## 5. Sigma-Convergence

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---

### Introduction and scope
- Study focus: different aspects of financial integration in the West African Economic and Monetary Union (WAEMU) to complement literature on macroeconomic integration.
- Definitions and channels:
  - Financial integration: process driven by market forces leading to converging prices, product supply, and efficiency/profitability among financial service providers (European Union, 2005).
  - Channels: cross-border ownership, establishment, and service provision; and formal regional integration agreements (RIA) that eliminate restrictions and harmonize rules, taxes, and regulations (Galindo et al. (2002)).
- Accepted benefits of financial integration:
  - (1) more opportunities for risk sharing and diversification,
  - (2) better allocation of capital,
  - (3) potential for higher growth; in a monetary union it also facilitates monetary policy (Baele et al. (2004)).

### Structure of the regional financial sector — key statistics and features
- Financial depth and size:
  - M2-to-GDP ratio in WAEMU: 24.3 percent; sub-Saharan Africa (SSA) median: 23.4 percent. (Average M2-to-GDP for SSA for 2000–2003: 32.1 percent.)
  - Net credit to the economy in WAEMU: 15.4 percent of GDP; SSA average: 16.7 percent.
  - Banking assets in WAEMU as of end-2003: about 30 percent of GDP (compare: EU NMS 77 percent; EU-15 280 percent).
- Regional distribution:
  - Senegal and Côte d’Ivoire account for about 54 percent of GDP and about the same share of regional banking assets.
  - Guinea-Bissau, Niger, and Togo together account for less than 10 percent of regional banking assets.
- Loan-to-deposit ratio:
  - WAEMU average: about 80 percent; EU NMS: lower; EU-15: 123 percent.
- Intermediation and access:
  - Domestic credit-to-GDP in most WAEMU countries: 15–20 percent (exceptions: Niger and Guinea-Bissau).
  - Bank credit concentrated in short-term maturities to a few large corporations; risk concentration and sensitivity to terms of trade shocks.
  - Barriers for SMEs: unavailability/unreliability of financial statements; uncertainties and delays in judicial procedures for recovering claims and realizing collateral.
- Nonbank and microfinance:
  - Microfinance institutions (MFIs) reach about 13.4 percent of WAEMU population; account for about 6.6 percent of regional banking deposits and 6.9 percent of regional loans (as of June 2005).
  - MFIs contributed to about one-third of the increase in the ratio of total assets to GDP in 2003.
  - WAEMU average MFI NPL ratio: 6 percent (BCEAO benchmark of "adequate" asset quality: 5 percent).
  - Share of Nonperforming Loans in Total Loans (Jun-04 / Mar-05 / Jun-05):
    - WAEMU (excluding Guinea-Bissau): 7.6 / 5.6 / 6.1
    - Benin: 5 / 6.1 / 6.9
    - Burkina Faso: 5.8 / 5.5 / 5.6
    - Côte d'Ivoire: 27.4 / 9.6 / 12.4
    - Mali: 7.6 / 8.1 / 8.2
    - Niger: 16.5 / 14.3 / 12.2
    - Senegal: 2.7 / 2.3 / 2.4
    - Togo: 5.8 / 4.6 / 5.5
  - Authorities assessing strategy to bring largest MFIs under regional supervision.
- Government ownership and exposures:
  - Government ownership decreased after 1980s–1990s restructurings, but remains relatively high in Burkina Faso, Togo, Mali, and Côte d’Ivoire (government share of capital often ≥ 25 percent).
  - Net credit to government by commercial banks has fallen significantly since 2000.
- Foreign banking groups and market concentration:
  - Foreign banks account for about 56 percent of banks’ capital and represent about 80 percent of total banking assets.
  - Foreign presence in WAEMU: 56.0 percent share of assets (WAEMU average); CEMAC: 79.0; EU NMS: 70.0; EU 15: 24.0.
  - Typical structure: subsidiaries operating in most member countries; large banking groups dominate leading to segmented market structure.
