Senegal’s Banks Post Record-Beating Return on Equity of Over 17%

Dakar, Senegal

The banking sector in Senegal has achieved an impressive milestone, reporting a record-breaking return on equity (ROE) of over 17%. This remarkable feat is attributed to the sector’s access to ample and cheap deposits from households, which has enabled banks to invest in government paper with substantial returns.

Key Factors Contributing to the Sector’s Profitability

• Ample and Cheap Deposits: Households’ deposits have provided banks with a steady source of funding, allowing them to invest in risk-free operations.
• Strong Net Interest Margin: The net interest margin on these operations has been a major contributor to the sector’s profitability, enabling banks to maintain a strong balance sheet.
• Limited Bankable Projects and Regulatory Requirements: The limited number of bankable projects and regulatory requirements that mandate medium- and long-term asset financing have boosted liquidity levels.

Factors Restricting Lending Activities

• Subsidiaries of International Banking Groups: Subsidiaries of international banking groups have restricted their exposure to West African Economic and Monetary Union sovereigns, limiting lending activities.
• Limited Interbank Market: The lack of a developed interbank market has increased the accumulation of liquidity by the banking system.

Expert Opinions on the Sector’s Performance

While some may question whether an 8% ROE ratio is adequate for Senegal’s economic environment, industry experts agree that the sector’s performance is impressive given the current circumstances. The news comes as a welcome relief to investors and regulators alike, who have been monitoring the sector closely.

Conclusion

Senegal’s banking system appears to be on solid ground, providing a stable foundation for economic growth and development in the country. With its robust profitability and low liquidity risks, the sector is well-positioned to support the nation’s economic ambitions.