(Ecofin Agency) – In a particularly unstable economic context in West Africa, BOAD is facing increasingly pressing challenges, with two member states, Guinea-Bissau and Niger, which have stopped reimbursing.
The financial rating agency Fitch Ratings has just revised downwards the outlook for BOAD’s rating, moving it from stable to negative, while maintaining its rating at ‘BBB’. This decision, justified by Fitch, reflects the uncertainties weighing on the Bank’s ability to maintain the quality of its loan portfolio, in a context where two of its debtors, Guinea-Bissau and Niger, are showing signs of financial fragility .
Guinea-Bissau, representing 5% of the bank’s loans, is in the process of restructuring its public debt and has suspended its repayments to BOAD until the end of the current year, while Niger, which represents 10% of the portfolio, despite the recent lifting of economic sanctions by ECOWAS, is slow to resume its payments. The inability of these two countries to respect their commitments could affect the financial stability of the institution, indicates the rating agency.
According to her, the shadow of non-performing loans looms large. Their increase, already observed at 2.6% at the end of 2023, could intensify if payments do not resume, warns Fitch. BOAD certainly benefits from an ongoing capital increase, which should strengthen its solvency, but the rating agency remains cautious about the potential impact of the operational environment on the bank.
BOAD operates in an environment considered high risk by the rating agency, notably due to low credit quality and high political risks in the countries where the bank is active.
And for the American institution, the recent dilution of the BCEAO’s stake following the new capital increase “affects support”. The BCEAO’s share fell from 47% to 36%, reducing its influence and potentially its support when needed.
“Following subscription to the new capital increase, the share of the Central Bank of West African States (BCEAO) in the capital decreased significantly, from 47% to 36%, leading to a weakening of our assessment of shareholders’ ability to support at ‘bb’ (compared to ‘bbb-‘ previously)”, underlines Fitch. However, the rise of non-regional shareholders who see their share increase from 6% to 13% introduces a potential new lease of life in the bank’s strategy, although this could also bring new governance and strategic alignment challenges, notes the agency.
However, one positive point remains: BOAD can still use its good liquidity situation as a trump card. Fitch highlights the bank’s privileged access to BCEAO refinancing facilities, a decisive advantage. “The valuation reflects the bank’s ‘strong’ coverage of short-term debt with liquid assets and proven access to capital markets. Fitch only considers deposits held at the regional central bank and regional sovereign debt securities that it can refinance with the central bank (after applying a 10% haircut) to be liquid. The assessment of liquidity is reinforced by BOAD’s access to the refinancing window of the regional central bank.argues the agency.
This level of liquidity, coupled with the support of its members, gives BOAD a capacity for resilience in the face of current and future challenges, and also thanks to the exceptional capacity of the BCEAO to get its hands directly on the fiscal resources of Member States to support the capital increase project to which they have subscribed.
Under Serge Ekue, BOAD cleans its stables
BOAD significantly strengthened its capital ratios in 2023, reaching 35.1% and 34.1% respectively for equity/assets and usable risk-weighted assets. This progression is all the more remarkable given that the debt ratio, which exceeded 200% a few years ago, was reduced to 176% at the end of 2023, which is gradually giving the bank free rein to continue to mobilize resources. Fitch expects these indicators to remain largely stable in the medium term, supported by paid-up capital payments spread over five years starting in 2023, and the continued expansion of the bank’s operations led by Serge Ekue.
Fiacre E. Kakpo
