Financial Crime World

Senegal’s Banking Sector Reinforces Capital Requirements Amidst Regulatory Overhaul

Strengthening the Banking Sector

The Senegalese government has taken decisive steps to reinforce capital requirements and implement regulatory reforms to strengthen the country’s banking sector.

Enhanced Capital Requirements

As part of the overhaul, banks in the West African Economic and Monetary Union (WAEMU) zone are now required to hold a minimum level of core capital equivalent to 5% of their exposure to credit, market, and operational risks. Additionally, a conservation buffer has been established at a maximum level of 2.5% of the bank’s total exposure to risk.

Objectives

The move aims to enhance the resilience of Senegal’s banking sector and ensure that institutions have sufficient capital buffers to withstand potential shocks. The new requirements follow the example set by Basel III, an international regulatory framework for banks.

Minimum Share Capital Requirements

The government has also set a minimum share capital requirement for credit institutions in WAEMU member states at:

  • XOF10 billion (approximately USD 17 million) for banks
  • XOF3 billion (approximately USD 5 million) for financial institutions of a banking nature

Insolvency, Recovery, and Resolution

The legal and regulatory framework governing the insolvency, recovery, and resolution of banks in Senegal is overseen by:

  • OHADA Uniform Act on the Organization of Collective Procedures
  • Law of 2008

Procedures

The framework provides for three procedures to deal with companies in difficulty:

  • Preventive settlement: aims to avoid insolvency or closure of business and enable the discharge of a company’s liabilities through a preventive composition agreement.
  • Judicial recovery: presupposes the cessation of payments by the company.
  • Liquidation of assets: also presupposes the cessation of payments by the company.

ESG Requirements

Voluntary Adoption

While there are no specific banking regulatory requirements related to environmental, social, and governance (ESG) matters in Senegal, credit institutions are encouraged to implement or strengthen their ESG responsibility by adhering to international standards. These standards promote good corporate governance, transparency, and sustainability.

Conclusion

The implementation of these reforms is expected to enhance the stability and resilience of Senegal’s banking sector, thereby supporting economic growth and development in the region.