Budgetary tensions in Senegal have renewed concerns about banking contagion within the West African Economic and Monetary Union (WAEMU). Despite a sharp rise in exposure in 2025, both Fitch Ratings and S&P Global Ratings say the risk remains manageable for now, supported by market intermediation and regional buffers.

The deterioration of Senegal’s public finances has raised concerns well beyond financial markets. It has revived a sensitive question within the West African Economic and Monetary Union (WAEMU): to what extent could Senegal’s fiscal stress spill over into the regional banking system? International rating agencies broadly converge on one point. The risk exists, but for now it remains contained.

In a recent analysis, Fitch Ratings said the situation in Senegal poses some risk to WAEMU’s foreign exchange reserves and could generate market contagion, including through the banking sector. The agency noted, however, that the regional debt market continues to operate without major disruption. Auctions remain regular and demand is holding up. In 2025, Senegal raised more than 2,000 billion CFA francs ($3.5 billion) through auctions and over 1,600 billion CFA francs via syndicated issuances, which are listed or in the process of being listed on the Regional Securities Exchange (BRVM).

Reported exposure overstates bank risk

The faster pace of Senegal’s issuance on the regional market has directly increased the exposure of some banking players, particularly in Côte d'Ivoire, the Union’s main financial hub. According to S&P Global Ratings, Ivorian investors now hold about 42% of Senegalese debt issued on the WAEMU market. This amounts to nearly 1,800 billion CFA francs, equivalent to 3.1% of Côte d'Ivoire’s GDP and around 7% of banking system assets.

These figures are striking but partly misleading. On this point, S&P and Fitch take similar views. Both agencies argue that the data overstate the effective exposure of Ivorian banks, reflecting the structure of the regional market itself. Non-resident investors, including international funds, financial institutions and multilateral lenders, cannot purchase government securities directly within WAEMU. Instead, they must operate through authorised local banks or brokerage firms (SGIs), which act as intermediaries.

As a result, Ivorian banks appear in the statistics as holders of the securities, even when the purchases are made on behalf of third parties. The credit risk ultimately rests with the final investor, as the securities are held in custody accounts or kept off local bank balance sheets.

Liquidity buffers limit immediate contagion

According to Fitch, this mechanism limits the risk of direct transmission to Ivorian banks. It is further mitigated by the role of the Central Bank of West African States (BCEAO), which continues to supply liquidity to the banking system by accepting sovereign securities as collateral, and by the sharp improvement in regional foreign exchange reserves. These reserves now cover six months of imports, up from 3.8 months a year earlier.

The rating agencies nevertheless remain alert to underlying vulnerabilities. In Senegal, a gradual deterioration in banking asset quality is already visible. The non-performing loan ratio reached 10.6% at the end of August 2025, higher than a year earlier and above the WAEMU average. This trend is largely driven by persistent cash-flow pressures at some public enterprises, whose reliance on budget subsidies and payment delays is weighing on bank balance sheets.

Regional interconnections remain a risk channel

In a financial system as integrated as WAEMU, such pressures do not remain confined within national borders. Fitch warns that the high level of interconnection within the regional banking sector represents a potential channel for the spread of stress. Difficulties faced by Senegalese banks, including tighter access to funding and weaker asset quality, could affect the broader region through credit links, shared corporate exposures and regional intermediation channels. For now, the agency estimates that the direct impact on regional bank balance sheets remains manageable, supported by existing institutional buffers.

Fiacre E. Kakpo

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