  - Market share of three largest banks by country (2003, percent of assets): Benin 75.2; Burkina Faso 59.2; Côte d'Ivoire 50.4; Guinea-Bissau 100.0; Mali 61.3; Niger 71.3; Senegal 58.8; Togo 66.3; WAEMU 18.3.
- Financial soundness indicators (2003–04 highlights):
  - Average solvency ratio (2004): 11.4 percent; several banks (representing 26 percent of deposits) did not meet minimum 8 percent capital adequacy ratio.
  - Average share of nonperforming loans increased to 20.4 percent in 2004; countries above this figure: Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Togo.
  - Average provisioning rate at end-2004: about 61 percent.
  - Specific systemic problem: Togo — banking system as a whole negative capital; recapitalization via issuance of government bonds to purchase nonperforming loans initiated by authorities.
- Interbank and money markets:
  - WAEMU interbank transactions (monthly average, in billions of CFA francs): 1997: 105.6; 1998: 152.4; 1999: 199.6; 2000: 155.6; 2001: 126.8; 2002: 105.6; 2003: 52.8; 2004: 48.0; 2005: 66.0.
  - Interbank market thin; activity limited to intra-group transactions; obstacles include absence of legal framework, lack of collateralization, matching/network, and counterparty risk assessment framework.
  - Excess liquidity measured as actual minus required reserves; excess liquidity identified as impediment to interbank transactions.
  - Payment system reforms: RTGS (STAR-UEMOA), interbank settlement system (SICA-UEMOA), planned interbank payment systems for bank cards (GIM-UEMOA and CTMI-UEMOA).
  - Reserve requirements are differentiated by country; scope for further integration. Average end-2005 reserve requirement: 7.5 percent, std. dev. 3.7.
- Capital markets:
  - Treasury bills issuance growth (CFAF billions): 2000: 293.1; 2001: 186.1; 2002: 348.2; 2003: 370.9; 2004: 430.0; May-05: 402.2.
  - Typical maturities: three to 12 months; most issuance at 6 months.
  - Interest rates payable in advance: 2.5–5.5 percent depending on issuer and maturity.
  - Cross-border purchases of T-bills (2004–05, weighted averages, selected):
    - Benin: Total issued 23.4, Maturity 182 days, Yield 2.76-3.50 percent, Non-resident purchases 4.8, Non-resident purchases percent 20.5
    - Burkina Faso: Total issued 67.0, Maturity 91-182 days, Yield 2.76-4.0 percent, Non-resident purchases 45.3, Non-resident purchases percent 67.6
    - Côte d'Ivoire: Total issued 63.2, Maturity 91-182 days, Yield 2.76-4.5 percent, Non-resident purchases 4.9, Non-resident purchases percent 7.8
    - Guinea-Bissau: Total issued 6.0, Maturity 182 days, Yield 4.0-5.5 percent, Non-resident purchases 5.0, Non-resident purchases percent 83.3
    - Mali: Total issued 76.9, Maturity 182 days, Yield 2.84-4.54 percent, Non-resident purchases 51.3, Non-resident purchases percent 66.7
    - Niger: Total issued 30.0, Maturity 182 days, Yield 3.12-4.25 percent, Non-resident purchases 20.5, Non-resident purchases percent 68.3
    - Senegal: Total issued 80.8, Maturity 364 days, Yield 2.5-4.0 percent, Non-resident purchases 29.9, Non-resident purchases percent 37.0
  - Non-resident WAEMU banks (including BOAD) purchased about half of treasury bills issuance on average in 2004–05; almost 60 percent if Côte d’Ivoire excluded.
  - BRVM (regional stock exchange):
    - Market capitalization about 5 percent of GDP in 2003.
    - Activity concentrated in the bond market; stock market depressed due to Côte d’Ivoire crisis (36 of 39 firms listed are Ivorian).
    - Primary and secondary market data (selected, in billions of CFA francs):
      - Total issuance (1998–2003 examples): 60.2 / 89.6 / 20.4 / 86.6 / 117.9 / 108.5
      - Total capitalization (1998–2003 examples): 1,675 / 1,057 / 948 / 976 / 1,010 / 1,108
      - Number of shares listed (1998–2003): 35 / 39 / 41 / 38 / 38 / 39

