• Banks’ exposure to sovereign risk rose to 32% of total assets in 2024
• 48.8% of banks’ treasury assets were invested in public securities
• Cameroon, Congo, and Gabon generated over 90% of sector net profit

In the CEMAC region, banks’ exposure to sovereign risk continued to rise in 2024, according to the 2024 multilateral surveillance report and 2025–2026 outlook published by the CEMAC Commission.

“The exposure of the banking sector to sovereign risk continued in 2024 the upward trend that began with the oil price shock. It reached 32% of total banking assets in 2024, compared with 31% in 2023, 23.5% in 2019, and 10% in 2015,” the report said, adding that this exposure “exceeded 50% of total assets in several banks in 2024.”

This means that, for some banks, more than half of their activities depend directly on government counterparties. This orientation is also reflected in treasury management. “Nearly half of banks’ treasury assets (48.8%) were allocated to subscriptions of public securities in 2024,” the report said. Banks therefore used almost half of their available liquidity to finance governments.

A profitable short-term choice for banks

According to the Commission, banks favor public securities, notably Treasury bills and bonds, mainly for profitability and management reasons. High exposure to sovereign risk contributes significantly to the profitability of the banking sector in the region.

Public securities provide regular income and are considered easier to manage than corporate lending. As a result, banks generate higher short-term returns. In 2024, the sector’s aggregate net profit rose 13%, supported by a 9% increase in net banking income. Three countries accounted for most of these results: Cameroon, Congo, and Gabon. Together, they represented 85% of net banking income and 91% of net profit in the CEMAC banking sector in 2024.

This concentration reflects their economic weight, but also their heavier reliance on public borrowing financed by local banks. In the short term, this situation boosts bank revenues and helps explain why exposure to sovereign risk continues to increase, despite repeated warnings from regional authorities.

Risks to financial stability

The Commission warns of the consequences of this trend. High bank exposure to government debt creates a direct link between public finance conditions and the soundness of the banking system. In the CEMAC region, public budgets remain highly dependent on oil and commodity revenues. When prices fall, government revenues decline. If states face payment difficulties, banks are likely to be affected.

Several risks arise from this situation. These include counterparty risk, as governments may delay or reduce payments; liquidity risk, given the limited depth of the secondary market for public securities; contagion risk, as fiscal stress in one country can affect several banks simultaneously; and maturity risk, as the long tenors of government securities can weaken bank balance sheets.

Another effect concerns financing of the real economy. By prioritizing public securities, banks reduce lending to businesses. Small and medium-sized enterprises, which make up most of the economic fabric in CEMAC, face greater difficulty accessing bank financing. This constrains investment, limits economic diversification, and weighs on growth.

The Commission said this imbalance needs to be addressed. Without a gradual rebalancing of bank portfolios, a fiscal crisis could turn into a banking crisis. Monetary and supervisory authorities, the BEAC and COBAC, are therefore being urged to strengthen oversight, promote private sector financing, and reduce banks’ dependence on public debt.

Chamberline Moko