Benchmarked with WAEMU and SSA peers, banksinBenin show significant vulnerabilities. While financial soundness indicators do not present immediate stability concern, the quality of banks’ loan portfolio is low and has constrained credit to the private sector. Stress tests confirm that credit risk is of particular concern. Structural impediments are at the root of these risks, including problems with property titles, information asymmetries, and the weak judiciary, which complicates contract enforcement. Loan concentration, mostly in the commerce sector with
This Selected Issues paper reviews the vulnerability and risks associated with Benin’s banking sector. Banks in Benin show significant vulnerabilities. Although financial soundness indicators do not present immediate stability concern, the quality of banks’ loan portfolio is low and has constrained credit to the private sector. Stress tests confirm that credit risk is of particular concern. Structural impediments are at the root of these risks, including problems with property titles, information asymmetries, and the weak judiciary, which complicates contract enforcement. Structural reforms and a re-calibration of fiscal policies to reduce the government’s lending needs are necessary to mitigate these risks over time.
This paper assesses and disseminates experiences and lessons from low-income countries (LICs) in Sub-Saharan Africa that were selected by the Africa Department in 2015-16 as pilots for enhanced analysis of macro-financial linkages in Article IV staff reports. The paper focuses on the common characteristics across the pilot countries and highlights the tools used in the analysis, the challenges encountered, and the solutions deployed in overcoming them.
. The analysis applies three methods: i) an income statement decomposition for all banksinBenin, to identify the determinants of their profits; ii) a data envelopment analysis (DEA) for all banksinBenin and across the WAEMU, to benchmark banks’ efficiency in generating profits; and (iii) a sensitivity analysis assessing the response of some key components of the income statement to macroeconomic shocks.
B. Income Statement Decomposition
5. A decomposition of the main components of a bank’s income statement can help identify the key drivers of profitability
-capitalized, with ten out of the 12 banksinBenin having complied with the regional decision to increase minimum capital. One of the noncompliant banks was placed under provisional administration and options are being explored regarding the handling of the other nonconforming bank. Earlier this year in March 2012, my authorities closed one bank that lost its license in 2009 and was under provisional administration since then. The regulation and supervision framework was strengthened with the adoption of the two legislations on the decentralized financial structures and banking
This Selected Issues paper discusses a growth-at-risk (GaR) model which is used to compute a distribution of expected GDP growth for Benin. The model predicts growth rates of ~6.7 percent for 2019 and a range of 6.4–6.8 percent in the medium-term (depending on the specification). Risks to future growth are assessed to be tilted to the downside. 2019 GDP growth is estimated around 6.7 percent, on average, across several specifications. The model considers external factors (world trade, global financial conditions, trade policy uncertainty, and US consumer sentiment), country-specific exposures to external factors (commodity terms of trade and trade-partner growth), and domestic factors (domestic financial conditions, fiscal policy, and the exchange rate). The analysis reveals that growth projections estimated both for the median and mode are slightly higher conditioned on 2018 data, yet when expectations about 2019 are considered using World Economic Outlook projections they fall. Overall, risks seem to be tilted to the downside. Medium term growth is estimated at between 6.4 and 6.8 percent. Risks to growth remain tilted to the downside, yet less skewed than in the short term.
results show that both the net open position in foreign currency and the system’s capital adequacy ratio would remain within the required thresholds after the shock.
The Work ahead in Country Cases
Improvements in banking supervision are complementary to efforts to reduce risks to financial stability and enhance banks’ efficiency. Malawi, with IMF technical assistance, adopted a prompt corrective action framework to respond to distressed banks. InBenin, Chad, and Uganda, the growing presence of pan-African banks underscored the need for consolidated
revenues. 3 In addition to customs duties and processing fees, VAT is levied on these imports, which have to be declared for domestic consumption because the Beninese authorities refuse to process imports prohibited by Nigeria as transit goods.
Financial sector . The principal shareholders of two banksinBenin are Nigerian. They are sufficiently capitalized and possess some buffer against possible shocks to Nigeria’s banking system. Another bank under receivership also has Nigerian ownership. These three banks hold about 15 percent of Beninese deposits and a similar
privatization of state banks was critical in strengthening the soundness of the financial system. They broadly supported requests for action plans/tenders to privatize the remaining state banksinBenin and Lithuania and for the performance criterion on privatizing the largest state-owned bank in Romania. There was more disagreement with the staff on conditionality placed on privatizing public enterprises outside the banking sector. Although, Directors supported the decision for the World Bank to take the lead role in monitoring conditionality on privatizing the
International Monetary Fund. Monetary and Capital Markets Department
the context of increased competition. Bank profitability has declined over the past five years in line with the gradual narrowing of bank overall interest margins, partly associated with increased competition in