### Regional institutional arrangements and similarity of rules/access/treatment
- Key regional institutions and arrangements:
  - WAEMU treaty (since 1962): single currency and regional central bank BCEAO; no capital controls within WAEMU.
  - Single banking commission (Commission Bancaire de l’UMOA) created in 1990; single banking license since 2004; licensing decisions involve banking commission and national finance minister.
  - No cross-border restrictions on banking and other financial services except insurance; prudential approvals permitted.
  - Insurance: approval required by national minister after consultation with Insurance Control Commission; supervised under CIMA treaty and CRCA; regional reinsurance company CICA-RE exists.
  - PARMEC law (1995) for savings and credit institutions; BCEAO microfinance monitoring system (Decentralized Financial Systems monograph) since 1994.
  - Regional capital market (BRVM) and regional securities commission CREPMF; pension funds supervised by CIPRES since 1996.
  - OHADA commercial legal framework since 1996.
  - Accounting harmonization: SYSCOA and balance sheet center maintained at BCEAO.
  - Payment system reforms underway and a centralized database tracking unpaid checks maintained by BCEAO.
  - Regional microfinance institution: Banque Régionale de Solidarité with regional shareholders.
- Assessment of similarity:
  - High similarity of rules achieved through common institutions; encouraging progress in access to capital market instruments and regional government securities market growth.
  - Uneven similarity of treatment: taxation not harmonized; national authorities involved in licensing/de-licensing; differences in legal/judicial frameworks (e.g., insolvency) leading to unequal treatment.

### Measuring financial integration — methodology and results
- Focus: bank credit markets due to data limitations; use banks’ spreads (average bank lending minus deposit rates, "marges globales d’intermediation") to measure integration.
- Sigma-convergence methodology:
  - Construct time series of cross-sectional standard deviation of lending interest rates across countries:
    - σ_t = [ (1/(n-1)) Σ_t (R_it − R_t-bar)^2 ]^1/2
  - Findings:
    - Cross-sectional standard deviation indicates banking sector integration increased in post-devaluation period 1996–1999.
    - Banking sector integration decreased post-1999.
    - Regression of interest rate dispersion on time trend: coefficient of time trend significant but R-squared low; overall convergence decreasing in sample.
- Beta-convergence methodology and results:
  - Panel regression estimated:
    - ΔS_it = α_i + β S_i,t−1 + γ ΔS_b,t−1 + ε_it
    - S_i,t represents difference between country bank spread and benchmark (benchmark countries: Senegal or Benin).
  - Interpretation: negative β indicates faster narrowing of high-spread countries (convergence); magnitude measures speed.
  - Empirical result: no evidence of convergence in banks’ spreads — estimated WAEMU beta = 1.19, p-value = 0.0028, adj. R-square = 0.78, Number of obs. = 36. (Slope coefficient positive and statistically significant.)

### Policy issues, bottlenecks, and recommendations
- Identified barriers limiting deeper integration:
  - Excess liquidity and its uneven distribution impede regional monetary policy.
  - Low financial depth compared with non-SSA developing countries; limited access to banking services.
  - Concentration of bank lending to few large borrowers and sectors; limited supply of investment opportunities.
  - Low intra-regional trade and limited demand for cross-border financial services.
  - Incomplete harmonization and shared responsibilities between regional institutions and national finance ministries leading to nonuniform treatment.
  - Fragility of regional banking system and dominance of regional banking groups.
- Policy recommendations to deepen financial integration:
  - Reduce excess liquidity in the system; assess whether limitations on indirect monetary policy instruments are due to cost considerations or lack of burden sharing with national authorities.
  - Reduce restrictions on recycling excess liquidity (for example by developing the regional interbank market).
  - Assess policies to increase access to banking services.
  - Accelerate macroeconomic convergence.
  - Continue harmonizing rules, taxes, and regulations and especially their applications.
  - Strengthen the regional banking system and address problems in weak banks.
  - Analyze strategies of regional banking groups and new entrants to identify impediments to financial integration.
- Financial stability note:
  - High foreign presence raises questions on risk transmission by ownership; subsidiaries hold their own capital buffers.
  - Historical experience: problems in parent banks (Crédit Lyonnais, BIAO, BCCI) had no significant contagion effects on regional system.
  - Home-host supervision remains important for supervisors.

*Source: IMF staff chapter on "5. Sigma-Convergence" from the WAEMU financial integration study.*

### References..............................................................................................................

### _wp06214 - References..............................................................................................................

