## 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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## Bibliographic details
- Published: May 12, 2022

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### Executive Board conclusion and mission
- 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.

### Overall assessment and pandemic response
- 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.

### Banking sector resilience and vulnerabilities
- 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 and market development
- 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.

### Regulatory reform, supervision, and resolution
- 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.

### AML/CFT supervision
- 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.

### About the FSAP and FSSA
- 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).*

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## References

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_Source: https://www.imf.org/en/news/articles/2022/05/12/pr22151-waemu-fsap-and-fssa_