Moreover, the ratio of total credit to nonhydrocarbon GDP remained stable, whereas credit to the private sector/nonhydrocarbon GDP increased somewhat in 2013 to reach 23.45% (21.35% in 2011). In 2013, while pursuing their provisioning efforts, banks consolidated their financial soundness indicators. Solvency ratios remain high, much higher than required under the prevailing regulation and in line with the recommended level under Basel III. The banking sector soundness is anchored to high capital adequacy ratios and high profitability and liquidity. The solvency ratios are in line with those of comparable emerging market economies. In 2013, an assessment of the banking sector carried out by the International Monetary Fund and the World Bank has helped define further directions in deepening banking sector reforms and strengthening banking system stability in Algeria. Effective implementation has started in the first quarter of 2014 with the enactment by the Council on Money and Credit of three regulations related to the solvency ratios, large exposures and participations, and loans classification and provisioning. The minimum Tier 1 capital ratio has now been set at 9.5%, higher than recommended by the Basel Committee, and the regulatory capital ratio has been set at 12%. Moreover, as regards the strengthening of the capacity in assessing the banking sector risk, Bank of Algeria will rely, as of the beginning of 2015, on the effective use of the new stress test model, and on the generalization of the bank rating system.
Banking sector reform: efforts made prior to the strengthening of the legal framework in 2010  Within the broad framework of the economic reforms undertaken in the late 1980s (overall reform of the economic regulation, including that of price systems), the banking reform has been implemented since 1990, following the enactment of the law on money and credit (1990) establishing a two-tier banking system. This major monetary reform reemphasized the role of money and monetary policy- through indirect tools- in macro-financial regulation, thereby enabling a gradual shift from the “financial repression” paradigm. Since the year 1990, and after assessing the vulnerabilities of the Algerian public banking system, a number of reforms have been undertaken to improve the functioning of public banks, reinforce the banking activity operating framework- especially through the opening of the sector to private investors- and promote the development of non-bank financial institutions. Based on institutional audits, action plans aiming at improving public banks functions have been launched during the first half of the 1990s and pursued during the 2000s. In order to improve their governance, performance contracts between the public banks’ managers and the State as the owner, took effect in the beginning of 2007. At the same time, and on the basis of their financial statements audits undertaken by international firms, cleaning up operations of the public banks’ balance sheet started in the beginning of 1991 with the repurchase of non- performing loans (NPLs) and capital increases.