Liquidity and cash volume and the method of controlling them are factors of direct influence not only on performance of the banks but also on the sectors that transact with the banks, including businessmen and merchants. The Central Bank, The Bank of Sudan, has formulated policies to controlling them, but those were unacceptable to the concerned groups arguing they would lead to recession.
The Sudanese businessmen, who presumably run 70% of the country's economic activities, said they were adversely affected by the control imposed by the central ban on the liquidity and cash volume. They argued that those policies have greatly impaired the flow of the transactions and rotation of commodities and services.
All sectors have suffered, resulting in a sort of recession.
Samir Ahmed Gassim, who is in charge of the policies, told sudanow.info.sd that they have prepared and sent their remarks on to the Central Bank policies and it is left to the bank to consider or put aside. The Bank of Sudan has approved those policies and instructed the banks to abide by them as of January 1st.
The businessmen criticize the policies of the central bank and its instruction to the banks for investment in the government certificates and bonds by 25% of their financing funds which are directed to the government on grounds that they adversely affect the volume of the available resources and liquidity needed for financing the private sector's workers and merchants.
To this they added that the average rate of repayment failure makes up to 23% and the legal cash reserve is 11%. They say the situation become gloomy because there will remain less than 50% of the available resources for financing which is too small for the banks to play their role in the development of the national economy.
They complained of the small and smaller financing which was allocated 12% of the total financing fund, a percentage which they said would not help in fighting poverty which the state is concerned with.
The businessmen memorandum contained proposals in connection with the medium-term financing and repayment failure, including one that suggests that the central bank leads initiatives for benefiting from the financing mechanisms through Khartoum stock market as well as similar regional markets, particularly those of the Arab countries. That can be made by establishing and running a fund or funds of considerable capitals and submission of bonds for the private and public sectors and listing of those bonds in Khartoum Stock Market with periods not less than five years.
The businessmen also believe that the financing partnership system seems more flexible and effective for financing, follow-up management and control the operations, a matter which cuts down the repayment failure rates.
The government says the monetary and financing policy for 2011 is aimed at achieving the total 2011 economic objectives of accomplishing a factual rate of growth of the gross domestic product by 4.9% and maintaining the valve over the inflation rate of 12 % by targeting a nominal growth rate of 17% in money supply as a medium-term objective with maintenance of a stability and flexibility of the rate of exchange.
In order to achieve these objectives the liquidity will be administered in a balanced way that fulfils the requirements of the economic activity without causing inflation pressures, by focusing on the monetary policy tools which include management of the liquidity by instructing the banks to retain cash credits with the central bank, in the form of a legal monetary reserve of 11% of the total local currency deposits and 11% of the total foreign currency deposits. A settlement of an increase in the legal monetary reserve on the foreign currency deposits may be made in local currency. The deposits include the current, saving and marginal ones as contained in the weekly report of the deposits and financing through the bank, except the investment deposits. The traditional banks are permitted to divide the rate into 9% in cash and the remaining 2% in depositing certificates.
The Bank of Sudan circular provided that the banks keep 10% (as an indicator) of the total current and saving deposits in the form of internal cash liquidity for meeting the daily drawings of the clients and keeping liquidity assets in the form bonds of the central bank (Shihab), government partnership certificates (shahama), Khartoum Refinery certificates (Shama), other governmental bonds and bonds of non-governmental institutions except the stocks being rotated in the Khartoum Stock Market, with a rate that should not exceed 25% of the existing financing fund.
The traditional ones should keep liquidity assets in the form of bonds of the central bank (Shihab), deposit certificates, government bonds issued by the Government of South Sudan(GoSS) provided that they are not deducted or rededucted by the southern branch of the Bank of Sudan, other governmental bonds and bonds of non-governmental institutions being rotated in the Khartoum Stock Market with a rate that should not exceed 10% of the existing financing fund for contribution to the development in the south.
"These liquidity policies are successful to some extent and that the 11% legal reserve is subject to change and the banks are not obliged to invest in the governmental certificates." Mohamed Hassan Onour, a banker, said.
He described as good the central bank's new policies of guarantees and partnership because he said they help achieve the small and smaller financing objectives for the beneficiaries and banks.
The Bank of Sudan has appropriated for the small, smaller and smallest financing and the social financing 12% of the financing fund of the banks at all times. This percentage (12%) is to be equally divided between the smaller and smallest financing (6%) and the small and social financing (6%). The banks may utilize all this percentage for the smaller and smallest financing, not vise versa. The Bank of Sudan has directed that units specialized in the smaller financing be established in the Bank of Sudan branches. It has called for using the non-traditional guarantees, bearing in mind the use of insurance as an accompanying guarantee through partnership with the smaller financing unit and the Sudanese Company for Development of the Smaller Financing. The banks with specialized experience are to be encouraged for dealing with the segments of relevance to the specialization of those banks in addition to sponsoring development projects. It also directed that a community institution for guaranteeing the smaller financing institution be established in coordination with the relevant bodies, in addition to attracting the services of the international credit guarantees.
In order to obtain additional resources from it, the central bank has permitted the provision of financial support for the Islamic banks which face temporary liquidity problems by purchasing the stocks (bonds) in accordance with the central bank instructions, provided that the financing id provided to the Islamic banks either for bridging the seasonal gap or for implementation of their declared policies.
