Freshly re-elected for a third term in August 2020 as head of the Central Bank of West African States (BCEAO), Mr. Tiémoko Meyliet Koné has, like many central banks, been heavily supporting Member States’ economies since the beginning of the global health crisis. Having joined the institution he now leads back in 1975, he spent 30 years there before leaving to work in a senior public service position in the Ivorian government. He returned in triumph as governor on May 30, 2011.
Invited to the first edition of the Africa Financial Industry Summit organised by the Africa CEO forum, Mr. Koné accepted to answer questions from Secretary General of said forum’s consulting committee, Frédéric Maury.
Frédéric Maury: The WAEMU area experienced a significant drop in economic growth, down from 6% in 2019 to below 1% in 2020. How did you react to such a monumental economic shock?
Mr. Meyliet Koné: Like many other central banks, we reacted from the beginning of the health crisis by supporting the safety measures taken by public authorities in order to control the pandemic. Our objective has been to adopt suitable monetary conditions to allow the financial system to remain stable and continue to do its job. Analyzing the risks facing each sector allowed us to instate targeted measures, while remaining within the limits of our mandate. The BCEAO has therefore authorised banks and financial services to grant affected customers deferrals on their loan payments. It was also decided that from March 2020, all banks’ cash requirements would be set at a fixed rate of 2%. Concerning the Member States, the costs of fighting the pandemic were significantly higher than the available budgetary funds, despite support from external partners. Agence UMOA-Titres therefore supported them in their use of financial markets. More than 3,200 billion CFA Francs (4.87 billion euros) was leveraged on the sub-regional market.
F. Maury: The Biden administration in the USA and even the EU have announced astronomical sums to finance their economies’ way out of the crisis. African countries do not have such resources at their disposal. How can the BCEAO support Member States in financing a massive economic recovery?
Mr Meyliet Koné: WAEMU Member States already benefit from all the means of market fund leveraging. Despite analyses predicting that African countries would not be able to leverage funds on international financial markets, Union States have succeeded in acquiring sovereign loans. This is the case notably in Benin and the Ivory Coast. Which proves that international markets are not closed to African countries. Member States have now developed recovery plans to recover lost capital and especially the pre-pandemic growth rate. To finance these plans, they will leverage funds from traditional partners but also regional and international markets. The BCEAO can help the Member States in the regional market, as it always has. We have already created the aforementioned independent agency UMOA-Titres to fulfil this very role. In addition, a specific refinancing mechanism has been set up within the BCEAO with the opening of a six-month, 2% refinancing window referred to as a “recovery window”.
F. Maury: A recent report published by Moody’s predicted that the number of doubtful debts would double in Africa in 2021 compared to 2020. Such an increase would carry a risk of serious deterioration to banks’ balance sheets. How is the BCEAO adjusting the restrictions weighing down on financial institutions to help them support this recovery without overstepping the regulatory ratios that they are subjected to?
Mr. Meyliet Koné: The WAEMU’s financial sector has rallied to support economic players and especially businesses. Almost every bank has approved loan payment deferrals, which has helped to avoid job losses. This measure ended on December 31 2020. This support could well have resulted in a high increase in outstanding debt, but the reality is very different. The amount of non-performing loans in the banking sector has not doubled as predicted by Moody’s. Loans that benefited from deferrals only account for 3% of total bank borrowing in the area. Also, for more that 80% of those who did receive deferrals, the situation improved and they were able to continue repaying their loans. The remainder of these unpaid loans, whose debtors are still experiencing difficulties in repaying them, represent less than 1% of total banking borrowing. The banks are still discussing the settlement with the institutions concerned. I must also clarify that even if loans were to be downgraded to overdue, the banking system’s resilience should not be affected. The credit institutions remain compliant with global solvency ratios as of 2021.
F. Maury: According to a study revealed during this summit, co-produced by Deloitte and the Africa Financial Industry Summit, 58% of African financial stakeholders believe that their involvement in regulatory changes is unsatisfactory. What would you say to them?
Mr. Meyliet Koné: This is not the case for the BCEAO. We make sure that we involve all stakeholders concerned by regulatory changes at an early stage. That includes lending institutions, banking groups, representatives of finance ministers and even, in certain cases, consumer associations. It is an inclusive process that takes all parties’ needs into account. To give you an example, when we implemented the Bâle II and Bâle III banking regulations, the Federation of Professional Banking and Financial Institution Associations set up a committee to oversee the work.
F. Maury: International regulations can end up being very restrictive. Do you think they are too severe in the context of the continent and do you believe that Africa’s voice is truly heard regarding these questions?
Mr. Meyliet Koné: International regulations, especially in the banking sector, are motivated by the need to prevent crises and to limit the impact on economies. The BCEAO’s responsibility is to adapt them to the reality of our economies. We apply the proportionality principle that is sanctioned for their implementation. The best initial approach is to not withdraw from these regulations to avoid suffering the potentially disastrous consequences. The standards issued in recent years even allow for some flexibility. Of course, that is not to say that everything is perfect, but it is a good approach. It is up to Africa to raise its concerns with international regulators, but this requires a more concerted effort.
F. Maury: In these past years, one potentially worrying point has been the departure of several international banks from the continent, but also the decrease in correspondent banking. Is this something that worries you?
Mr. Meyliet Koné: In the case of the WAEMU the effects are fairly limited. Once again this is in the context of applying international standards, which are vital for bolstering the fight against money laundering or financing terrorism. At the BCEAO, we are monitoring the situation in order to avoid such risks.
F. Maury: Would you say that the key is for African banks to internationalize?
Mr. Meyliet Koné : Yes, that is indeed one approach, but it will not fix the problem for good. Setting standards remains essential.
F. Maury: What do you think about the Nigerian Central Bank’s ban on the use of crypto-currencies?
Mr. Meyliet Koné: These virtual currencies are more like speculative assets than real currencies. Their volatility significantly exposes investors to heavy losses. Also, the relative anonymity they provide harms the fight against money laundering and the financing of terrorism. But as these crypto-currencies are still underdeveloped in our area, they are not really a priority for us.
F. Maury: How does the BCEAO promote financial inclusion and innovation, while regulating at the same time?
Mr. Meyliet Koné: Our big challenge is promoting technology-based financial inclusion initiatives in a safe environment. We have created a “fintech Committee” whose goal is to promote a favourable environment for them to flourish. Our approach consists of overseeing fintech activity while focusing on technological neutrality. Therefore, the same activities are subject to the same regulation, whatever the technology. This avoids any changes to the text and operational risks linked to using these technologies will be monitored by the banking commission.
F. Maury: French-Speaking African countries seem to be lagging behind Nigeria, Kenya and South Africa in fintech development. How do you explain this?
Mr. Meyliet Koné: The regulations were not open enough. For example, we had to make provisions to allow non-banking entities to create electronic money. This had a considerable impact. All the regulations governing fintechs are being rolled out as we speak and we are planning to set up an innovation lab to help companies test out innovative models.
F. Maury: How do you think the financial industry will change in the next few years?
Mr. Meyliet Koné: I am very optimistic. The outlook for the financial sector seems favourable in terms of the resilience it has shown during this crisis. Several measures have been taken which help diversify the funding environment to benefit SMEs, but also alternative funding such as Islamic banking. I expect to see certain activities combining, especially with the rise of digital technologies. Digitizing should allow players to broaden their horizons and take advantage of the increased complementarity. This will create more integration between various financial services and provide opportunities for combined offers such as bank insurance… The appearance of new players such as fintechs will of course require some reconfiguration in the banking sector. All of these changes will benefit the consumer.