Banks’ credit profiles remain weak across W/A region despite recent improvements in banking supervision – Fitch
Strong economic growth in the West Africa Economic and Monetary Union (WAEMU) region supports banks’ profitability, but only partially offsets asset quality and capital risks, says Fitch Ratings in a new report.
The regional central bank expects the WAEMU economy will grow by 6.5% in 2024 (2025: 6.6%), while we expect banks’ balance sheets to expand by at least 15%, on average, in 2024 on the back of the large infrastructure projects many countries have engaged in.
Banks’ credit profiles remain weak across the region, despite recent improvements in banking supervision and the prudential regime. There are high sector and single-obligor concentrations in banks’ loan books, and increased sovereign debt sustainability risks due to growing exposure to weak sovereigns through banks’ securities portfolios.
Already-thin buffers mean any substantial losses from a sovereign default could lead to minimum capital requirements being breached.
Banks’ funding sources remain undiversified but we view liquidity as sufficient. The sector relies largely on short-term customer deposits to fund longer-term assets, which gives rise to significant liquidity mismatches.
However, these deposits have remained historically stable in most countries, mitigating liquidity risks. Banks’ liquid assets consist mainly of sovereign securities, which can be used as collateral for repurchase agreements with the BCEAO to raise cash.
Full report here
