West African Economic and Monetary Union: Financial Sector Assessment Program-Technical Note on Analysis of Systemic Liquidity
IMF Staff Country Reports, August 25, 2022
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Bibliographic details
- Published: August 25, 2022
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400217869.002
Key findings and analysis
- The limited development of markets in the region represents a key risk factor for financial stability.
- Since the previous Financial Sector Assessment Program (FSAP) in 2008, the bank deposit base has increased from 18 percent to 30 percent of gross domestic product (GDP).
- The buoyancy of the government securities market has benefited from the interruption of public deficit financing by the Central Bank of West African States (BCEAO).
- A significant portion of bank funding cannot be considered stable due to the concentration of deposits held by large corporations.
- Apart from reserves held with the BCEAO, banks have little in the way of liquid assets.
- The secondary market for government securities is beginning to grow for some issuers, but overall secondary market liquidity is insufficient.
- The prevalence of unsecured intragroup transactions in the interbank market is 60 percent of the total, exacerbating the risk and extent of potential losses for banks in the event of liquidity distress.
Risks and market structure
- Market underdevelopment increases systemic vulnerability to liquidity shocks.
- Deposit concentration among large corporate clients reduces the stability of the deposit base.
- Limited holdings of liquid assets outside central bank reserves leave banks exposed during stress.
- Insufficient secondary market depth for government securities constrains banks' ability to convert assets to cash without loss.
Interbank market characteristics and implications
- The interbank market is characterized by a high share of unsecured intragroup transactions, measured at 60 percent of the total.
- High reliance on unsecured intragroup exposures increases counterparty and contagion risk across banks during liquidity episodes.
- Growing secondary market activity for some issuers may mitigate liquidity risk over time, but current insufficiencies remain a critical vulnerability.
Publication and document identifiers
- Pages: 44
- Volume: 2022
- Issue: 280
- Series: Country Report No. 2022/280
- DOI: https://doi.org/10.5089/9798400217869.002
- Stock No: 1WAUEA2022005
- ISBN: 9798400217869
- ISSN: 1934-7685
International Monetary Fund. West African Economic and Monetary Union: Financial Sector Assessment Program-Technical Note on Analysis of Systemic Liquidity.
Content in this bundle
- Executive Summary