Congo Seeks Stronger Crisis Management Tools as IMF Supports Banking Sector Reform

The IMF says Congo’s new bank resolution law is a major step toward financial stability, but it must be backed by stronger legal safeguards, clear funding mechanisms and practical crisis tools like partial sales and bridge banks. With better preparation, coordination and recovery of public costs from the financial sector, Congo can manage bank failures without destabilizing its economy or burdening taxpayers.

When the Democratic Republic of the Congo adopted a new banking law in December 2022, it introduced something the country had never had before: a clear system for handling failing banks. This Special Resolution Regime is meant to prevent chaos if a bank collapses. Now, a technical assistance report prepared by the International Monetary Fund’s Monetary and Capital Markets Department, working with AFRITAC Central and drawing on global standards set by bodies such as the Financial Stability Board and the International Association of Deposit Insurers, explains how the country can make that system work in practice.

The reform is not just technical. Congo’s financial system is small and heavily dependent on banks. A few institutions dominate the market. If one large bank were to fail suddenly, the shock could spread quickly, affecting businesses, depositors and public finances. The new regime is designed to reduce that risk by allowing authorities to step in early and manage failure in an orderly way.

Why the Courts Matter

One of the IMF’s strongest warnings concerns legal certainty. In the past, court decisions overturned actions taken by the central bank to deal with troubled banks. That creates uncertainty at the worst possible time.

International best practice says that while affected shareholders and creditors should be able to challenge decisions, those challenges should not stop or reverse emergency measures taken in good faith. Instead, if someone believes they were treated unfairly, the solution should be financial compensation under the principle that no creditor should be worse off than they would have been in liquidation.

Without this protection, the central bank’s ability to act quickly during a crisis could be weakened. The IMF suggests that strengthening legal safeguards is a top priority.

Two Main Tools to Save a Failing Bank

Rather than using complex tools that may be difficult to manage, the IMF recommends focusing on two practical options.

The first is a partial sale. In simple terms, this means separating the “good” parts of a failing bank from the “bad” parts. Healthy loans and customer deposits can be transferred to a stronger bank. Problem loans are left behind in a separate entity that will eventually be liquidated. This approach protects depositors and keeps essential services running.

If no buyer can be found and closing the bank would threaten financial stability, the second option is to create a bridge bank. This is a temporary bank owned by the state. It takes over critical functions while authorities search for a private buyer. The bridge bank must have clear rules, professional management and a limited lifespan. Importantly, the central bank itself should not become its shareholder to avoid conflicts of interest.

Who Pays for the Rescue?

A key question in any bank crisis is who covers the losses. Congo’s banks rely heavily on deposits and have limited capacity to absorb large shocks. The current legal provision allowing “special credits” from the central bank on behalf of the government is considered outdated and risky.

The IMF proposes a modern solution. If public money is used to stabilize a bank, shareholders and unsecured creditors must absorb losses first. Any remaining cost to the state should later be recovered from the financial sector through special levies. This ensures taxpayers are not left carrying the burden permanently.

The report also highlights the importance of liquidity. Even if a bank is technically solvent after restructuring, it may face sudden cash shortages as depositors withdraw funds. The central bank must be ready to provide emergency liquidity under strict conditions, while minimizing risks of abuse.

Building Strong Institutions

Laws alone do not guarantee stability. The Central Bank of the Congo has already taken important steps by creating a separate Financial Stability Directorate and dividing supervision from resolution functions. This separation helps avoid conflicts of interest.

The IMF encourages the bank to draft detailed resolution plans for major institutions. These plans should identify critical services, possible risks and clear steps to take if problems arise. Most banks in Congo are subsidiaries of foreign groups, so cooperation with home-country regulators is also essential.

In short, Congo has laid the foundation for a stronger financial safety net. But making the Special Resolution Regime credible will require legal clarity, proper funding mechanisms, trained staff and strong coordination. If these pieces come together, the country will be better prepared to manage bank failures without destabilizing its economy or putting public finances at risk.