Banks' Exposure to Sovereign Debt and Loans to The Private Sector in WAEMU
Loading...
Date
2026
Authors
Djeneba DRAMÉ
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
This paper examines the relationship between banks’ exposure to sovereign debt and their lending to the private sector. To do so, we use hand-collected bank-level data from all West African Economic and Monetary Union (WAEMU) countries over the period 2003-2022. The results show a negative relationship between banks’ exposure to sovereign securities and their loans to the private sector. Our findings are robust to alternative estimation techniques and proxies for loans to the private sector and domestic public debt identification. The heterogeneity analysis uncovers that the effect is more pronounced in middle-income countries (LMICs) than in low-income countries (LICs). Additionally, we document that foreign banks, particularly Pan-African banks, reduce their loans more than domestic banks. However, larger and well-capitalized banks tend to mitigate the effect.