4. Banking Sector in The Gambia and United Kingdom
4.2. Banking Sector
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The UK imports goods such as manufactured goods, machinery, fuels; foodstuffs. Its highest import partners are Germany. Its total importation for the year 2012 stood at $642.6 billion.
Figure 6: Export Partners (UK) Source: < http://mecometer.com>
The products the country exports are manufactured goods, fuels, chemicals; food, beverages, tobacco. Germany again is its major export partner. Exports in the UK for the year 2012 constituted $474.6 billion.
4.2. Banking Sector
4.2.1. The Gambia
The Gambia financial system over the years had developed rapidly and it is noticeably liberalized now. Direct controls have been removed and the economy’s interest rates are freely determined by the forces of demand and supply. The country has no stock exchange market.
However, commercial banks are the dominant providers of financial services in the country.
The numbers of banks in the country increased from 4 in 2001 to 14 in 2009 (IMF Country Report No. 12/17(2012)). In response to the weakening environment in the financial systems in 2010, the Central Bank of The Gambia announced to raise banks capital requirements from
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GMD60 Million (2.2 Million dollars) to GMD150 Million (5.5 Million dollars) by end 2010, and to GMD200 Million (7.4 Million dollars) by end-2012 (IMF Country Report No.
12/17(2012)). All banks complied with the new regulation. Banks in The Gambia are adequately capitalized and liquid with an average risk-weighted capital adequacy ratio of 25.6%
in June 2011, which is above the 8% minimum requirement stipulated by the 2003 Financial Institutions Act of the Central Bank of The Gambia.32
At present, there are 12 banks (two dropped out in the earlier 2011 to 2013). Out of these 12 banks, one is Islamic and 11 Conventional banks. The largest commercial bank both in size and asset is a foreign subsidiary of the United Kingdom based Standard Chartered Bank, which is 25% Gambian owned (Alisa Alston, Marianne Moukhtara). In 2011, only one Conventional bank was majority – owned by Gambian Nationals (Trust Bank Gambia Limited).33 Most of the new banks that came in from 2007 to 2009 are foreign owned Nigerian banks, which produced substantial Foreign Direct Investments for the country.
The chief executive of one of the Nigerian banks (Guaranty Trust Bank Gambia (GTB)), Lekan Sanusi in August 2011, was reported as saying in the African Banker news online that the banking system in the Gambia witnessed improvements and that customers are now exposed to robust and competitive banking and improved service delivery. According to the GTB chief executive, some Nigerian banks had recorded major achievements in profitability, branch network expansion and product differentiation. One of the discoveries in The Gambia that makes banking interesting to Nigerian banks is what the report called “goldmine in the business
32 www.africaneconomicoutlook.org
33 http://www.africaneconomicoutlook.org/
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of cash shipments”. The process, led mainly by Nigerian banks operating in the country under an agreement with Credit Suisse, involves the transfer of large quantities of foreign currencies by traders and importers on weekly basis to beneficiaries abroad.34
The banks in The Gambia can be categorized in to three groups. Group 1 composed of three large banks which constituted about 57% of total assets and loans in the industry at end of December 2010. Group 2 comprise three median banks which accounts for about one fourth (¼ ) of total assets and loans. Group 3 consists of six small banks that account for 20% of assets and 23% of loans of the industry (IMF Country Report No. 12/17 (2012)). Commercial banks in The Gambia offer a variety of banking services such as trade finance and credit, dealing in foreign exchange and equity participation and deposits. Other financial systems in the country include Insurance Companies, Micro Finance Institutions and several Foreign Exchange Bureaus.
