Financial Crime World

Senegal’s Financial System: A Stable and Resilient Sector

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In its latest review of Senegal’s financial system, experts have concluded that the sector does not pose a systemic risk, thanks to a robust framework and prudent practices.

Banking Sector

The banking sector has demonstrated strong profitability and liquidity, with a return on assets of 1.8 percent as of mid-2012. While there may be some concerns regarding asset quality, the situation is not as dire as initially thought. The ratio of gross nonperforming loans (NPLs) to total loans was 16.2 percent at end-2011, but this figure is largely driven by three banks with NPLs exceeding 20 percent. In fact, most other banks have NPLs below 5 percent.

  • High level of provisioning for NPLs mitigates risks
  • Relatively long time needed to exercise guarantees through the judicial system has not led to a complete deterioration in asset quality
  • New NPLs are still relatively low, indicating limited risk-management capabilities among some smaller banks

Profitability

The banking sector is thriving, with access to ample and cheap deposits from households allowing them to purchase government paper at attractive rates. The net interest margin on these nominally risk-free operations is substantial, boosting overall profitability.

Liquidity Risks

Liquidity risks are also low for the banking sector as a whole, although three smaller banks do not meet minimum liquidity requirements. This is largely due to structural factors such as:

  • Limited bankable projects
  • Regulatory rules requiring banks to finance medium- and long-term assets with liquid resources

Microfinance Sector

The microfinance sector has grown rapidly in recent years and is also performing well overall. While there are some concerns regarding the profitability of smaller institutions, the larger MFIs have demonstrated sound financials and are increasingly competing with commercial banks.

Conclusion

Senegal’s financial system is characterized by a strong banking sector, robust liquidity levels, and a thriving microfinance industry. These factors collectively contribute to a stable and resilient financial system that does not pose a systemic risk.