Central African Economic and Monetary Community (CEMAC): Selected Issues

This Selected Issues paper on the Central African Economic and Monetary Community (CEMAC) reviews the evolution of actual and equilibrium real effective exchange rates (REER). The current level of the CEMAC REER is broadly in line with its long-term equilibrium value. The estimation approach herein is subject to certain limitations, some of which are inherent to the literature that tries to estimate the equilibrium REERs. Absolute statements about magnitudes of any possible misalignments should be avoided given the degree of model uncertainty; error bands around estimated equilibrium exchange rates may, in some cases, yield inconclusive results.


This Selected Issues paper on the Central African Economic and Monetary Community (CEMAC) reviews the evolution of actual and equilibrium real effective exchange rates (REER). The current level of the CEMAC REER is broadly in line with its long-term equilibrium value. The estimation approach herein is subject to certain limitations, some of which are inherent to the literature that tries to estimate the equilibrium REERs. Absolute statements about magnitudes of any possible misalignments should be avoided given the degree of model uncertainty; error bands around estimated equilibrium exchange rates may, in some cases, yield inconclusive results.

IV. The Banking Sector in the Central African Economic and Monetary Community (CEMAC) Region: Issues and Developmental Challenges57

A. Introduction

87. A well-functioning financial sector is a key ingredient to economic growth and poverty reduction.58 In the CEMAC, the banking sector dominates the financial system, but it remains small and shallow, even compared to banking systems in other sub-Saharan countries. The non-bank financial system, most notably microfinance institutions (MFIs), has gained ground over the recent past, but has not yet gained macroeconomic significance. The absence of deep and liquid inter-bank markets may also prevent CEMAC member countries from reaping the full benefits of their monetary union.59

88. The purpose of the paper is to examine in greater detail the state and the developmental challenges of the banking sector in the CEMAC region. It is organized as follows: Section B describes the structure and operational environment of the banking and microfinance sectors; Section C examines the depth and functioning of regional financial markets; Section D discusses banking sector supervision in the region and recent regulatory changes; and Section E summarizes the main policy implications and discusses the challenges for financial development and further regional integration.

Institutional Arrangements in the CEMAC

On December 8, 1964, Cameroon, Central African Republic, Chad, the Republic of Congo, and Gabon signed an agreement creating the Central African Customs and Economic Union (UDEAC), replacing the Equatorial Customs Unions (“l’Union Douanière Equatoriale”), created on June 23, 1959. Equatorial Guinea joined the UDEAC in January 1992. On November 22, 1972, these same states signed a convention establishing monetary cooperation among themselves and creating the regional central bank BEAC (Banque des États de l’Afrique Centrale). The regional banking supervision commission COBAC (Commission Bancaire de l’Afrique centrale) was subsequently established on October 16, 1990. On January 17, 1992, a convention was signed, establishing the harmonization of their banking regulations. Although legally independent, COBAC is closely related to the BEAC, whose governor is also the chair of COBAC, and depends on the BEAC for its financial and human resources. On March 16, 1996, through a treaty, CEMAC replaced UDEAC.

B. Structure and Operational Environment for the Banking and Microfinance Sectors

The commercial banking system

Size, depth, and competition

89. Following a restructuring in the 1990s, the formal banking sector in the CEMAC region now consists of 33 banks. Ten banks are located in Cameroon, three in Central African Republic, four in the Republic of Congo, six in Gabon, three in Equatorial Guinea, and seven in Chad (Table 1). Foreign banks dominate the banking system with three-fourths of all banks having majority foreign ownership and almost all banks having at least 20 percent of foreign participation. Today’s structure and ownership reflect changes implemented after a series of bank failures in the late 1980s and early 1990s. At the time, several banks were restructured and government ownership was reduced, while foreign ownership increased. Public involvement in the banking sector is, however, still important: one-third of all banks in the CEMAC region, accounting for almost half of the assets of the banking sector, have state ownership of at least 20 percent.

Table 1.

CEMAC: Ownership Structure of the Banking Sector, December 2004

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Source; COBAC.

