Financial soundness indicators are considered a measure of the robustness of the financial sector and its institutional units in general and the banking sector. Such indicators are one of the important inputs in the analysis and evaluation of macro-prudential soundness, as this section deals with the analysis of financial soundness indicators for the banking sector during the period (2019 – the first quarter of 2023).
Capital Indicators:
| Indicator | 2019 | 2020 | 2021 | 2022 | Q1 2023 |
| Total Capital Adequacy Ratio % | 18.4 | 19.2 | 16.6 | 15.7 | 15.6 |
| Core Capital Adequacy Ratio % | 17.2 | 17.9 | 15.3 | 14.3 | 14.2 |
| Paid-up Capital / Total Assets % | 3.8 | 3.6 | 3.5 | 3.5 | 3.8 |
| Equity / Total Assets % | 5.5 | 4.9 | 4.7 | 5.2 | 6.0 |
| Equity / Total Deposit % | 6.9 | 6.1 | 6.9 | 7.6 | 8.0 |
Capital adequacy:
The banking sector is still experiencing good capital adequacy, as its rate ranged between 15.6% and 19.2% during the period (2019- Q1 2023), which is generally higher than the percentage specified by the Central Bank and in line with the requirements of the Basel Committee (1), which is to 8.0%. Further, it is noted that the capital adequacy ratio for banks decreased slightly to 15.6% at the end of the first quarter of 2023, compared to 15.7% at the end of 2022.
It should be also noted that banks maintain a good quality of capital, as the first tranche (basic capital) constitutes more than 90.0% of the total capital base at the end of the first quarter of 2023. The basic capital adequacy ratio ranged between 14.2% and 17.9% during the period (2019- Q1 2023).
Capital to total assets:
The ratio of capital to total assets is one of the basic indicators of financial soundness, which measures financial leverage (i.e. the ratio of financing assets with resources other than its own resources), hence, according to the requirements of the Basel Committee, this ratio must not be less than 3.0%, and in general, banks recorded financial leverage ratios higher than the ratio referred to is in accordance with Basel requirements, as they recorded ratios of 5.5, 4.9, 4.7, 5.2, and 6.0, respectively, during the period (2019 – Q1 2023).
Assets quality:
structure of the items constituting the assets during the first quarter of 2023, indicates that the percentage of loans and facilities to total assets continued to decline, which constituted about 16.7%, while the percentage of investments amounted to only 1.3%, which indicates that the income-generating assets are very low and did not even reach 20.0% of the total assets base of the banking sector. On the other hand, cash in bank vaults and balances with the Central Bank accounted for about 56.3% of the total asset base of the banking sector, which reflects the weakness of banks’ use of their funds.
Non-performing loans to total loans:
The available data on non-performing debts, while it is still preliminary data, showed that the ratio of non-performing debts to total loans and credit facilities amounted to about 21.0% at the end of the first quarter of 2023. The increase in this ratio indicates a decrease in the efficiency of some banks, especially the major ones in credit management, as it should not exceed this ratio, the percentage according to international standards is 5.0%.
Debt provision coverage ratio to non-performing loans:
Regarding the ratio of debt provision coverage to non-performing loans, it recorded at the end of 2022 about 79.8%. During the previous years, coverage provisions recorded high rates of more than 80.0% at the level of the sector. As for analyzing these ratios according to banks, some important banks recorded low rates, and they must take precautionary measures by increasing provisions for bad debts to reach appropriate rates to face any expected losses.
Assets quality indicators
| Indicator | 2019 | 2020 | 2021 | 2022 | Q1 2023 |
| Non-performing Loans (*) / Total Assets % | 3.2 | 2.8 | 3.0 | 3.2 | 3.5 |
| Non-performing Loans (*) / Total Loans % | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 |
| Provision for Debt / Total Non-Performing Loans (*) % | 98.6 | 99.4 | 89.2 | 79.8 | 77.6 |
| Provision for Debt / Total Loans % | 20.9 | 20.9 | 18.7 | 16.8 | 16.3 |
(*) Estimated data.
3 – Profitability Indicators:
Profitability Indicators
| Indicator | 2019 | 2020 | 2021 | 2022 | Q1 2023 |
| Return / Assets % | 0.7 | 0.5 | 0.9 | 0.6 | 0.7 |
| Return / Equity % | 12.3 | 9.8 | 18.5 | 9.9 | 11.2 |
| Return/Deposit % | 0.8 | 0.6 | 1.3 | 0.8 | 0.9 |
Return to assets:
The return to total assets index is one of the important indicators of great analytical value to measure the efficiency of banks’ use of their assets, as the rate of return to total assets increased during the first quarter of 2023 to record 0.7%, compared to about 0.6% at the end of 2022.
