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Moody’s projects 5.4% growth for WAEMU region
Moody’s say they expect the West African Economic and Monetary Union to grow by 5.4 per cent this year. They also note that the robust growth and the benefits of the economic union will shield banks from the pandemic. Mik Kabeya, Vice President and Senior Analyst at Moody’s joins CNBC Africa for more.
Wed, 14 Jul 2021 14:13:52 GMT
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AI Generated Summary
- Moody’s projects a 5.4% growth for the West African Economic and Monetary Union in the current year, citing the benefits of the Economic Union in safeguarding banks from pandemic-related disruptions.
- Despite a decline in profitability in the previous year due to higher provisioning needs, a partial recovery is anticipated in the upcoming period, with provisioning requirements gradually decreasing over time.
- Asset quality in WAEMU banks is expected to witness a modest deterioration in 2021 and 2022, influenced by the pandemic impact and the withdrawal of support measures by the regional central bank.
Moody’s, a leading financial analysis and credit rating agency, has projected a robust growth of 5.4% for the West African Economic and Monetary Union (WAEMU) region in the current year. This positive outlook is attributed to the benefits of the Economic Union, which are expected to shield banks from the adverse impacts of the ongoing pandemic. Mika Baya, Vice President and Senior Analyst at Moody’s, shed light on these projections in a recent interview with CNBC Africa. Baya mentioned that while profitability saw a decline last year due to higher provisioning needs stemming from the pandemic, there is an optimistic expectation for a partial recovery this year. Despite provisioning needs remaining relatively high, they are anticipated to gradually reduce in the coming years and eventually reach historical levels. When discussing asset quality, Baya highlighted an expected deterioration in 2021 and 2022, albeit a modest one. This deterioration is linked to the impact of the pandemic and the removal of support measures provided by the regional central bank in 2020. However, the relatively modest nature of the deterioration can be attributed to the central bank’s interventions that prevented significant liquidity issues in the banking sector. Baya also pointed out two key factors influencing asset quality, namely the large informal sector in the African economy and the modest banking penetration in the region. These factors contribute to a distortion in the relationship between reported economic growth and actual asset quality deterioration. In terms of capitalization, Baya noted that the Wyoming Bank's capital levels are modest compared to global standards and other markets in Africa. However, Moody’s expects a slight increase in capitalization due to the ongoing rollout of Basel II/III regulations in the region. This regulatory framework, which began in 2018 and is scheduled to conclude by 2023, will contribute to a gradual enhancement of capitalization levels in the locality. Moving on to funding and liquidity, Moody’s anticipates stability in spending and healthy liquidity levels for WAEMU banks. One of the risks highlighted is the significant reliance on the central bank, accounting for approximately 19 to 20 percent of banks' balance sheets. This reliance creates vulnerabilities in terms of maturity mismatch and interest rate risks. While Moody’s does not foresee the central bank withdrawing its funding, any alteration in interest rates could result in a mismatch between the rates banks pay and the returns from the central bank's debt portfolio. Overall, Moody’s forecast for the WAEMU region paints a picture of growth, stability, and resilience in the face of economic challenges.
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