Pursuant to the authority vested in it by Section 55 of the Central Bank of Liberia
Act of 1999 (CBL Act), and Sections 25, 32, 39, 40 and 47-55 of the New
Financial Institutions Act (New FIA) of 1999, the CBL hereby prescribes, makes,
regulates and sets forth as follows:
(a) Distressed Bank – Financial Institution - Is a bank-financial institution that
shows one or more weaknesses, including undercapitalization, illiquidity,
poor management practices and/or unsafe banking practices.
(b) Adequate Capitalization and/or Capital Adequacy - A bank-financial
institution is said to have adequate capitalization when it has a Capital
Adequacy Ratio (CAR) of 8% and maintains a net worth of US$2M or its
equivalence in Liberian Dollars.
(c) Undercapitalization – A bank-financial institution is said to be
undercapitalized if it has a capital adequacy ratio (CAR) that is less than
8% and/or has a net worth of less than US$2M or its equivalence in
(d) Significantly Undercapitalized - This is a worsened state of
undercapitalization at/in which a bank-financial institution’s capital is so
impaired that it has a capital adequacy ratio (CAR) equal to or greater than
2% but less than 7% and/or has a net worth of less than US$ 1M or its
equivalence in Liberian Dollars.
(e) Critically Undercapitalized -This is a worsened state of undercapitalization
at which a bank financial institution’s capital is so impaired that it has
capital adequacy ratio (CAR) of less than 2% and/or maintain a net worth
of less than U$0.5M or its equivalence in Liberian Dollars.
(f) Inadequately liquid - A bank-financial institution is said to be inadequately
liquid if it has a liquidity ratio below the statutory minimum of 15%.
(g) Significantly illiquid - This is a condition when a bank-financial institution
records a liquidity ratio less than 10% but greater than 5%; when it suffers
clearing operations losses for five (5) consecutive days; and/or has an
unsecured overdrawn account with the CBL for three (3) consecutive
(h) Critically illiquid - This is a condition when a bank-financial institution
records a liquidity ratio of less than 5%; when it has an unsecured
overdrawn account with the CBL for five (5) or more business days and/or
is unable to meet maturing obligations.
(i) Non-compliant - A bank financial institution is said to be non-compliant if
(1) it is illiquid or undercapitalized, or (2) it neglects, refuses or fails to
comply with provisions of the New FIA, CBL Regulations and Directives,
and/or an agreement signed with the CBL.
(j) Unsafe and Unsound Banking Practices - Unsafe and unsound banking
practices, as defined herein, refer to any banking activities or banking
practices not consistent with the New FIA, or regulations and directives
issued by the CBL or in accordance with generally acceptable banking
practices. It specifically includes a bank that CBL determines, at its sole
discretion, to be in willful or negligent disregard of supervisory instruction
and/or banking regulation.
3.0 SUPERVISION OF NON-COMPLIANT BANK
3.1 All operating banks determined to be undercapitalized, illiquid or engaged in
unsafe and unsound banking practices shall be subject to concrete and targeted
progressive enforcement actions, including direct supervisory intervention, that
are reasonably time-bound and measurable, as specifically provided herein below.
3.2 All operating and non-operating banks that are determined after final viability
assessments to lack the resources or other requirements of CBL will be subject to
prompt final resolution, as specifically provided herein below at Section 5.0 of
4.0 RESTRUCTURING AND RESOLUTION OF NON-COMPLIANT BANKS
4.1 Effective upon the adoption of this policy, the CBL, through the Bank
Supervision Department (BSD), will promptly apply specialized enforcement
actions to any bank found to be critically undercapitalized, critically illiquid or in
willful or negligent disregard for supervisory authority.
4.2 The first step in specialized enforcement shall be for BSD to develop detailed
Supervisory Strategy for each bank, outlining its viability and, if it is viable, its
Alternatives for recapitalization or achieving regulatory compliance.
4.3 Based on the detailed Supervisory Strategies to be developed for each operating
bank in accordance with Section 4.2 above, CBL will take one of the following
4.3.1 Banks determined not to be viable will be subject to seizure followed by
compulsory reorganization through Provisional Administration and/or
Liquidation. These steps will be implemented within a maximum period
of sixty (60) days of such determination and concluded within twenty-four
(24) months thereafter.