The Southern Branch of the Bank of Sudan may provide financial support to the traditional banks in the south which face temporary liquidity difficulties by purchasing stocks, including deposit certificates and drawing without balance for 24 hours (overnight loan) with an interest rate for covering the indebted account only and for deducting the commercial stocks which are issued by the private sector and which are acceptable to the banks.
The bonds and the treasury permits and other stocks issued by the Government of South Sudan cannot be deducted while the southern branch of the Bank of Sudan may provide financing to the traditional banks to fill in the seasonal financing gaps in accordance with the principles and controls set by the central Bank of Sudan and may also permit issuance of deposit certificates to deal with in south Sudan also in accordance with the principles and controls set by the central Bank of Sudan.
The Bank of Sudan policy of offering incentives focused on the commercial banks which cooperate in financing the productive sectors those which provide medium-term finance in addition to financing operations of prospecting for gold and other minerals and socially-oriented financing besides the banks which participate in the open market operations.
The central bank has permitted the banks to use their resources for financing all sectors and activities, except those which embargoed in this circular, according special attention to the top priority sectors in line with the nature of the economic activity in each one of the Sudanese states. The banks are also to employ their resources in the production of gold and other minerals and to direct 70% of the investment deposits for medium-term financing (more than a year).
The Bank of Sudan calls upon the banks for establishing funds for financing different economic activities, especially those of the productive sectors, provided that the Bank of Sudan (the General Administration of Organization and Development of the Banking System) is notified in advance. They should be committed to keeping the deposits and to providing finance in local and foreign exchange. Dealing in foreign exchange among the banks helps the Bank of Sudan facilitate the foreign exchange transactions. The annual profit-based financing margin has been set at 12% (as an indicator), with the exception of the smaller financing operations, in intervals between the profit installments for the local and foreign exchange financing operations. The banks have been prohibited from financing purchases of foreign currencies and financial stocks and from financing standing or failed repayments, foreign exchange companies, financial services offices, financial the central, state and local governments in addition to the central an state public companies, institutions and corporations in which the government possesses 20% or more shares unless on approval by the central bank.
The circular has instructed the banks to see to it that their banking services fees be in conformity with the actual cost of those services and to publish those fees periodically on the media and send a copy to the Bank of Sudan (the General Administration of Organization and Development of the Banking System). In cases of real estate mortgage for financing purposes, a bank should deal with the proprietor personally and should not accept an authorization and the estate to be mortgaged must be viewed, the viability of the project should be confirmed in addition to the status of the client. On approval of a financing deal, a bank should concentrate should be made on the mortgages and guarantees and should see to it that the total finance provided by a branch of the bank in the rural regions should not be less than 70% of the deposits accumulated in those regions.
The policy of organization and development of the banking system, oblige the traditional banks to raise paid minimum capital to 20 million pounds by the end of 2011, in addition to introducing the electronic codification programme to cover all clients of the banks in the south. This policy also provides for the creation of a branch of the crediting information and classification and for carrying on with implementation of the institutional control standards.
The Bank of Sudan has urged the banks to concentrate on economic feasibility studies of the financed projects and operations because those studies represent the actual guarantee for the success of the project. It directed the Islamic banks to complete the present total settlements system and to develop and improve the current payment systems by fulfilling government payments through the electronic system. Those banks are also instructed to improve the ATM services and sales points in addition to raising awareness of the banking technology in the field of cards, plastic money and electronic money the dealing in which will be organized by the central bank which will issue a law on the methods of payment. As regards the banking control, the circular called for commitment to Basle (2) standards and Islamic financial services of the Islamic banks, along with development of the role of self-supervision in the banks and other financial institutions through activation of the role of the boards of directors and development of the internal control and auditing systems.
The circular called upon the banks to observe the circulars and directives issued by the central Bank of Sudan and to develop the indirect control mechanisms along with the continued application of the standards of transparency, communication and coordination with the headquarters, in addition to the development of the control department of the southern branch of the Bank of Sudan and completion of the electronic settlements to cover all southern states. Cheques in the south must be codified and be handled electronically.
The circular also emphasized the control relations with the countries with which we have economic and financial ties, such as the COMMESA and the Arab countries. It also provided for continuing the task of activation of the risk management and internal auditing of the banks in line with the international practices and standards. The circular, moreover, called for enhancing the supervisory and preventative measures and commitment to the requirements of fighting money laundering and financing terrorism in coordination with the administrative unit for fighting money laundering and financing terrorism.
The Bank of Sudan circular also called for continuation of efforts for addressing the unpaid debts and bringing them down to the internationally recognized rates. In addition, it provided for developing a system for addressing complaints by the clients in a way that improves performance of the banks and other financial institutions and secure protection for the beneficiaries of the banking services. As regards the banking payment and technology systems, the circular called for continued development and application of the modern technological methods which held protect and secure the banks, in addition to introducing a new system of inspection of the banks for enhancement of their performance with regards to organization and security of the operations.
The Bank of Sudan policies for 2011 are issued in conformity with the Bank's five-year strategic plan (2007-2011) in concert with the financial policy pivots (the general budgets), targeting the optimum volume of liquidity to cope with the demands of economic growth and financial and monetary stability, using direct and indirect mechanisms that suit the dual banking system with an eye to maintaining the soundness of the financial sector and addressing the impact of the US economic sanctions on Sudan.