More than 20 percent

90. Financial development appears to be more limited in the CEMAC than in other African countries (Table 2). Regional broad money accounts for only 16 percent of the regional GDP compared with 26 percent in the WAEMU area and almost 50 percent for sub-Saharan Africa (SSA) as a whole. Furthermore, while financial depth has been increasing in SSA and the WAEMU area in recent years, it has remained stagnant in the CEMAC region for almost a decade, despite strong economic growth and stable macroeconomic conditions. However, in proportion to non-oil GDP, broad money amounts to 27 percent; hence, it is similar to that in the WAEMU region, but still much lower than the SSA average. 60

Table 2:

Comparative Indicators of Financial Sector Development 1/

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Source: BEAC and IMF staff estimates

Latest available information, unless otherwise stated.

Broad money over reserve money.

Herfindahl-Hirschman (HH) index is a standard measure of concentration in an industry. A HH index<1000 implies that a market is unconcentrated.

91. Bank competition in most member countries is weak because of the relatively small number of banks. The Herfindahl-Hirschman (HH) concentration indices in the Central African Republic, Congo, Equatorial Guinea, and Gabon exceeds 2000, suggesting that the market structure of the banking sector in these countries is highly oligopolistic (Table 2). The banking sectors in Cameroon and Chad appear to be more competitive according to the HH index, which is somewhat smaller, albeit larger than the benchmark for a competitive market of 1000.

Access to formal financial savings facilities

92. Formal financial services are available only to a small segment of the population. In terms of membership accounts, only 3 percent of the CEMAC population, on average, has an account in a commercial bank, with the exception of Gabon, where 16 percent of the population holds a bank account. Deposits amount to only 11 percent of the region’s GDP, although the ratio of deposits to non-oil GDP, at 19 percent, is closer to the African average.

93. The limited role of the banking system is evident in the small portion of the money supply that is held as deposits in commercial banks. Whereas bank deposits account for about three-fourths of the money supply, on average, in SSA and almost 100 percent in Kenya and South Africa, less than two-thirds of the money supply is intermediated through the banking system in the CEMAC region. Hence, a relatively large portion of the region’s money supply is held as currency outside the formal banking system.

94. The majority of deposits are demand deposits. The proportion of demand deposits to total deposits is much larger in the CEMAC region than in other SSA countries, indicating a lack of confidence in the banking system.

95. The limited access to savings accounts at commercial banks may be related to the interest rate floor imposed by the central bank. Given the low levels of inflation, and in some cases even deflation, in the member countries, the nominal minimum interest rate of 5 percent on savings deposits translates into high real interest rates, ranging from 1 percent in Equatorial Guinea to 10½ percent in Chad. In view of the large real interest rates and large amount of excess liquidity, commercial banks are reluctant to accept additional deposits, thereby restricting the access of potential new depositors.

Credit to the private sector

96. Credit extension to the private sector is among the lowest in SSA and far lower than in countries with similar income levels. While lending relative to GDP amounts to almost 13 percent in the average African country and 15 percent in the WAEMU region, lending in CEMAC countries averages only about 7 percent. Even relative to non-oil GDP, private sector credit is smaller than in other African countries. Furthermore, the banking sector in the CEMAC region extends a much smaller share of its deposits to the private sector than other African countries.

97. Loans to the private sector are mainly short term and trade-related and target large enterprises. More than two-thirds of bank lending to the private sector in the CEMAC region at end-2004 was short term, partly reflecting the dominance of demand vis-a-vis term deposits. Banks, especially foreign ones, finance primarily the current operations of large corporations and trade operators as opposed to investment projects. With banks becoming more aware of credit risks since the bank restructuring, they have cut back on lending to riskier small and medium-sized enterprises (SMEs). As a result, bank portfolios have become increasingly concentrated in large enterprises. By end-2004, two-thirds of the region’s banks, controlling 55 percent of deposits, violated the single large exposure limit, representing an increase of 7.3 percentage points in terms of deposits compared with 2002.

