A group of financial experts has ordered all commercial banks in the Central African Economic and Monetary Community, CEMAC, to raise the minimum amount of their capital reserves.
The 24-member Committee of Banking Supervisors of West and Central Africa says the reserves must be US $20 million [10 billion FCFA] to enable them cushion the effects of any future financial crisis. Previously, they were required to maintain up to US $ 4 million.
The measures take effect in 2014. They were approved at the latest meeting of the banking supervisors’ committee held in early August in the Cameroonian capital, Yaounde.
Delegates to the meeting agreed that the global financial crisis has not been as hard on Africa’s financial institutions as it’s been in developed economies. They say it’s largely because of the weak integration of developing countries in the international financial system. But they warn Africa may not be so fortunate in the future, and its banks must be ready for unpredicted risks.
Idriss Ahmed Idriss the newly elected secretary general of the Committee of Banking Supervisors of West and Central Africa says,” the committed decided to strengthen the banks and microfinance institutions in Central Africa by raising their required capital reserves. The underlying principle of any bank is to be able to fulfill its financial obligations and to produce its deposits upon demand. To stay healthy, banks must generate their own income and help encourage economic activity.”
The Central African Economic and Monetary Community is helping banks in the sub-region in meeting the new capital requirement. Lucas Abaga Nchama, governor of the Bank of Central African States, BEAC, says the sub-regional central bank and the Central African Banking Commission are disbursing US $24 million for the purpose.
Ahmed Idriss warns that banks and microfinance institutions that don’t cooperate will face tough sanctions.
He says these banks have no right to exist because they will greatly weaken the financial system in the sub-region. He further states the supervisory committee will force uncooperative institutions to liquidate, merge or be taken over.
Observers describe the measures as the start of an opportunity to reshape the supervision of banking activities in the region and harmonize standards to ensure the efficiency of the regulatory system.