• Banks in the West African Economic and Monetary Union hold excess reserves more than three times the regulatory minimum.

• The Central Bank of West African States cut its key rate by 50 basis points in nine months, yet lending rates continued to rise.

• Non-performing loans increased to 9.1% of total credit portfolios, signaling growing asset quality risks.

Banks in the West African Economic and Monetary Union have accumulated abundant liquidity since 2025. They have reduced borrowing from the central bank, increased deposits with it, and stopped using emergency lending facilities. The annual report of the Central Bank of West African States, audited without reservation by Deloitte Côte d’Ivoire in February 2026, revealed this trend. Moreover, data from early 2026 confirmed that the trend has accelerated.

Liquidity surges, emergency borrowing drops

The most striking signal concerns the marginal lending facility, which banks typically use as a last resort under liquidity stress. In 2025, banks reduced usage of this facility to zero, compared with CFA850 billion (about €1.3 billion) a year earlier. Banks in the region no longer needed emergency funding from the central bank.

At the same time, bank deposits held at the Central Bank of West African States increased by 59% to CFA6,002 billion. These deposits reflect funds that banks preferred to park at the central bank instead of lending to the real economy. Meanwhile, penalties for failing to meet reserve requirements dropped by 90% to CFA836 million. Banks did not lack resources. They chose to hold them.

Furthermore, this trend persisted into 2026. According to March 2026 data, bank reserves reached CFA4,734 billion, compared with required reserves of only CFA1,094 billion. Excess liquidity therefore exceeded CFA3,640 billion, more than three times the regulatory minimum. A year earlier, excess reserves stood at CFA2,135 billion. Liquidity in the system continued to expand.

“This accumulation of liquidity in the banking system reflects understandable caution in a regional context still marked by fiscal fragilities,” said an analyst specializing in the UEMOA banking sector based in Lomé. “The question is when and how this liquidity will translate into credit for businesses and households.”

Two rate cuts in nine months

To encourage credit expansion, the Central Bank of West African States eased monetary policy gradually but consistently. The Monetary Policy Committee cut its key rate by 25 basis points in June 2025, bringing it to 3.25%. On March 16, 2026, the central bank reduced the rate further to 3.00% and lowered the marginal lending rate to 5.00%. Over nine months, borrowing costs for banks declined by 50 basis points.

As a result, money market conditions eased. In March 2026, the average rate on weekly liquidity auctions fell to 3.58% from 3.92% in February. At the same time, refinancing volumes declined by 4.8% to CFA7,036 billion, confirming that banks relied less on central bank funding. On the interbank market, the one-week reference rate decreased from 4.19% in February to 3.93% in March 2026.

Credit expands, but at higher cost

Credit activity did not stall. Data from the Central Bank of West African States showed a steady increase in lending throughout 2025. The average monthly volume of loans rose from CFA1,369 billion in 2024 to CFA1,453 billion in March 2025 and reached CFA1,717 billion in November 2025. This growth represented a 25% increase compared with the previous year’s average.

However, borrowing costs increased. The average interest rate on new loans reached 7.00% in March 2026, compared with 6.78% in March 2025 and 6.76% on average in 2024. Meanwhile, banks widened their intermediation margin—the gap between lending and deposit rates—to 1.69 percentage points in March 2026 from 1.41 points a year earlier. Banks improved profitability despite abundant liquidity.

Asset quality deteriorates

Banks maintained caution partly due to deteriorating asset quality. Across the West African Economic and Monetary Union, the gross deterioration rate of loan portfolios reached 9.1% in February 2026, compared with 8.8% a year earlier. Non-performing loans totaled CFA3,608 billion, up 6.5% year-on-year. At the same time, the coverage ratio declined from 62.9% to 59.7%. Banks increased lending, but portfolio risks intensified.

Country disparities remained significant. Côte d’Ivoire recorded a relatively low deterioration rate of 6.2%, while Niger exceeded 23%. Togo showed the sharpest deterioration, with the rate rising from 7.2% in February 2025 to 13.5% one year later.

Another key indicator drew attention. The Financial Stability Fund, held on the books of the Central Bank of West African States to support member states in case of shocks, doubled from 151 billion to CFA326 billion within a year. This increase suggested that the central bank remained cautious about systemic risks.

“Abundant liquidity is good news in the short term, but it can mask structural vulnerabilities if it does not translate into sustained financing of the productive economy,” said a Togolese economist specializing in monetary policy.

Looking ahead, upcoming monetary statistics from the BCEAO for the second quarter of 2026 will indicate whether successive rate cuts have effectively redirected excess liquidity toward businesses and households across the union’s eight member states. For now, banks have the capacity to lend. They choose to wait.

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

Adapted in English by Ange J.A de Berry Quenum