98. Private sector lending has not been “crowded in” by the significant improvement in government fiscal positions in recent years. Following the surge in oil prices, the average fiscal balances (including grants) of the CEMAC countries increased to a surplus of 1.7 percent of GDP on average over the past five years from a deficit of 4 percent of GDP in the 1990s. As a result, commercial banks in the CEMAC countries have become net debtors to governments in stark contrast to the situation in other African countries, where net credit from commercial banks averages 5 percent of GDP. Gross loans to public enterprises amount to about 1 percent of the region’s GDP, which is about the same as in other African countries.61 Given the weak response of private sector lending, commercial banks’ liquidity in excess of the legal reserve requirement gradually rose from 7 percent to 20 percent of broad money between 1999 and 2004 (Figure 1).

Figure 1.
Figure 1.

CEMAC: Excess Liquidity and Reserve Requirement, 1991–2004

Citation: IMF Staff Country Reports 2005, 390; 10.5089/9781451806519.002.A004

Source: BEAC and IMF staff estimates

99. Lending to the private sector appears to be constrained by structural problems and the nature of bank liabilities. First, given the relative importance of demand relative to term deposits, banks are vulnerable to sudden deposit withdrawals and therefore need to have a relatively high level of liquidity. Second, government deposits in commercial banks, which amount to about 1½ percent of GDP (comparable to those in other African countries), are much more volatile than in other African countries, reflecting the impact of oil price fluctuations.62 Furthermore, banks are reluctant to extend credit to the private sector, especially to SMEs, because of the following structural impediments:

  • Improper accounting and bookkeeping practices in the corporate sector. A disclosure index (see Section III) measuring the degree to which financial and ownership information is available to banks suggests that CEMAC countries fare much worse than other African and OECD countries.

  • A weak legal systems, resulting from inadequate resources, the absence of well-functioning commercial courts, and a lack of clarity about the status of collateral. The settlements of disputes on the collection of collateral are reported to take up to 10 years. Moreover, the average time for enforcing contracts ranges from one and a half years in Chad to two years in Central African Republic, compared with little more than a year on average in SSA and half a year in the OECD countries. As a result, banks experience significant problems in enforcing mortgage lending.

  • Expensive and cumbersome registration of collateral. It is very expensive for investors to create and register collateral, with the average cost amounting to 76 percent of per capita income in the CEMAC countries, almost double the sub-Saharan average.

Financial performance of the banking system

100. Since a string of banking crises in the late 1980s and early 1990s, the health of the banking sector has improved significantly. Following external shocks and inappropriate macroeconomic policies, the banking sectors of many of the CEMAC countries were insolvent on the eve of the 50 percent devaluation of the CFA franc in 1994. Subsequent restructuring and consolidation of the banking system was completed by early 2001 in almost all member countries, and the prudential regulatory framework and institutions were strengthened significantly in the early 2000s.

101. Despite a general strengthening of banking sector soundness indicators in recent years, the banking sector remains fragile (Table 3). After a sharp drop in the early 2000s, the amount of nonperforming loans (NPLs) has increased slightly in recent years and remains very high in the international context. Furthermore, since 2002, provisions against NPLs have declined from 82.2 percent to 78.5 percent. However, the capital adequacy ratio of the banking system has been steadily improving in recent years, reaching a comfortable level of almost 12 percent, although there are significant differences among countries, ranging from about 6 percent in the Republic of Congo to 16½ percent in Gabon. Although, the overall capital adequacy ratio is comfortable, 9 of the 33 banks in the CEMAC region did not meet the minimum capital adequacy ratio of 8 percent in January 2005. Furthermore, if banks were penalized for breaching prudential requirements, two-thirds of them would breach the capital requirements.

Table 3:

CEMAC: Financial sector soundness indicators

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Sources: COBAC and Bankscope

As of January 2005 (COBAC)

As of December 2003 (Bankscope)

As of September 2004 (COBAC)

102. The profitability of banks differs widely among member countries. Consistent with the high country risk, the average return on equity in Cameroonian banks is high (18.8 percent). In contrast, the return on equity is very low in the Central African Republic (4.7 percent) and Gabon (5.8 percent), even compared with the SSA average of 15 percent. The return on assets is low in all three countries, with only Cameroon performing at least on the level of low-risk countries (1.4 percent).

