Philippe-Henri Dacoury-Tabley, governor of the Banque Centrale des États de l'Afrique de l'Ouest

The governor of the Banque Centrale des États de l'Afrique de l'Ouest, Philippe-Henri Dacoury-Tabley, outlines his monetary policy to increase capital and maintain stable inflation levels. Writer Nick Kochan

Q: Could you give an overview of the monetary policy aims of the West African Economic and Monetary Union's (WAEMU's) central bank?

A: A primary aim of the Banque Centrale des États de l'Afrique de l'Ouest (BCEAO) is to maintain price stability within the WAEMU region. On condition that this aim is respected, the central bank lends its support to the union's economic policies with a view to healthy and lasting growth.

Q: What is the outlook for inflation and money supply in the coming period?

A: In the short term, the rise in prices should remain moderate in the union as a whole. In fact, the rate of inflation should be maintained at about a target of 2% on an annualised basis, at the end of 2010.

In a context marked by stable prices and uncertainty of growth at a regional level, the offer of money operated by the BCEAO on the union's money market, which is regional, will be adjusted to the banks' need for refinancing, while still taking care that the inter-banking rates move within the corridor that the central bank wishes.

Q: What is the purpose of that policy of raising the minimum paid-up capital for the region's private banks?

A: A session of the union's Council of Ministers on September 17, 2007, adopted a proposal by BCEAO to raise the minimum social capital of the union's banks and financial organisations from CFA Fr1bn ($2m) to CFA Fr10bn and from CFA Fr300m to CFA Fr3bn, respectively.

This measure aimed to strengthen the financial basis of the WAEMU's credit institutions. This decision also aimed to strengthen the banks' capacity to intervene, in particular with a view to enabling them to meet the financial needs of the economy, and to do so within the bounds of prudence.

Q: Could you describe how this policy of increased capitalisation will be implemented?

A: It relates to the organs controlling the credit institutions concerned with finding the ways and means to adapt to the new norm of capital.

Therefore, they have the choice between bringing in new money on the part of the shareholders, the incorporation of possible reserves, recourse to the financial market and consolidation.

The raising of capital must be carried out in two stages. In the first phase, the minimum capital of the banks was raised to CFA Fr5bn and that of the financial institutions to CFA Fr1bn.

A time lag of three years, running from January 1, 2008, to December 31, 2010, was retained to allow the banks and financial institutions to adapt to these first thresholds. Nevertheless, these new thresholds were subject to the demands of approval in capacity of bank- or financial institutions-introduced reckoning from January 1, 2008.

The date for the application of the thresholds of CFA Fr10bn and CFA Fr3bn, respectively, for banks and financial institutions will be fixed at the end of an assessment of the first phase.

In the Côte d'Ivoire, as in the other states of the union, there are three categories of credit institution: several credit institutions are already complying with the December 31, 2010, measure for raising capital; some credit institutions are capable, in respect of their situation, of complying with the December 31, 2010, measure for raising social capital; and finally some credit institutions would not be able to adapt to the norm unless specific measures were taken.

Q: What is the anticipated effect on the banks in the region of this policy? Will we expect consolidation of the banking system around a few very large banks?

A: The prime aim is not to have 'very large banks'; otherwise, the norms would have been much higher. The measure aims to strengthen the financial position of the banks and consequently strengthen the financial stability of the zone.

However, it is possible that in time, fusion-absorption operations could be translated into a reduction in the number of institutions working in the sector. At the end of March 2010, 99 banks and 18 financial institutions were functioning in WAEMU.

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