(Business in Cameroon) - At the close of October 2023, Beac's secondary market for government securities registered a surge in interbank transactions via repurchase agreements (repo), reaching a total of CFA 4,031 billion. This significant increase of CFA 431.4 billion within a month is revealed in data released by the central bank. In comparison, transactions using this mechanism amounted to CFA 3,599.6 billion at the end of September 2023.
The interbank repo, established as an interbank financing technique by Beac's Monetary Policy Committee on December 18, 2014, involves the exchange of marketable securities for cash over a specified period. This transaction requires the signing of a framework agreement between the involved parties, facilitating an automatic transfer of ownership of the pledged securities once the repayment date elapses. "We don't even have to go to court to obtain this transfer of ownership," points out a central bank executive.
Given the guarantees of transaction completion it offers, repo, initially met with caution by banks, is increasingly used in interbank transactions in the Cemac zone. For example, compared with the year 2022, transactions via repurchase agreements rose by 64.2% at the end of October 2023, with overall transaction volume peaking at CFA 2,588.7 billion on December 31, 2022. Better still, the volume recorded in October 2023 was up 483.5% compared to the CFA833.7 billion recorded in 2021, according to analyses of Treasury securities market data published monthly by Beac's Central Securities Settlement and Registry (CRCT).
A strategic tool amidst monetary policy constraints
In the face of monetary policy restrictions implemented by Beac since the close of 2022 to combat inflation, interbank repo emerges as a strategic tool for Cemac banks. The austere monetary policy involved several key rate increases, rendering refinancing more expensive for banks, suspension of liquidity injection operations, and intensified liquidity withdrawals within the banking sector to reduce liquidity and constrain credit institution financing of economies.
Addressing this challenging context during the 2nd ordinary session of Beac's Monetary Policy Committee on June 23, 2023, Governor Abbas Mahamat Tolli acknowledged the banking sector's adaptive response to the tightening monetary policy through the increased utilization of repurchase agreements.
A dual solution for liquidity and market obligations
Beyond addressing liquidity challenges, repurchase agreements serve as a solution for banks operating as Primary Dealers on Beac's government securities market. These institutions fulfill their obligation to sell at least 30% of securities acquired on the primary market annually on the secondary market by lending money to each other and pledging their Treasury securities.
As of October 2023, Primary Dealers retained a significant 60.7% of securities issued on the primary market, contrasting with institutional investors (17.2%), credit institutions other than primary dealers (15.5%), Beac as part of its securities buyback program (3.8%), and individual investors (2.9%), who still exhibit reluctance towards investing in public securities.