4.3.2 Banks determined to be viable will be granted a formal Regulatory
Forbearance by the CBL following the adoption of a written undertaking
(execution of a written MOU with the CBL) signed by every member of
the Bank’s Board of Directors and executed within thirty (30) days of such
determination. Provisions of the written Agreement (MOU) will be
established at the sole discretion of the CBL and will specify both timebound
corrective measures and risk management controls that are further
defined in this Regulation.
4.3.3 If a Bank otherwise eligible for Formal Regulatory Forbearance
fails/neglects to agree or execute within seven days a written undertaking
or MOU as described in Section 4.3.2, or having executed such written
undertaking fails to implement or achieve the corrective measures and risk
management control within the time specified, it shall be immediately
subject to final resolution through seizure, Provisional Administration
and/or Liquidation. These steps would be implemented within sixty (60)
days of such determination and concluded within twenty-four (24) months
4.4 The corrective actions that the CBL determines to be necessary to bring the bank
into capital, liquidity and/or other prudential or regulatory compliance will be
comprised as follows:
4.4.1 Mandatory elements comprised of Direct Supervisory Intervention as
further described in Section 4.4.3 of this Regulation; adoption and
implementation of a Corrective Action Plan; suspension of branch
applications; suspension of dividend payments; suspension of any new or
renewed credit contract, or investment transaction with insiders; and
freezing of all insider depository accounts.
4.4.2 Optional elements may include but not be limited to: suspension/removal
of management officials and board members; limitations on deposit
growth and lending; restriction on investment activity; and either
restriction of withdrawal right of off shore banks accounts or transfer of
off-shore correspondent account balances to an account held in favor of
the Bank at the CBL.
4.4.3 Direct Supervisory Intervention (DSI) shall consist of an enforcement
activity through which the CBL rescinds some or all of the delegated
authority it has provided through a banking license to shareholders,
directors, and management and simultaneously vests same instead in a
CBL representative whose responsibility it will be to provide direct
supervision through the bank’s Board and Management in order to bring
the Bank within regulatory compliance.
4.4.4 Every bank that is granted a formal Regulatory Forbearance shall
simultaneously be extended a maximum period of nine months within
which to achieve all of the corrective actions required by the CBL,
including recapitalization and/or reorganization.
4.5 Consistent with the New FIA, a bank that is seized pursuant to this Regulation
shall generally be placed under a Provisional Administration. The principal focus
of Provisional Administration, as contemplated herein, will consist of three
4.5.1 The first will be to complete the corrective actions identified by BSD as
conditions for Regulatory Forbearance, and agreed to be implemented by
the bank in a signed written MOU to restore the safety and soundness of
4.5.2 The second will be to recapitalize the bank through reorganization,
solicitation of investors interest, and similar efforts, in which role the
Provisional Administrator will function independently, preserving the
supervisory oversight role of the CBL.
4.5.3 The third focus will follow if the first two efforts fail, and shall consist of
preparing the bank for final liquidation. In all of its activities, the
Provisional Administration shall prioritize cost containment, collection of
problem assets, regulatory compliance and protection of depositors’
4.6 Any non-operating bank with inadequate capital or inadequate financial,
managerial, and governance resources will be placed in liquidation in accordance
with the liquidation procedures contained in the New FIA. The CBL will file
each petition for liquidation within thirty (30) days of completion of a final
4.7 Non-operating banks with potentially adequate financial, managerial, and
governance resources shall be considered for re-licensing as de novo banking
institutions. In addition to rigorous due diligence of governance capacity, CBL
will require any potentially eligible non-operating bank to discharge all
obligations to existing depositors before re-licensing will occur. Shareholders
will also be required to deposit in an account at CBL funds for recapitalizing.
CBL will grant a recapitalization period of up to one hundred eighty (180) days
following the completion of the final viability assessment referred to in 3.0 and
5.0 PENALTY FOR VIOLATION
A licensed bank found in violation of these regulations shall be liable to pay a fine
of not less than Two Hundred thousand Liberian Dollars (L$200,000) for each
infraction and/or be subject to immediate supervisory sanctions.
Issued this 15th day of February, A.D. 2005 in the City of Monrovia, Republic of
BY ORDER OF THE PRESIDENT
MINISTER OF FOREIGN AFFAIRS
MINISTRY OF FOREIGN AFFARIS