### Tables
- 1. Loans and Deposits in Developing Countries........................................................................4
- 2. Banking Intermediation, 2003 ...............................................................................................4
- 3. Microfinance Institutions 2004–05 ........................................................................................6
- 4. Government Ownership of Banks and Share of Banking Assets, 2003 ................................7
- 5. Foreign Ownership, 2003.......................................................................................................8
- 6. Foreign Banking Groups, 2003..............................................................................................9
- 7. Bank Concentration. Market Share of the Three Largest Banks, 2003 .................................9
- 8. Financial Soundness Indicators 2003–04.............................................................................10
- 9. CFA Franc Zone: Interbank Market Transaction Volumes, 1997–2005 .............................11
- 10. Banking Sector’s Excess Liquidity ....................................................................................12
- 11. Reserve Requirements as of End-2005 ..............................................................................12
- 12. Cross-Border Transactions in the Treasury Bill Market, 2004–05....................................13
- 13. Capital Markets ..................................................................................................................14
- 14. Spreads Beta-Convergence, 1996–2003 ............................................................................19

### Figures
- 1. Potential for Intermediation, 2003 .........................................................................................5
- 2. Net Credit to the Government by Commercial Banks ...........................................................7
- 3. Treasury Bills Issuance ........................................................................................................13
- 4. Interest Rate Spreads............................................................................................................17

*Source: _wp06214 - References..............................................................................................................; https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2006/_wp06214.pdf*

### 5. Sigma-Convergence ...................................................................................................

### 5. Sigma-Convergence

### Introduction and scope
- Study focus: different aspects of financial integration in the West African Economic and Monetary Union (WAEMU) to complement literature on macroeconomic integration.
- Definitions and channels:
  - Financial integration: process driven by market forces leading to converging prices, product supply, and efficiency/profitability among financial service providers (European Union, 2005).
  - Channels: cross-border ownership, establishment, and service provision; and formal regional integration agreements (RIA) that eliminate restrictions and harmonize rules, taxes, and regulations (Galindo et al. (2002)).
- Accepted benefits of financial integration: (1) more opportunities for risk sharing and diversification, (2) better allocation of capital, and (3) potential for higher growth; in a monetary union it also facilitates monetary policy (Baele et al. (2004)).