103. COBAC’s internal rating also signals the fragility of the banking system and disparities in the performance between banks in different countries.63 In January 2005, COBAC considered only 2 of 30 rated banks to be “strong,” another 16 “good,” 9 banks “fragile” and 3 “critical”. The rating system highlights the significant weaknesses in the banking systems of the Central African Republic, Chad, and the Republic of Congo, where between one-half and three-fourths of the rated banks were considered to be either fragile or in a critical state.

The microfinance system

104. CEMAC’s ministerial committee introduced microfinance regulations in April 2002.64 By the end of 2003, 1,010 MFIs had submitted licensing applications to COBAC, of which 45 were rejected and had to be liquidated (23 in Cameroon and 22 in Congo) and 360 received favorable ratings in the first instance. The remaining applications are still under consideration. Attention is now being given to improving both the regulatory framework and the performance of the previously informal microfinance system.

105. Although the microfinance sector has expanded in recent years, its expansion has been uneven and the size of its operations remains only a fraction of the commercial bank sectors. Between 2001 and 2003, deposits of MFIs grew by more than 40 percent to CFAF 75 billion, while credits grew by 43 percent to CFAF 42 billion (Table 4). The microfinance sector is most developed in Cameroon, where two-thirds of all MFIs in CEMAC are found, while remaining small in Equatorial Guinea and Gabon. While the MFIs are numerous, their scale of operations remains small; the deposits and loans of MFIs relative to those of commercial banks amounted to only 3 percent and 2½ percent, respectively, in 2003, except in the Republic of Congo, where deposits of MFIs totaled 18 percent of deposits in the banking system.

106. Evaluation missions by COBAC have revealed that, with some exceptions, the financial performance of the MFIs is weak and volatile.65 For example, the evaluation team in Congo concluded that almost all MFIs had weak procedures for approving loans, did not coordinate meetings of different departments involved in the decision making, and often had no internal control mechanism, even though such mechanisms were envisaged in the MFIs’ founding documents. Many MFIs had serious deficiencies in accounting; for example, the MFIs’ financial, commercial, and service activities all had different accounting practices. Finally, the majority of MFIs were financially unviable, with their capital falling short of the MFIs’ statutory requirements: in some cases, capital was CFAF 200,000, against CFA 20 million in deposits. Several MFIs that are supported by foreign partners rely on subsidies.

Table 4.

CEMAC: Evolution of Microfinance Institutions between 2001 and 2003.

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Source: COBAC.

Regional Money and Financial Markets

107. Regional financial markets are shallow and highly segmented. The volume traded on the money market amounted to 3 percent of broad money in 2004, mostly within individual countries. The lack of inter-bank market activity is related partly to the large amount of excess liquidity in the banking system (overall, five member countries had excess liquidity at end-2004, amounting to about 20 percent of the region’s broad money (Figure 1)). The low volume also reflects the lack of securities for collateralized lending. Finally, insufficient information on banks’ performance makes it difficult to assess counterpart risk in the inter-bank market.

108. The BEAC uses a combination of quasi-direct monetary instruments to manage liquidity in the zone. It has traditionally relied on its discount window, through which it has absorbed liquidity from and injected funds to the banking system. In response to a sharp rise in excess liquidity, the central bank introduced reserve requirements in 1999, raising them gradually to 5.75 and 7.75 percent for savings and demand deposits, respectively, in countries with highly liquid banking sectors (Cameroon, Equatorial Guinea, and Gabon) and to 3 and 5 percent for savings and demand deposits in countries with tighter liquidity conditions (Chad, Central African Republic, and Congo).

109. Longer-term market-based instruments would help the central bank to steer liquidity. Plans to introduce such instruments exist, but—in spite of the BEAC’s successful preparatory work—the introduction of treasury bills has been delayed until further notice because member countries have been concerned about borrowing costs and technical constraints. As an interim and second-best solution, the BEAC uses short-term deposits and differentiated reserve requirements to sterilize the high level of banks’ free liquidity. Meanwhile, the BEAC is also reviewing the option of issuing tradable central bank bills, at least as an interim solution, subject to the need to maintain its overall profitability.

