Banking System Reform In Mauritania And The Role Of Central Bank

Banking industry occupies a great importance position in the economic and social life of mankind. This is because the banking sector is the main element in establishing confidence in the state policy and its protection of economic interests. This demands a serious work on finding a strong banking sector, which helps to supply the necessary financial support to the different sectors, as well as offering bank services of all sought. Therefore, it is necessary to make this sector subject to a proper supervision process under the principal responsibility of the Central Bank.By the early 1980s, Mauritania's banking sector was deteriorating, mainly because of an accumulation of non-performing loans that constituted some 50 percent of commercial bank assets, Between 1981 and 1983, government borrowing from the CBM(Central Bank of Mauritania ) and commercial banks rose to statutory limits, the private sector and public enterprises were thus forced to borrow increasingly from foreign banks to cover their severe liquidity problems.As a result of this spiral of debt, the government, in 1985, together with the IMF (International Monetary Fund) and World Bank support, undertook measures to restructure the banking system. Measures taken under the 1985 to 88 Economic Recovery Program instituted a monetary and credit policy favoring the private sector and an austerity program for the public sector.Furthermore, in 1987 the government, in collaboration with the World Bank, adopted a reform program that focused on three areas; 1 reforming credit policies and banking regulations 2 regulations, strengthening the CBM, and 3 Restructuring four of the six commercial banks, including the International Bank of Mauritania International Bank of Mauritania (IBM), of which the CBM(Central Bank of Mauritania ) held 91 percent.Thus, a process of restructuring the banking system was initiated by the government, through the program of structural adjustment programme, adopted by the country. By 1986 the reorganization plan was eventually extended into two phases (1986 and 1993). The first results of this plan focused on merging some banks, privatization of others and the enactment of new banking laws adopted in 1988 regulating the banking activities and reinforcing the control of the Central Bank.The research focuses on the analysis of the role of Mauritania central bank in banking reform and shows its impact on the financial system of the country. This research sought data for successive evaluation of the Mauritania banking system reforms from 1992-2007 in the Mauritania financial data.Analysis focuses on the effect of banking system reform and central bank's role is confined into the following chapters;The first chapter is the introductory form of this study. It introduces the Banking system reform's definition in general and displays the experiences of some countries in that reform. Moreover it sheds new light on the role of the central bank and summarizes the objectives, justification, background overview, structure, achievement and shortcoming, and the methodologies of the thesis.The chapter two dealt with an examination of the analysis of the Mauritanian banking system reform experience. It also explains the reason why the Mauritanian authorities adapted this reform, how they pursue it and how did this reform affect the banking system.Chapter three focuses on the role of the central bank in the process of the banking system reform. The focus is mainly on the role of the Mauritanian central bank in the banking reform, with distinctive modules gearing towards the empowerment of the banking sectorChapter four collates the findings obtained from the second and third chapter, from which recommendation of suggestion may be useful for policy maker and further researcher.It concludes that, the Mauritanian authorities have taken a cautious first step to liberalize the banking system. The central bank has been given the traditional instruments of monetary control and, in principle, autonomy to preserve the value of the currency and create an environment for stable growth. Hence, banks have gradually found sources of profit. They can now boast of having balance /surplus cash or have relatively recovered financial situation. The adherence to a strict monetary and exchange policy has made the Central Bank's role in modernizing the economy of Mauritania is fundamental in enabling the country to face the rising challenges of globalization and in converting Mauritania into one of the most promising economies in Africa.In this research however, Mauritania's banks showed signs of increased and continuous profitability surge since 1995. In the view point of the aforesaid, the overall experience illustrated that banking problems will surely re-occur if financial restructuring is not accompanied by operational reforms.