Return on equity:
The rate of return on equity increased during the first quarter of 2023, to record about 11.2%, compared to 9.9% in 2022. This indicator is considered a measure of the efficiency of banks in using their capital.
4 – Liquidity indicators:
Liquidity indicators are among the critical indicators that reflect the extent to which banks can meet expected and unexpected demands for cash, as well as the ability of banks to fulfil their obligations without exposure to insolvency in liquidity. The liquidity indicators in the Libyan banking sector are still witnessing high liquidity ratios due to the banks’ poor employment of their funds and the lack of expansion in granting loans and credit facilities as well as weak investment, in exchange for a more significant growth in deposit liabilities. The most important of these indicators are:
Liquidity indicators
| Indicator | 2019 | 2020 | 2021 | 2022 | Q1 2023 |
| Liquid Assets / Total Assets (%) | 70.8 | 72.1 | 68.2 | 66.7 | 65.7 |
| Liquid Assets / Short Term Liabilities (%) | 83.7 | 86.4 | 91.2 | 86.2 | 94.7 |
| Total Loans / Total Deposits (%) | 19.0 | 16.6 | 21.3 | 22.5 | 22.3 |
Liquid assets to total assets:
The percentage of liquid assets with banks to total assets reached 65.7% at the end of the first quarter of 2023, most of which represent deposits with the Central Bank (on demand, including the mandatory reserve) compared to 66.7% at the end of 2022, in general, the liquid assets of banks still constitute percentages high total assets. It should be noted that the volume of loans and credit facilities to the total deposit liabilities in the banking sector recorded a rate of 22.3% at the end of the first quarter of 2023.
Liquid assets to short-term liabilities:
This indicator measures the liquidity disparity between assets and liabilities. It provides an indication of the ability of banks to fulfill requests to withdraw short-term funds, without falling into liquidity crises. This indicator recorded a rate of 94.7% at the end of the first quarter of 2023, compared to rates of 83.7%, 86.4%, 91.2% and 86.2% for the years 2019-2022 respectively.
Commercial Bank Performance Indicators
(2019 – Q1 2023)
| Indicator | 2019 | 2020 | 2021 | 2022 | Q1 2023 |
| Capital Indicators: | |||||
| Total Capital Adequacy Ratio % | 18.4 | 19.2 | 16.6 | 15.7 | 15.6 |
| Core Capital Adequacy Ratio % | 17.2 | 17.9 | 15.3 | 14.3 | 14.2 |
| Paid-up Capital / Total Assets % | 3.8 | 3.6 | 3.5 | 3.5 | 3.8 |
| Equity / Total Assets % | 5.5 | 4.9 | 4.7 | 5.2 | 6.0 |
| Equity / Total Deposit % | 6.9 | 6.1 | 6.9 | 7.6 | 8.0 |
| Asset Quality Indicators: | |||||
| Non-performing Loans (*)/ Total Assets % | 3.2 | 2.8 | 3.0 | 3.2 | 3.5 |
| Non-performing Loans (*) / Total Loans % | 21.0 | 21.0 | 21.0 | 21.0 | 21.0 |
| Provision for Debt / Total Non-Performing Loans (*) % | 98.6 | 99.4 | 89.2 | 79.8 | 77.6 |
| Provision for Debt / Total Loans % | 20.9 | 20.9 | 18.7 | 16.8 | 16.3 |
| Management efficiency indicators: | |||||
| Total Loans / Total Assets % | 15.1 | 13.5 | 14.4 | 15.5 | 16.7 |
| Total Assets / Number of Employees (Million LYD) | 5.8 | 6.4 | 7.0 | 7.5 | 7.1 |
| Total Assets / Number of Branches (Million LYD) | 206.4 | 229.3 | 245.0 | 258.3 | 244.5 |
| Profitability indicators: | |||||
| Return / Assets % | 0.7 | 0.5 | 0.9 | 0.6 | 0.7 |
| Return / Equity % | 12.3 | 9.8 | 18.5 | 9.9 | 11.2 |
| Return/Deposit % | 0.8 | 0.6 | 1.3 | 0.8 | 0.9 |
| Liquidity indicators: | |||||
| Liquid Assets / Total Assets % | 71.9 | 72.1 | 68.4 | 66.7 | 65.7 |
| Total Loans / Total Deposits % | 19.0 | 16.6 | 21.3 | 22.5 | 22.3 |
| Total Deposits / Total Liabilities % | 79.3 | 81.0 | 67.7 | 68.7 | 74.9 |
| * Estimated data. |