110. The planned completion by 2006 of BEAC’s payment and settlement systems reform is expected to deepen the financial sector and economic integration in the region (see also Box 2). The new payment system should improve the speed and security of the payment system and improve the access to banking services to a larger basis of the population, and particularly to those with low income. The BEAC expects access to banking services to increase from 3 percent to 8-10 percent of the population within four years. Furthermore, the more modern payment and settlement system should also facilitate the conduct of monetary policy.

Components of the Payment and Settlement Systems Reform Project.

The reform project of payment and settlement systems strikes a balance between security, efficiency, and risk management. The project contains the following elements:

  • A regional real time gross settlement system (RTGS) for the settlement of large amounts of money (Système de Gros Montants Automatisé—SYGMA): Large amounts need to be settled one by one in order to avoid that the payment default by one actor creates a systemic crisis affecting the entire financial system.

  • A national and regional electronic inter-bank settlement system for small amounts (Compensation Interbancaire Régionale—CIR); Gross settlement of small amounts would be too costly and time consuming. Instead, net amounts are periodically settled between participants of the payment system. To guarantee the smooth functioning of the system, participants must to have enough funds and access to credit lines to honor their payment obligations.

  • A monetary inter-bank strategy, including the creation of a monetary inter-bank system (système monétique interbancaire—SMI). The SMI will contain a supervisory body (Office Monétique de l’Afrique Centrale—OMAC) and two technical backup platforms.

  • A risk-prevention and management system in order to exclude offenders from their future participation in the system (Centrale des Incidents de Paiement—CIP).

C. Recent Legal and Regulatory Changes.

111. In response to comprehensive assessments of the regulatory and supervisory framework, the authorities have recently initiated a series of reforms. FSAPs for Cameroon and Gabon were conducted in 2000 and 2002, respectively. They found that the banking sector had generally strengthened in past years, but that banks were vulnerable to shocks, especially a deterioration in fiscal balances. Given a relatively low capital base, banks would be exposed to credit risk following an increase in nonperforming loans. Furthermore, banks also faced significant liquidity risk in light of the large amounts of illiquid government debt without corresponding long-term liabilities. The FSAPs called for improvements in the operating environment for banks, especially for legal and judicial reforms, implementation of a new payment system, and a streamlining of business laws across the region. Finally, the FSAP for Cameroon concluded that, given the large number of depositors, the microfinance sector needed an appropriate regulatory framework.

The commercial banking sector

112. The authorities hope that new licensing and uniform accounting rules and an active regional stock market will help promote financial integration and competition in the financial sector. Intraregional financial integration is facilitated by the single registration procedure (agrément unique, adopted in July 2001) for banks in the CEMAC region. This rule allows banks operating in one member country to open branches in another member country of the same monetary union and, hence, increase bank competition in the country. Furthermore, the integration of the accounting and financial publication code of the Organization for the Harmonization of African Business Law (OHADA) into the banking regulation in February 2003 should make it easier for banks to open and operate in CEMAC member countries. Access of the corporate sector to finance through the stock market should help increase competition in the financial sector and should ultimately reduce interest rate spreads. To ensure smooth operations of the planned regional stock market, COBAC has issued regulations clarifying accounting practices and the prudential treatment of stock market operations.

113. New regulations have also been adopted to strengthen the capital base and foster public confidence in the banking system. To make banks more resilient to unexpected losses, COBAC increased the minimum risk-weighted capital adequacy ratio from 5 percent in 2002 to 8 percent at the beginning of 2005.66 Public confidence in the banking system would be further bolstered by a new regulation requiring financial institutions to put in place internal risk-management systems and to carry out internal and external audits to properly measure, supervise, report, and manage risks.

114. The creation of a deposit guarantee fund is likely to encourage financial deepening. In January 2004, the CEMAC regulation for creating the Central African Deposit Insurance Fund (Fonds de Garantie des Dépôts en Afrique Centrale—FOGADAC) was adopted. COBAC is in the process of defining the modalities of the deposit guarantee system, which could encourage potential clients to open deposit accounts and increase the share of longer-term deposits in the system.

