However, COBAC still needs to issue instructions to implement existing regulations, and ensure that external auditors accomplish their tasks. As noted in the same report, COBAC's lack of human resources has delayed the implementation of recently adopted accounting and prudential consolidation regulations. The IMF report recommended adopting International Auditing Standards and disclosing audited financial statements to increase transparency in the banking sector. It also suggests strengthening banks' "chart of account" (p. 27) to ensure compliance with the International Financial Reporting Standards. Following the 2006 IMF report, the CEMAC authorities responded that instructions required to implement existing regulations would be issued by end of 2006. However, there is little information addressing whether these regulations have been implemented.

22. Adequate supervisory measures to ensure timely corrective action.

NC

In its 2000 ROSC, the IMF rated Cameroon as "broadly compliant" with this principle, citing the insufficient use of corrective measures. As noted in the same report, COBAC is mandated to impose corrective action on banks, but is subject to external pressure and interference. The IMF report advised COBAC to "take more vigorous action in certain cases." According to the 2006 IMF FSSA on the CEMAC region, although COBAC has adequate powers to impose sanctions, it uses them too late. Furthermore, COBAC hasn't called for any license withdrawal since 1999, despite the failure of several restructuring plans. The IMF report recommends ensuring that "COBAC's powers to impose sanctions on Credit Institutions, senior management and external auditors are effectively used when serious breaches are detected" (p. 28). It also advises to adopt systematic license withdrawal procedures when deemed necessary.

23. Banking supervisors must practice global consolidated supervision over their internationally-active banking organizations.

II

Per the 2000 IMF ROSC, this principle is not applicable to Cameroon. As noted in the 2006 IMF FSSA on the CEMAC region, few CEMAC banks have operations abroad.

24. International exchange of information with other supervisors.

II

Per the 2000 IMF ROSC, this principle is not applicable to Cameroon. According to its 2000 ROSC, the IMF noted that the COBAC intended to conclude more treaties with foreign supervisors.

25. Supervision of local operation of foreign banks and information sharing with home country supervisors.

FC

According to the IMF 2000 ROSC, Cameroon is "compliant" with this principle. However, the growing importance of foreign institutions in the CEMAC countries' banking systems increases the need for cooperation and information sharing with home country supervisors and the parent institutions of those banks. The IMF report noted that COBAC intended to conclude more treaties with foreign supervisors. As noted in the 2006 IMF FSSA on the CEMAC region, the banking sector in the CEMAC countries is largely composed of subsidiaries of foreign banks, mostly French. Furthermore, COBAC collaborates very closely with the French Banking Commission.