(Ecofin Agency) - The net profit of BCEAO has surged due to a substantial increase in revenues from commercial banks refinancing. Yet, this success masks a liquidity decline within the UEMOA banking sector, although currently managed.

The central bank of WAEMU countries –BCEAO- grapples with complex decisions in managing commercial banks' refinancing demands. Compared to 2022, this activity significantly bolstered its net profit growth, reaching CFA315.62 billion in 2023, up 152%.

Interest income generated from refinancing activities (CFA329.4 billion) soared by 112%. They represented the primary source of interest income for BCEAO in 2023, representing 59.4% of the total. However, this source of income for the central bank depends on the liquidity problem that persists in the WAEMU banking sector.

In a report released on April 17, 2024, the International Monetary Fund (IMF) highlighted these risks within the sub-region. According to IMF analyses, liquidity has worsened in the banking sector, compelling banks to increasingly rely on the central bank for liquidity access. The situation varies across countries. Benin, with 12.4% liquid assets in banks' balance sheets (based on 2022 data), is most affected, while Malian banks fare better with 31.5%.

The IMF explained that the inactive public securities resale markets and the concentration of numerous deposits in a few banks complicate these banks' ability to effectively manage problems arising from a sudden liquidity shortage, potentially exacerbating challenges where they already exist. In an economy where bank resources are highly concentrated, such challenges might arise in unfavorable circumstances. With the decline in net foreign assets, excess liquidity in UEMOA banks plummeted by over 250% to less than 94%. Additionally, bank deposits are highly concentrated within the sub-region, with a handful of families and large enterprises holding nearly 75% of bank deposits.

To avoid choking the banking sector, some experts suggest that BCEAO should reduce its main intervention rates in the money market, possibly by lowering refinancing rates. However, the institution aims to maintain currency stability and control inflation, albeit primarily imported.

Another advancing option is the development of the secondary market for public securities. UMOA-Titres Agency, responsible for organizing and managing UEMOA states' bond issuances in the local money market, indicated that a more dynamic platform is expected by the end of the first half of 2024. It should broaden banks' opportunities to more easily convert their liquid assets into cash.