The microfinance sector

115. In 2002, a regulatory framework and prudential norms for MFIs were adopted to strengthen the performance of the sector. These new regulations and norms seek to identify the number of MFIs, their nature, and financial condition, and to develop an appropriate regulatory framework. The purpose of the framework would be to define closely the scope of permissible activities for credit cooperatives, essentially ensuring that they limit their size and activities to agreed-upon parameters and operate within a network structure. The framework consists of the CEMAC regulations and 21 prudential norms issued by COBAC. The CEMAC regulations came into force in April 2005, while the COBAC regulations will become effective in April 2007. The regulations have the following main elements:

  • All MFIs need to hold a valid license. They are grouped into three categories: (i) MFIs taking deposits from and lending exclusively to its members; (ii) MFIs taking deposits from and lending to third parties; and (iii) MFIs lending only to third parties without accepting deposits.

  • MFIs are authorized to operate only in the country in which they are registered. They must also join the professional association of MFIs in their respective countries. Their participation in the professional association would ensure dissemination of best practices and allow for targeted lobbying vis-a-vis the local and regional authorities.

  • COBAC will be responsible for regulating and sanctioning MFIs, including for borrowing conditions, norms for internal management, liquidity, capital adequacy, and connected lending. Enforcement of the regulation is expected to limit abuse and strengthen the credibility of the system.

116. Prudential regulations vary for different categories of MFIs and are designed to account for the generally higher level of risk to which the institutions are exposed (Table 5). The different prudential norms for different types of MFIs reflect their different exposure vis-a-vis third parties. The regulations are tighter for MFIs in the second and third category, which on-lend to third parties, than for MFIs in the first category, where members can obtain loans only if they have deposits in the institution. Categories 2 and 3 are required to have higher minimum capital and lower concentrated exposures. The prudential norms are generally stricter for MFIs than for commercial banks, given the higher level of operational risks associated with microfinance clients, including their weaker accounting and audit practices. For example, MFIs are required to have a higher capital adequacy ratio, smaller single large exposure ratios, and faster provisioning for nonperforming loans.

Table 5.

Comparison of Prudential Regulations for MFIs and Commercial Banks.

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Sources: COBAC regulations.

D. Challenges for Financial Sector Development and Further Regional Market Integration

117. The CEMAC region will need to maintain or strengthen efforts in the financial sector to achieve, at a minimum, the level of development reached elsewhere in the region. Currently, the formal financial system plays only a limited role in ensuring broad-based economic growth and poverty reduction. The lacking market infrastructure also impedes the implementation of regional monetary policy and prevents gains from both further regional integration and financial deepening. Although reforms in several areas have been undertaken in recent years, full implementation and application across all member countries are needed in order to achieve a deeper and well-functioning financial system.

118. A gradual move to more market-based monetary instruments would support financial integration and deepening in the CEMAC region. The regional central bank’s reliance on direct, nonmarket-based monetary instruments, such as reserve requirements, interest rate controls, and discretionary liquidity operations prevents the emergence of market-based transactions. The introduction of treasury or central bank bills would promote regional inter-bank market activity (by providing collateral for transactions) and develop a yield curve. Furthermore, bond market development would also reduce the need for reserve requirements, which currently impose an implicit tax on bank transactions because of the low remunerations.

119. Greater interest-rate flexibility could result in broader access to financial services. Banks are reluctant to accept further deposits at the current high minimum deposit rate, especially in view of the significant excess liquidity in the system. The interest-rate controls benefit insiders (those already having an account) at the expense of outsiders. Lifting the controls on deposit rates would lead to a lowering of bank deposit rates, encouraging banks to accept deposits from a wider range of customers. The maximum lending rate may also undermine the private sector’s access to credit because banks may want to increase lending rates to higher-risk customers.

120. Structural problems, especially in the legal sector, must be addressed in order to increase bank lending to the private sector. While the recent regional initiatives, such as setting up a deposit guarantee fund and reforming the regional payment and settlement system, will support financial development, national efforts must focus on strengthening the judiciary sector and business environment. Examples include accounting and bookkeeping practices in the corporate sector, settlement of legal disputes on the collection of collateral, and the registration of collateral where surveys of local practices—including those conducted in connection with the FSAPs for Cameroon and Gabon—have identified particular problems.