### Structure of the regional financial sector — key statistics and features
- Financial depth and size:
  - M2-to-GDP ratio in WAEMU: 24.3 percent; sub-Saharan Africa (SSA) median: 23.4 percent. (Average M2-to-GDP for SSA for 2000–2003: 32.1 percent.)
  - Net credit to the economy in WAEMU: 15.4 percent of GDP; SSA average: 16.7 percent.
  - Banking assets in WAEMU as of end-2003: about 30 percent of GDP (compare: EU NMS 77 percent; EU-15 280 percent).
- Regional distribution:
  - Senegal and Côte d’Ivoire account for about 54 percent of GDP and about the same share of regional banking assets.
  - Guinea-Bissau, Niger, and Togo together account for less than 10 percent of regional banking assets.
- Loan-to-deposit ratio:
  - WAEMU average: about 80 percent; EU NMS: lower; EU-15: 123 percent.
- Intermediation and access:
  - Domestic credit-to-GDP in most WAEMU countries: 15–20 percent (exceptions: Niger and Guinea-Bissau).
  - Bank credit concentration: short-term maturities to a few large corporations; risk concentration and sensitivity to terms of trade shocks.
  - Barriers for SMEs: unavailability/unreliability of financial statements; uncertainties and delays in judicial procedures for recovering claims and realizing collateral.
- Nonbank and microfinance:
  - Microfinance institutions (MFIs) reach about 13.4 percent of WAEMU population; account for about 6.6 percent of regional banking deposits and 6.9 percent of regional loans (as of June 2005).
  - MFIs contributed to about one-third of the increase in the ratio of total assets to GDP in 2003.
  - WAEMU average MFI NPL ratio: 6 percent (BCEAO benchmark of "adequate" asset quality: 5 percent). Country specifics (Share of Nonperforming Loans in Total Loans, Jun-04 / Mar-05 / Jun-05):
    - WAEMU (excluding Guinea-Bissau): 7.6 / 5.6 / 6.1
    - Benin: 5 / 6.1 / 6.9
    - Burkina Faso: 5.8 / 5.5 / 5.6
    - Côte d'Ivoire: 27.4 / 9.6 / 12.4
    - Mali: 7.6 / 8.1 / 8.2
    - Niger: 16.5 / 14.3 / 12.2
    - Senegal: 2.7 / 2.3 / 2.4
    - Togo: 5.8 / 4.6 / 5.5
  - Authorities assessing strategy to bring largest MFIs under regional supervision.
- Government ownership and exposures:
  - Government ownership decreased after 1980s–1990s restructurings, but remains relatively high in Burkina Faso, Togo, Mali, and Côte d’Ivoire (government share of capital often ≥ 25 percent).
  - Net credit to government by commercial banks has fallen significantly since 2000.
- Foreign banking groups:
  - Foreign banks account for about 56 percent of banks’ capital and represent about 80 percent of total banking assets.
  - Foreign presence in WAEMU: 56.0 percent share of assets (WAEMU average); CEMAC: 79.0; EU NMS: 70.0; EU 15: 24.0.
  - Typical structure: subsidiaries operating in most member countries; large banking groups dominate leading to segmented market structure.
  - Market share of three largest banks by country (2003, percent of assets): Benin 75.2; Burkina Faso 59.2; Côte d'Ivoire 50.4; Guinea-Bissau 100.0; Mali 61.3; Niger 71.3; Senegal 58.8; Togo 66.3; WAEMU 18.3 (Table 7 figures).
- Financial soundness indicators (2003–04 highlights):
  - Average solvency ratio (2004): 11.4 percent; several banks (representing 26 percent of deposits) did not meet minimum 8 percent capital adequacy ratio.
  - Average share of nonperforming loans increased to 20.4 percent in 2004; countries above this figure: Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Togo.
  - Average provisioning rate at end-2004: about 61 percent.
  - Specific systemic problem: Togo — banking system as a whole negative capital; recapitalization via issuance of government bonds to purchase nonperforming loans initiated by authorities.
- Interbank and money markets:
  - WAEMU interbank transactions (monthly average, in billions of CFA francs): 1997: 105.6; 1998: 152.4; 1999: 199.6; 2000: 155.6; 2001: 126.8; 2002: 105.6; 2003: 52.8; 2004: 48.0; 2005: 66.0.
  - Interbank market thin; activity limited to intra-group transactions; obstacles include absence of legal framework, lack of collateralization, matching/network, and counterparty risk assessment framework.
  - Excess liquidity measured as actual minus required reserves; excess liquidity identified as impediment to interbank transactions.
  - Payment system reforms: RTGS (STAR-UEMOA), interbank settlement system (SICA-UEMOA), planned interbank payment systems for bank cards (GIM-UEMOA and CTMI-UEMOA).
  - Reserve requirements are differentiated by country; scope for further integration (Table 11 shows country reserve requirement rates across multiple periods; average end-2005: 7.5 percent, std. dev. 3.7).
- Capital markets:
  - Treasury bills issuance growth (CFAF billions): 2000: 293.1; 2001: 186.1; 2002: 348.2; 2003: 370.9; 2004: 430.0; May-05: 402.2.
  - Typical maturities: three to 12 months; most issuance at 6 months.
  - Interest rates payable in advance: 2.5–5.5 percent depending on issuer and maturity.
  - Cross-border purchases of T-bills (2004–05, weighted averages, selected):
    - Benin: Total issued 23.4 (CFAF billions), Maturity 182 days, Yield 2.76-3.50 percent, Non-resident purchases 4.8 (CFAF billions), Non-resident purchases percent 20.5
    - Burkina Faso: Total issued 67.0, Maturity 91-182 days, Yield 2.76-4.0 percent, Non-resident purchases 45.3, percent 67.6
    - Côte d'Ivoire: Total issued 63.2, Maturity 91-182 days, Yield 2.76-4.5 percent, Non-resident purchases 4.9, percent 7.8
    - Guinea-Bissau: Total issued 6.0, Maturity 182 days, Yield 4.0-5.5 percent, Non-resident purchases 5.0, percent 83.3
    - Mali: Total issued 76.9, Maturity 182 days, Yield 2.84-4.54 percent, Non-resident purchases 51.3, percent 66.7
    - Niger: Total issued 30.0, Maturity 182 days, Yield 3.12-4.25 percent, Non-resident purchases 20.5, percent 68.3
    - Senegal: Total issued 80.8, Maturity 364 days, Yield 2.5-4.0 percent, Non-resident purchases 29.9, percent 37.0
  - Non-resident WAEMU banks (including BOAD) purchased about half of treasury bills issuance on average in 2004–05; almost 60 percent if Côte d’Ivoire excluded.
  - BRVM (regional stock exchange):
    - Market capitalization about 5 percent of GDP in 2003 (half that of comparable countries).
    - Activity concentrated in the bond market; stock market depressed due to Côte d’Ivoire crisis (36 of 39 firms listed are Ivorian).
    - Primary and secondary market data (selected, in billions of CFA francs):
      - Total issuance (1998–2003 examples): 60.2 / 89.6 / 20.4 / 86.6 / 117.9 / 108.5
      - Total capitalization (1998–2003 examples): 1,675 / 1,057 / 948 / 976 / 1,010 / 1,108
      - Number of shares listed (1998–2003): 35 / 39 / 41 / 38 / 38 / 39