Table 6: Commercial Banks in The Gambia
Company Year Established
Standard Chartered Bank Gambia Ltd 1894
Arab Gambia Islamic Bank 1994
Trust Bank Ltd 1997
First International Bank 1999
Guaranty Trust Bank Gambia Ltd 2002
International Commercial Bank 2005
Access Bank Gambia Ltd 2007
34 http://africanbusinessmagazine.com/african-banker/reforms/banking-in-west-africa
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Bank Sahelo‐Saharienne Pour L’investissement et le commerce 2008
Oceanic Bank (Gambia) Ltd. (Liquidated) 2008
Bank PHB 2008
Sky Bank Gambia Ltd 2008
Zenith Bank Gambia Ltd 2009
Prime Bank Gambia Ltd (Liquidated) 2009
Source: < http://fic.wharton.upenn.edu/fic/africa/Gambia%20Final.pdf >
Table 7: The Gambia Financial Soundness Indicators (In percent, unless otherwise indicated)
Indicator 2007 2008 2009 2010 2011
June
Capital Adequacy Regulatory capital to risk weighted assets 22.5 19.6 18.8 24.5 24.8 Tier-1 capital to risk weighted assets.35 20.0 21.0 19.0 27.0 25.6 Asset Quality Nonperforming loans to total gross loans 10.4 13.7 12.3 14.5 12.7
Nonperforming loans net of provisions to
35 Tier-1 capital is larger than regulatory capital due to the supervisory deduction from premises revaluation.
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Liquidity Liquid assets to total assets 45.0 43.6 35.7 47.9 38.6 Liquid assets to short-term liabilities 74.9 70.9 62.1 68.4 59.4 Exposure to FX risk Net open FX position to capital 36.9 19.1 6.4 -0.4 -2.9
Source: < International Monetary fund (IMF Country Report No. 12/17, 2012)>
The industry’s asset quality has weakened over the years, and provisioning has not kept up.
Nonperforming loans increased from 5% to total loans and advances in 2005 to 14.5% at end of 2010. However, in June 2011 Nonperforming loans fell by 2%. Profitability deteriorated, turning negative in 2009, but began to pick up in 2010. From 2007 to 2009, return on assets (ROA) and return of equity (ROE) dropped from 4.5% to -1.6% and from 36.4% to -24.9%
respectively. Both ratios changed positive from 2010, reaching 1.2 and 5.8 respectively by June 2011, owing to banks efforts to improve their portfolios (IMF Country Report No. 12/17 (2012)).
4.2.2. United Kingdom
Several years ago before the financial crisis, UK financial sector grew very fast, in fact it grew twice as fast as the country’s economy as a whole (Burgess (2011)). The present size of financial sector in the UK shows how heavily the UK economy relies on financial services. Currently banks incorporated in the UK are 163 banks. Number of banks incorporated outside the European Economic Area (EEA) authorized to accept deposits through a branch in the UK are 80 banks. Furthermore, number of banks incorporated in the EEA entitled to accept deposits through a branch in the UK are 73 banks.36 Therefore, there is no doubt that the financial sector has a significant influence on the real economy of the UK.
Islam is the second largest religion in the UK. Results of the United Kingdom census 2011
36 http://www.bankofengland.co.uk/pra/Pages/authorisations/banksbuildingsocietieslist.aspx
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suggested that the Muslim population in the UK had reached 2.7 million, 4.8% of the total population.37 Before 2000, there were no Islamic bank facilities available to Muslims in the UK even though the Muslim population wanted to spend their lives according to their religion.
Ahmad (2008) states that Islamic banking in the UK commenced in 2003. From then to date, there are numerous banks in the UK that offer Sharia compliant instruments of banking. The major ones are Bank of London and Middle East plc. (BLME) and Islamic Bank of Britain.
BLME is the largest Islamic bank in EU and the UK and has received several awards for being the best Islamic bank in the EU (Islam 101).38 In addition to these two Islamic banks is Ahli United Bank, which over the years received a number of awards too. The bank is not strictly Islamic but does offer a sharia compliant loan to its customers.
According to the British National Party, sharia compliant banks in the UK offer no-interest transaction to Muslims, whereas the British people encounter increasing interest burdens on banking transaction. Sharia compliant banks moreover, had enjoyed tax relief from the government of UK on sharia compliant mortgages, which the British party considers discriminating to the non-Muslim population.39
37 http://en.wikipedia.org/wiki/Islam_in_the_United_Kingdom
38 http://learnislam1.blogspot.tw/2011/06/best-islamic-banks-in-uk.html
39 http://www.bnp.org.uk/news/islamic-banking-sector-britain-now-bigger-pakistan