West African Economic and Monetary Union (WAEMU)—Financial Sector Assessment Program and Financial Sector Stability Assessment

IMF News, May 12, 2022

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Press Release No. 22/151; May 12, 2022.
The Executive Board of the International Monetary Fund (IMF) concluded the Financial Sector Assessment Program (FSAP) with the WAEMU on April 27, 2022, without convening formal discussions.
The Financial Sector Stability Assessment (FSSA) report was completed on April 13, 2022.
The report is based on the work of joint IMF/World Bank FSAP virtual missions to the WAEMU completed between January 2021 and February 2022.
Media contact: IMF Communications Department; PRESS OFFICER: Nicolas Mombrial; Phone: +1 202 623-7100; Email: MEDIA@IMF.org; @IMFSpokesperson.

The FSSA concluded that the WAEMU’s financial system functions within an improved regulatory framework.
Despite political instability in several member states, the policy response to the COVID-19 pandemic has been effective.
Banks have withstood the crisis well, helped by liquidity support from Central Bank of West African States (BCEAO) and policies to support domestic demand.

The report found that the banking sector is largely resilient to macroeconomic shocks.
Remaining vulnerabilities:
- Banks’ capital buffers do not adequately consider exposure concentrations.
- A marked increase in sovereign exposures has exacerbated credit concentration and interest rate risks.
Recommendation to address concentration and interest rate risks:
- Use of capital surcharge requirements under Basel Pillar 2.

Liquidity risks are amplified by the underdevelopment of the regional bond market, which needs to be developed further.
Recommendation:
- Timely introduction of the Basel III liquidity requirements to help banks internalize liquidity risks.

An ambitious regulatory reform has consolidated the prudential base and established the conditions for a further strengthening of banking supervision.
FSAP findings on supervision:
- The supervisory framework has become more risk oriented.
- Enforcement should be strengthened.
- Supervisory resources should be increased.
- The supervisor’s independence should be statutorily assured.
Bank resolution:
- A bank resolution framework has been established but not implemented.
- Recommendation:
- Prompt application of the resolution framework to address already undercapitalized, nonviable institutions.
Other supervisory recommendations:
- Establish procedures for the BCEAO emergency liquidity assistance (ELA).
- Introduce measures to mitigate balance sheet risks.

The supervisory program for Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) needs further reform:
- Fully adopt a risk-based approach.
- Enhance onsite inspections.

The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country’s financial sector.
FSAPs provide input for Article IV consultations and thus enhance Fund surveillance.
FSAPs are mandatory for the 47 jurisdictions with systemically important financial sectors and otherwise conducted upon request from member countries.
The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA).
The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.

International Monetary Fund press release (May 12, 2022).