Interview : Felix Edoh Kossi Aménounvé
How have banks and the regional stock market responded to the tightened capital requirements?
FELIX EDOH KOSSI AMÉNOUNVÉ: A few years ago, the Central Bank of West African States (Banque Centrale des États de l’Afrique de l’Ouest, BCEAO) raised the minimum capital requirements of banks and financial institutions to CFA10bn (€15m) and CFA3bn (€4.5m), respectively. This decision was a prelude to the implementation, effective as of 2018, of the adoption of the Basel II and Basel III accords by the members of the West African Economic and Monetary Union (WAEMU). The institutions that have not yet met these new requirements can turn to the Regional Council for Public Savings and Financial Markets (Le Conseil Régional de l’Epargne Publique et des Marchés Financiers) and the BRVM to raise funds through initial public offering. Recent statistics show that the market has the necessary resources to absorb major transactions, more than CFA7trn (€10.5bn) has been raised through the regional financial market since 1998. In this context, the major goal of the BRVM is to ensure WAEMU’s regulatory framework complies with the standards of the accords by deepening the market. In order to ensure the soundness of financial systems under Basel III, the Basel Committee on Banking Supervision established two liquidity standards.
The liquidity coverage ratio (LCR) requires that banks hold assets sufficient to withstand a 30-day funding shortage. The net stable funding ratio complements the LCR by ensuring that financial institutions have enough stable funding to pursue their activities in a healthy manner for at least one year.
To what extent can the third board of the BRVM provide credible alternative financing?
AMÉNOUNVÉ: The BRVM has set up a mechanism known as the third board to help SMEs to access capital on the regional financial market. The BRVM does not pretend that this mechanism will solve all of the financing problems that SMEs face in the Union, but it does meet part of their financing needs, especially the long-term capital needed for SMEs to position themselves or defend their statuses as local and regional champions. Indeed, according to the BCEAO, SMEs represent 80-95% of private companies with significant financing needs in the WAEMU region, although banks remain the main source of financing for the private sector. For example, in Côte d’Ivoire, a study conducted by Entrepreneurial Solutions Partners in 2016 revealed that Ivorian SMEs need up to CFA3.57trn (€5.4bn) per year. Given that only 4% of loans granted by local subsidiaries of EU banks are long term, the window offered by the BRVM remains relevant.
The third board is accompanied by an optional capacity building programme: the ELITE BRVM Lounge, a regional version of the ELITE programme developed by the London Stock Exchange Group, acting as a support system and aims to strengthen the capacities of SMEs.
In what ways do you expect the financing supply chain to evolve during the next five years?
AMÉNOUNVÉ: The microfinancing model is becoming more attractive, thanks to its more flexible conditions and the greater accessibility it affords to smaller companies. Other financial institutions that target companies with increasing funding needs offer alternative solutions, such as the COFINA Group with its meso-finance loans. In five years the supply of financing should hardly change in any structural way. Those institutions will continue to develop adequate solutions for each category of financing needs. In this context, greater synergy between banks and the providers of meso-finance and microfinance is necessary to ensure a greater availability of relevant financial products.
The challenge is to promote the increase of banking and domestic savings rates, while ensuring at the operational and technical level that the financing supply has a much more flexible, dynamic and proactive dimension, in connection with the ongoing progress of ICT.
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