121. MFIs should be seen as complementing and not substituting for a formal financial sector. Recent efforts to regulate the microfinance sector will help the sector develop in a balanced and sound way. However, the efforts devoted to microfinance—including in the area of supervision and regulation—should be complementing efforts to provide a framework in which the formal financial sector can deepen.



Regional Central Bank of Central Africa (Banque des États de l’Afrique centrale).


Capital adequacy ratio


Central African Economic and Monetary Community (Communauté Economique et Monétaire de l’Afrique centrale).


Central African Banking Commission (Commission Bancaire de l’Afrique centrale).


Credit Bureau (for returned cheques) (Centrale des Incidents de Paiement)


Electronic interbank settlement system (Compensation Interbancaire Régionale)


Central African Deposit Insurance Fund (Fonds de Garantie des Dépôts en Afrique Centrale)


Financial Sector Assessment Program




Microfinance institutions


Nonperforming loans


Organization for the Harmonization of African Business Law (Organisation pour l’harmonisation du droit des affaires en Afrique) OMAC Central African Monetary Office (Office Monétique de l’Afrique Centrale)


Real Time Gross Settlement System (Système de Gros Montants Automatisé—SYGMA)


Monetary Interbank System (Système Monétique Interbancaire)


Sub-Saharan Africa


Central African Customs and Economic Union (Union Douanière des États de L’Afrique centrale).


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Prepared by Jakob Christensen and Felix Fischer.


See Holden and Prokopenko (2001) for a review of the literature on the links between financial sector growth, economic growth, and poverty reduction. See also Levine et al. (2000) for an econometric analysis showing the positive link between financial intermediation and growth. The study also confirms that legal and accounting reforms that strengthen creditor rights, contract enforcement, and accounting practices can boost financial development and accelerate growth.


See Box 1 for a description of the institutional arrangements in the CEMAC.


Private oil companies only rely on the domestic banking system to a limited extent. However, given that their production is included in GDP, measures of financial development that are standardized by GDP tend to be lower than in non-oil exporting developing countries. Therefore, in the analysis below, ratios to non-oil GDP are used for comparison with other non-oil producing countries.


Private sector lending in the CEMAC region may be limited because its member countries have smaller private sectors than other African countries. However, the lack of data, particularly on public enterprises, hinders a careful assessment of this issue. One can approximate CEMAC’s private sector lending by comparing its ratio of total expenditures (excluding interest payments) to GDP. According to this measure (which ranges from 11 percent of GDP in the Central African Republic to 21 percent of GDP in Equatorial Guinea), the public sectors of CEMAC countries are actually smaller than the average of 22 percent of GDP for sub-Saharan Africa.


For example, after the oil price plummeted to $10 per barrel in 1997, government deposits in the banking system dropped to 1 percent of GDP in 1997 from an average of 2.5 percent of GDP in the early 1990s.


In 2000, COBAC introduced a CAMEL rating system for commercial banks, under which the Sysco rating, a bank’s capital counts for 30 percent, the quality of its portfolio for 20 percent, the quality of management and internal control for 20 percent, earnings for 10 percent, and liquidity for 20 percent. Banks are consequently divided, by rating, into four groups. A rating of one stands for solid banks; a two rating for banks with a good financial situation; three for fragile banks; and four for banks that are in a critical state.


See Section C for a discussion on the new regulatory framework for microfinance.


Since the application of regulations for microfinance adopted in April 2002, COBAC has conducted three evaluation missions to assess the active MFIs in Congo (February-June 2003), Central African Republic (March-May 2004), and Chad (November 2004-February 2005). Similar evaluation missions will be conducted in Cameroon, Gabon, and Equatorial Guinea starting in March 2005. Furthermore, each member state has set up a professional association for MFIs and a department for microfinance issues within the ministry of finance.


COBAC indicated that current shareholders of banks were not willing to inject new capital into them. Given the absence of capital markets, further capital increases need to be made at the rhythm of retained profits. The Basel Accord recommends a minimum of 12 percent for countries with a higher risk profile.