### Regional institutional arrangements and similarity of rules/access/treatment
- Key regional institutions and arrangements:
  - WAEMU treaty (since 1962): single currency and regional central bank BCEAO; no capital controls within WAEMU.
  - Single banking commission (Commission Bancaire de l’UMOA) created in 1990; single banking license since 2004; licensing decisions involve banking commission and national finance minister.
  - No cross-border restrictions on banking and other financial services except insurance; prudential approvals permitted.
  - Insurance: approval required by national minister after consultation with Insurance Control Commission; supervised under CIMA treaty and CRCA; regional reinsurance company CICA-RE exists.
  - PARMEC law (1995) for savings and credit institutions; BCEAO microfinance monitoring system (Decentralized Financial Systems monograph) since 1994.
  - Regional capital market (BRVM) and regional securities commission CREPMF; pension funds supervised by CIPRES since 1996.
  - OHADA commercial legal framework since 1996.
  - Accounting harmonization: SYSCOA and balance sheet center maintained at BCEAO.
  - Payment system reforms underway and a centralized database tracking unpaid checks maintained by BCEAO.
  - Regional microfinance institution: Banque Régionale de Solidarité with regional shareholders.
- Assessment of similarity:
  - High similarity of rules achieved through common institutions; encouraging progress in access to capital market instruments and regional government securities market growth.
  - Uneven similarity of treatment: taxation not harmonized; national authorities involved in licensing/de-licensing; differences in legal/judicial frameworks (e.g., insolvency) leading to unequal treatment.

### Measuring financial integration — methodology and results
- Focus: bank credit markets due to data limitations; use banks’ spreads (average bank lending minus deposit rates, "marges globales d’intermediation") to measure integration.
- Sigma-convergence:
  - Construct time series of cross-sectional standard deviation of lending interest rates across countries:
    - σ_t = [ (1/(n-1)) Σ_t (R_it − R_t-bar)^2 ]^1/2  (formula as provided)
  - Findings:
    - Cross-sectional standard deviation indicates banking sector integration increased in post-devaluation period 1996–1999.
    - Banking sector integration decreased post-1999.
    - Regression of interest rate dispersion on time trend: coefficient of time trend significant but R-squared low; overall convergence decreasing in sample.
    - Figure 5 shows sigma-convergence series for 1996–2003 with values plotted (visual reference).
- Beta-convergence:
  - Panel regression estimated:
    - ΔS_it = α_i + β S_i,t−1 + γ ΔS_b,t−1 + ε_it  (structure per equation (3))
    - S_i,t represents difference R_i between bank spreads in country i and benchmark R_b; benchmarks used: Senegal or Benin.
  - Interpretation: negative β indicates faster narrowing of high-spread countries (convergence); magnitude measures speed.
  - Empirical result: no evidence of convergence in banks’ spreads — estimated WAEMU beta = 1.19, p-value = 0.0028, adj. R-square = 0.78, Number of obs. = 36. (Slope coefficient positive and statistically significant.)

