Regional Banking Health under Scrutiny
A surge in non-performing loans has pushed Central Africa’s Banking Commission, COBAC, to flag a potential risk cycle for lenders operating across the six-nation CEMAC bloc. Its newly released 2024 activity report paints the most detailed picture of asset-quality slippage since 2016.
Headline Numbers at a Glance
The stock of so-called compromised loans reached CFA 2 024 billion by year-end 2024, up CFA 144 billion or 7.7 percent in twelve months. Relative to total gross lending of CFA 12 501 billion, the impaired ratio now stands at 16.2 percent, its highest level of the decade.
Within this aggregate, overdue exposures classified as “loans in default” rose 6.3 percent to CFA 1 536 billion, equal to 12.2 percent of all outstanding credit. Past-due but less severe accounts amount to CFA 189 billion, while litigated or frozen claims hover near CFA 288 billion.
Country Trends Diverge Sharply
Numbers differ markedly across the union. Cameroon’s impaired portfolio expanded 14.5 percent, Gabon’s jumped 31.4 percent and Congo-Brazzaville recorded a contained 5.6 percent uptick. Chad, Equatorial Guinea and the Central African Republic meanwhile posted double-digit declines, relieving part of the regional average.
Analysts attribute the dispersion to sector composition, fiscal stance and the pace of post-pandemic normalization. In oil-producing Gabon, a slower budget execution cycle reportedly delayed payments to engineering suppliers, while Congo’s more gradual infrastructure calendar helped limit stress on commercial contractors.
Economic Backdrop and Credit Quality
COBAC’s economists note that regional GDP recovered to roughly 2.8 percent growth in 2024, yet liquidity tightened as BEAC raised its policy rate to curb imported inflation. Higher funding costs, combined with lingering arrears in public procurement, translated into weaker cash-flows for borrowers.
In an interview, a senior banker in Douala observed, “Our small-cap clients absorbed two shocks at once: pricier inputs and steeper debt service.” Similar comments were echoed by an IMF mission chief, who cautioned that delayed fiscal consolidation could add another layer of uncertainty.
How Exposed Are Banks?
Despite headline deterioration, regulatory capital cushions remain above the 8 percent minimum for most lenders, at an average 12.4 percent. Provision coverage improved slightly to 63 percent, reflecting stricter accounting standards introduced by COBAC in early 2023.
However, the watchdog warns that concentration risk is high: the ten largest borrowers still account for more than a quarter of gross loans. A single negative event in construction, hydrocarbons or wholesale trade could therefore push some institutions close to the distress threshold.
Investor Reading of the Signal
Foreign portfolio managers following CEMAC sovereign bonds view the NPL trend as a reminder of fragile transmission channels. Yet they also highlight the region’s under-banked demographics and forthcoming digital-finance reforms as longer-term upside, provided prudential ratios avoid a sudden cliff.
Local corporate treasurers are responding by stretching maturities where possible and renegotiating collateral. In Brazzaville, several mid-sized importers have reportedly shifted toward supply-chain finance facilities backed by international insurers, limiting recourse to overdrafts that carry floating rates indexed to the BEAC window.
Regulatory and Policy Toolbox
COBAC plans to intensify on-site inspections in 2025, focusing on credit underwriting and recovery processes. The regulator is also testing an early-warning dashboard fed by real-time payment data collected through the regional switch GIMAC, an initiative designed to pre-empt systemic stress.
Member governments, for their part, reconfirmed during the December summit in Yaoundé their commitment to clear verified domestic arrears. Congo-Brazzaville’s finance ministry indicated it would prioritize further digitalization of customs and tax collection so as to widen the fiscal space without new levies.
Digital Turn Can Mitigate Future Risk
Fintech adoption, still nascent in the union, could help diversify revenue and reduce reliance on collateral-heavy corporate lending. A pilot open-banking framework, drafted with the support of the World Bank’s IDA window, is slated for public consultation in early 2025.
Industry associations argue that mobile-money transaction histories, once integrated into credit scoring, will expand access for informal traders and smooth cyclical volatility. “Data can compensate for the absence of hard collateral,” said a fintech entrepreneur in Pointe-Noire, underscoring the transformational potential of digital rails.
Outlook and Action Points
Looking ahead, most forecasters expect the impaired-loan ratio to stabilize around 15 percent in 2025, assuming oil prices hold and arrears clearance accelerates. The baseline envisions CEMAC credit growth of 5 percent, below the pre-covid average but sufficient to meet working-capital needs.
Key variables to monitor include the pace of BEAC policy normalization, progress on the Gabonese fiscal package under IMF review, and the effectiveness of Cameroon’s export-diversification plan. Any positive surprise on these fronts would relieve pressure on bank balance sheets.
For now, cautious optimism prevails. COBAC’s early warning, coupled with ongoing reform commitments, offers investors and policymakers a clear roadmap: tighten credit discipline, accelerate digitalization and sustain fiscal prudence to keep the region’s banking engine on a healthy, inclusive trajectory.
Market participants will also watch the regional treasury-bond calendar. A smoother issuance pattern could ease crowding-out effects and leave banks with more room to finance private projects, particularly in renewable energy and agri-processing, two priorities highlighted in national development plans.
