(Ecofin Agency) - In 2020, banks operating in WAEMU showed relative resilience with higher profitability thanks to lower losses for the loss-making ones. The banking sector performed well over the period despite the Covid-19 pandemic.
The sector's overall net profit represented 23.5% of consolidated net banking income (equivalent to turnover), according to estimates by the Central Bank - BCEAO. In 2018 and 2019, this net margin rate was 19.2% and 21.2% respectively.
The improvement in the net margin rate in the sub-region comes at a time when net banking income itself grew by 8% over the period under review. Also, the profitability ratio, which measures the weight of net profit on banks' equity, increased to 13.3%, compared to 11.8% three years ago. Finally, the return on assets rose to 1.2%, compared to 1% in 2018.
Banks that made a profit showed a positive net result of CFA620.1 billion, up 3.8% against 16.4% in 2019. The overall increase in profitability for the sector was mainly driven by lower losses for banks that posted a negative result. The consolidated losses of loss-making banks were CFA68.2 billion in 2020, 50.2% less than in 2019.
Despite the Covid-19 environment, revenues from customer lending activities improved, while general expenses for the segment declined. This development remains to be monitored. WAEMU banks have also benefited from BCEAO's relief measures to enable them and their clients to cope with the pandemic. This is expected to have an impact on the sector's profitability.
Another risk factor is the difficulties in the agribusiness sector. Import prices of the main commodities purchased by WAEMU consumers are rising (19.4% in the first quarter of 2021). This could reduce disposable income and the ability of some customers to repay their debts. On the export side, production volumes of the main commodities (cocoa, seed cotton) are declining, according to central bank estimates. This could reduce revenues for sector players in the associated value chains.