### Policy issues, bottlenecks, and recommendations
- Identified remaining barriers and factors explaining limited deeper integration:
  - Excess liquidity and its uneven distribution impede regional monetary policy.
  - Low financial depth compared with non-SSA developing countries; limited access to banking services.
  - Concentration of bank lending to few large borrowers and sectors; limited supply of investment opportunities.
  - Low intra-regional trade and limited demand for cross-border financial services.
  - Incomplete harmonization and shared responsibilities between regional institutions and national finance ministries leading to nonuniform treatment.
  - Fragility of regional banking system and dominance of regional banking groups.
- Policy recommendations to deepen financial integration:
  - Reduce excess liquidity in the system; assess whether limitations on indirect monetary policy instruments are due to cost considerations or lack of burden sharing with national authorities.
  - Reduce restrictions on recycling excess liquidity (for example by developing the regional interbank market).
  - Assess policies to increase access to banking services.
  - Accelerate macroeconomic convergence.
  - Continue harmonizing rules, taxes, and regulations and especially their applications.
  - Strengthen the regional banking system and address problems in weak banks.
  - Analyze strategies of regional banking groups and new entrants to identify impediments to financial integration.
- Financial stability note:
  - High foreign presence raises questions on risk transmission by ownership; subsidiaries hold their own capital buffers.
  - Historical experience: problems in parent banks (Crédit Lyonnais, BIAO, BCCI) had no significant contagion effects on regional system.
  - Home-host supervision remains important for supervisors.

*Source: IMF staff chapter on "5. Sigma-Convergence" from the WAEMU financial integration study (provided content).*

### References

### _wp06214 - References

### Academic and research papers
- Adam, K., J. Tullio, A. Menichini, M. Padula, and M. Pagano, 2002, “Analyse, Compare and Apply Alternative Indicators and Monitoring Methodologies to Measure the Evolution of Capital Market Integration in the European Union,” CSEF (January) (Salerno: Centre for Studies in Economics and Finance).
- Baele L., A. Ferrando, P. Hördahl, E. Krylova, and C. Monnet, 2004, “Measuring Financial Integration in the Euro Area,” European Central Bank, Occasional Paper Series, No. 14 (April).
- Cabral, I., F. Dierick, and J. Vesala, 2002, “Banking Integration in the Euro Area,” European Central Bank, Occasional Paper Series, No. 6 (December).
- Diop Papa Lamine, 1998, “L’impact des Taux Directeurs de la BCEAO sur les Taux Débiteurs des Banques,” BCEAO, mars.
- Galindo, A., A. Micco, and C. Serra, 2002, “Beyond Borders: The New Regionalism in Latin America,” Inter-American Development Bank, Economic and Social Progress in Latin America 2002 Report (Chapter 5) (New York: Inter-American Development Bank).
- Nasser, A. T., 2001, “Impacts de la Libéralisation Financière sur l’Intermédiation Bancaire dans l’UEMOA: Essai d’Evaluation Empirique sur Données de Panel” (Orléans, France: Laboratoire d’Economie d’Orléans, Université d’Orléans).
- Papademos, L., 2005, “Monetary Stability and Financial Integration in Europe,” paper presented at The First Annual Meeting of Greek and Turkish Bank Chief Executives, Athens, May 9.
- Van den Boogaerde, P., and C. Tsangarides, 2005, “Ten Years After the CFA Franc Devaluation: Progress Toward Regional Integration in the WAEMU,” IMF Working Paper 05/145 (Washington: International Monetary Fund).

### Central bank, regional, and supervisory reports
- Banque Centrale des Etats de l’Afrique de l’Ouest, 2004, Rapport Annuel, Senegal.
- Banque de France, 2004, Rapport Annuel de la Zone Franc, Eurosystème.
- Commission Bancaire de l’UMOA, 2003, Rapport Annuel, UMOA, Abidjan.
- Laurens, B., and D. Rozhkov, 2005, “Senegal FSSA—Update,” IMF Country Report 05/126 (Washington: International Monetary Fund).

### International organization and policy documents
- European Union, 2005, “Financial Integration Monitor,” Commission Staff Working Document, SEC 927 (Brussels).
- World Bank, 2005, “Summary of Senegal Investment Climate Assessment,” Africa Region, Private Sector Unit, Note No. 10 (September), (Washington: World Bank).

*Source: _wp06214 - References*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2006/_wp06214.pdf_