• WAMU banks face rising NPLs despite credit growth; average provisioning of 61.8% falls short of international standards.

• Gross NPLs hit CFA3.442T (8.8% ratio); significant disparities exist, with Niger and Guinea-Bissau at high risk.

• Declining NPL coverage (61.8%) raises concerns about banking sector stability, especially in fragile states.

Banks within the West African Monetary Union (WAMU) are facing increasing pressure from a surge in non-performing loans (NPLs), despite a notable expansion in credit issuance. An average provisioning rate of 61.8% falls significantly short of international standards, leaving the region's banking sector exposed to considerable risk.

As of March 2025, outstanding customer loans across UMOA banks reached CFA38.929 trillion ($69.14 billion), marking a 3.6% year-on-year increase, according to data released by the Central Bank of West African States (BCEAO). This growth reflects robust demand from households and businesses. However, this positive trend is overshadowed by a persistent deterioration in portfolio quality and insufficient provisioning to mitigate associated risks.

Continuous Rise in Non-Performing Loans

Gross non-performing loans have climbed to CFA3.442 trillion, an increase of CFA64 billion over the past year. The gross NPL ratio stands at 8.8%, a slight improvement from 9% in March 2024, but still elevated compared to international benchmarks. This indicates that nearly one in eleven loans is classified as non-performing. The net NPL ratio, adjusted for provisions, remained stable at 3.6%.

Regional averages, however, mask significant national disparities. While Côte d'Ivoire and Togo have shown improvements in their indicators, Niger and Guinea-Bissau continue to exhibit alarming levels of risk.

Declining Provisioning Rates

The most critical concern is the declining NPL coverage ratio, which stands at 61.8%, down from 62.6% a year prior. This means that for every CFA100 of non-performing loans, banks have set aside only CFA61.8  in provisions, leaving the remainder exposed. This situation is considerably below international standards, which often exceed 80%. The residual risk, amounting to CFA1.314 trillion, remains high, particularly concentrated in fragile states such as Niger, Guinea-Bissau, Mali, and Burkina Faso.

Côte d'Ivoire leads the region in provisioning, with banks covering 76% of their NPLs, thereby bolstering the stability of its banking system. Conversely, other nations present concerning ratios: Guinea-Bissau (43.8%), Niger (52.6%), Benin (51.9%), and Mali (55.9%). Even Senegal, the Union's second-largest economy, has seen its coverage rate decline to 58.6%.

"The more provisions increase, the more profits decrease. But without a concerted effort to cover these risks, the slightest shock could jeopardize already fragile balance sheets," warned Khalid Yacoubou-Boukari, a risk management expert.

Contrasting National Performances

Côte d'Ivoire and Togo are performing well, with controlled NPL ratios of 6.4% and 6.6%, respectively. In stark contrast, Burkina Faso (10.4%), Mali (12.7%), Guinea-Bissau (21.3%), and Niger (27.4%) exhibit troubling ratios. In these countries, insufficient provisions exacerbate the risk of unabsorbed losses.

Benin, despite an improvement in its gross NPL ratio to 3.7%, experienced a significant drop in its provisioning from 76% to 51.9% within a year. This risky gamble suggests banks are prioritizing immediate profitability over long-term stability.

This article was initially published in French by Fiacre E. Kakpo

Adapted in English by Ange Jason Quenum