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IMF Seeks Increase in Banks’ Capital Requirement in West Africa

Citing rising level of non-performing loans at 15.7 per cent and commercial banks’ borrowing from their central banks at nine per cent of liabilities in the West African Economic and Monetary Union (WAEMU), the International Monetary Fund (IMF) has strongly advocated increase in banks’ capital adequacy requirements to maintain sound financial stability for regional economic growth.

The Fund observed that while the average capital adequacy ratio of banks (9.3 percent) was above the minimum required (8 percent) at the end of June 2014, it was however lower than the minimum required in half of the countries in the region, just as the level of non-performing loans reached 15.7 percent of total loans.

It stated further that commercial banks’ borrowing from the central bank and governments’ borrowing from commercial banks in the WAEMU region have reached nine percent of banks’ liabilities and about 20 percent of their assets respectively.

Accordingly, “they encouraged the authorities to proceed with plans to raise banks’ capital requirements, make the deposit insurance and financial stability funds operational, subject bank holding companies to appropriate banking regulation and consolidated supervision, and establish a single and independent administrative resolution authority.”

They argued that such further financial deepening will be crucial to boost economic activity and improve monetary transmission in the region.
While concluding its 2015 Article IV consultation with WAEMU, the IMF expressed optimism that “despite a still fragile political and security situation in some member countries, growth reached 6.1 percent in 2014, driven by continued high growth in Côte d’Ivoire and a favorable agricultural season in many countries.”

They also noted that though fiscal pressures persisted within the period under review, the current account deficit (including grants) declined to 7.3 percent of Gross Domestic Product (GDP) in 2014, mainly reflecting the drop in international oil prices.

As a result, after declining for three consecutive years, the international reserves of the Central Bank of West African States (BCEAO) rose slightly in 2014, covering 4.6 months of imports, an increase that was broadly offset by the decline in the net foreign asset position of commercial banks.
Going forward, the IMF welcomed the region’s strong economic performance and moderate inflation, and prospects for continued strong growth in 2015.

It also expressed satisfaction with “the intention of member countries to bring down fiscal deficits to below three percent of GDP by 2019, consistent with the newly adopted convergence criteria, while encouraging additional steps to increase national ownership of these criteria.”

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