STABILITY OF FINANCIAL SYSTEM : IMF’s suggestions to Beac and Cobac
Faced with a strong exposure of banks to the States, a tightening of borrowing conditions on the market, a rising inflation rate and a slowing GDP growth, the International Monetary Fund (IMF) is drawing up a set of measures aimed at solidifying the financial and banking system of Cemac. It was during a working session held last May with the Community institutions.
For the IMF, monetary policy should be tightened further “taking into account the increased external uncertainties, the possible second-round effects of the fuel subsidy reforms and the significant tightening of the gap between the Beac’s key interest rate and that of the ECB compared to its historical average”. This foresees further increase in key interest rates but also an increase in the rate of liquidity-drawing operations in order to mop up the “large excess liquidity of banks” identified as a brake on the transmission of monetary policy.
The IMF goes further to suggest that the central bank should increase its rate of liquidity withdrawal operations by 5 %. The Fund’s services stressed that the Beac should also increase the amounts auctioned, based on the autonomous bank liquidity factors (Falb). A suggestion accepted by the services of the Central Bank, who have consented to increase these rates “in a relatively short time”.
She also encouraged the Beac to continue the constructive discussions it is having with the extractive sector to ensure a smooth application of the repatriation requirements for funds dedicated to the rehabilitation of oil sites (RSP). On this last point, the Beac has indicated that it intends to initiate a new series of discussions with the sector which will lead to the signing of an agreement in 3 years to come.
According to the IMF, the exposure of commercial banks to the loans of the states of the region is “excessive”. “This exposure (loans and securities) represented approximately 30 % of total assets at the end of 2022, up 10% compared to the end of 2015. The exposure of several banks to the sovereign debt of the Cemac countries is greater than 50%, which constitutes a significant threat to financial stability” according to the institution. This excessive dependence on government securities contributes to the crowding out of the private sector, and undermines efforts to support private sector growth and to diversify the economy. The IMF recommends that Cobac gradually apply the current concentration limits and push banks to implement prudent internal risk management.
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Moreover, by relying on the resumption of regional surveillance activities by the Cemac Commission, the fund suggests to Cobac to move more systematically away from the zero risk weighing on sovereign exposures. « The IMF staff reiterated their invitation to the collaboration between Cobac and Beac in order to ensure that the Treasury securities specialists, especially the banks, do not systematically appropriate all the new issues of sovereign securities, as stipulated by the way in their specifications ».
The IMF staff urged the banking watchdog to ensure that under-capitalized banks submit credible medium-term recapitalization plans and adopt a strategy to reduce non-performing loans. Cobac has also been invited to modernize its regulatory corpus in the fight against money laundering and terrorist financing.
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