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)| false Adam, K., J. Tullio, A. Menichini, M. Padula, and M. Pagano, 2002, “ Analyze, Compare, and Apply Alternative Indicators and Monitoring Methodologies to Measure the Evolution of Capital Market Integration in the European Union,” Centre for Studies in Economics and Finance CSEF, #77 ( January).
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The authors wish to thank Abdessatar Ouanès and Bernard Laurens for guidance, as well as Daniel Hardy, Anne Marie Gulde-Wolf, Hans Weisfeld, Noel Sacasa, Inutu Lukonga, Jeanne Gobat, Cedric Mousset and Ann Rennie for useful comments. Special thanks to Graham Collin-Jones for editorial assistance.
This working paper draws on research conducted within MCM on banking integration in the CFA Franc Zone, and benefited from discussions with the authorities in the context of the 2006 joint IMF/WB regional FSAP missions to CEMAC. Data used is available from public or commercial sources.
Branch density in the CEMAC is about one hundred times lower than in a number of densely banked countries, for example Germany, France, Austria, Belgium, or Canada.
HHI values between 1,000 and 2,000 indicate a moderate level of concentration; values above 2,000 indicate high levels of concentration. The index is calculated by summing up the squared relative market shares (in percentage points) of all the banks:
Group II includes banks in Group III.
The cost of intermediation may also be affected by differences in reserve requirements. Although differences in reserve requirements are motivated by the dispersion of liquidity situations within the region, they also create possibilities for regulatory arbitrage and distortions to competition at the regional level.
The decrease in margins could act as an incentive for banks to broaden their clientele. However, this would require that efforts be made to improve the operating environment of banks and debt recovery in the region.
Average spread is calculated ex-post as average return on credit minus average cost of credit.
Sigma-convergence captures the standard deviation of interest rates across countries at each point in time. This measure is often used to assess the degree of integration in monetary unions. Using COBAC’s cross-sectional time-series of average interest rate spreads, we estimate and plot the evolution of sigma-convergence over time.
Limited investment opportunities in the CEMAC can be linked to a number of factors: (i)a restricted economic diversification with a few high profile customers, with risk concentration rules rapidly binding in this context; (ii) interest rate regulations (notably a ceiling on bank lending rates currently set at 15 percent), which are likely to limit the feasibility of bank lending to credit constrained SMEs and households; and (iii) the absence of a modern financial market where banks can diversify their assets. The lack of opportunities to shape an adequate risk/return profile also means that banks have to increase the return on their operations, either through interest or fees, with customers who actually present a tolerable level of risk.
Even in the euro area, banks still work exclusively with their national customers on average in the case of 89 percent of their loans and 84 percent of their deposit base (Cabral et al. 2002).
SYSCO ratings are prepared by the regional banking commission COBAC, and are based on the CAMEL bank rating system. So far, individual banks appear reluctant to share this information with their counterparts and the public.
Which includes interest and noninterest revenue. Both measures with or without noninterest revenue are commonly used but given the role of fees and other income in an interest rate regulated environment such as CEMAC, a more comprehensive measure was preferred.
Estimates performed with fixed and random effects (not reported) provide similar results. Fixed effects are the most appropriate to capture idiosyncrasies in individual data, with data on institutions operating in the same field of business and in the same country.