Interview: Tiémoko Meyliet Koné
What can be done to increase credit volume and encourage long-term financing?
TIEMOKO MEYLIET KONÉ: Banks need further resources for long-term financing, and so within the West African Economic and Monetary Union (Union Economique et Monétaire Ouest-Africaine, UEMOA), the minimum capital requirement for banks operating in the zone has doubled, from CFA5bn (€7.5m) to CFA10bn (€15m). To increase short-term deposits in long-term lending, the transformation ratio was lowered from 75% to 50%. Previously, banks were only allowed to transform 25% of their short-term resources. While this measure impacts on banks’ ability to lend, it is yet too early to witness any impacts on financing for retail customers.
To what extent are credit bureaus necessary, and what challenges exist for their implementation?
KONÉ: Information asymmetry is a key determinant to credit growth, meaning that banks are challenged with unclear risk assessment, and so apply high interest rates as a precaution. Therefore, there is a great need for credit bureaus that can provide information on credit applicants at a regional level. The database currently being built will collect and centralise information on customers from all UEMOA states. At the same time, we will obtain access to customers’ billing records from water and electricity suppliers. In the course of 2014, the new legislation should be approved by each state. The second phase will be to promote these bureaus, for which we have signed a partnership agreement with the International Finance Corporation.
What will be the impact of credit bureaus on the non-performing loans rate?
KONÉ: It will have a positive and quick impact. As soon as the database comes online, banks will be using it accordingly. The database will not only affect banks’ operations, but also Decentralised Financial Systems (DFS). By capturing a large share of the population with low purchasing power, microfinance institutions are more exposed to loan defaults, and so credit bureaus coverage is extended to DFSs. Moreover, a biometric system will be put in place to help identify each individual. People will be encouraged to register to obtain a financial identity card, facilitating their access to credit at the best conditions. Yet while positive impacts are expected, the regional non-performing loan rate, especially in Côte d’Ivoire, remains far too high.
What factors affect the consumer price index?
KONÉ: Ensuring price stability is a priority. The annual average inflation rate in the region has continued to decrease, from 2.4% in 2012 to 1.6% in 2013. Foreign private investment is crucial for economic growth, but this can be sensitive to monetary erosion. If investors lose 10% or 15% of their investment each year, they will think twice before investing in our countries.
Inflation should be kept as low as possible so that investors can keep the monetary value of their investment. Poverty alleviation is also vital in this regard, as low-income populations with low purchasing power are also very sensitive to inflation. What impacts inflation most of all is the availability of food stocks, especially cereals. When yields are good, the inflation rate is low, with annual variation fluctuating between 1% and 1.9%. Food crops are generally diversified in Côte d’Ivoire. However, in Sahelian zones, rough climates can lead to massive production losses, negatively affecting the cost of certain commodities and driving up inflation.
Measures are thus being taken so that countries with a production surplus can trade with less favoured countries. With enhanced meteorological forecasts for agriculture, better crop yield predictions can be made to anticipate changes in the rate of inflation. Additionally, as the CFA currency is pegged to the euro, our economies suffer from imported inflation. However, this trend has been moderated due to a drop in global demand. While the current rate of inflation is manageable, it is crucial that it does not induce liquidity gluts as this could lead to a highly inflationary situation.
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