The regional banking watchdog, Commission bancaire de l'Afrique centrale (Cobac), held its annual meeting in Douala, Cameroon, on December 20th. Lucas Abaga Nchama-the EquatoGuinean president of Cobac and governor of the regional central bank, Banque des Etats de l'Afrique Centrale-presented a paper on ways to improve Cobac's ability to support failing banks. The banking watchdog currently has little ability to intervene to prevent insolvent institutions from going bankrupt. Current regulations, dating from 1992, grant Cobac the authority to dismiss the managers of failing banks in an effort to turn them around, or failing that to put them into administration. However, these powers are largely reactive, often to difficulties that are terminal. They have therefore done little to prevent lenders from going under.

This issue has gained particular urgency in recent years following a spate of bank closures in the region, particularly in the biggest economy, Cameroon. In one high-profile instance Cobac took control of the ailing Commercial Bank of Cameroon-the local affiliate of which is Commercial Bank Tchad-in November 2009 and appointed a new provisional administration to run it. However, a year later the bank still lacked a credible restructuring plan, which had been delayed by legal wrangling over its ownership. The bank's future is far from clear.

The proposed reform package seeks to bring supervision of the banking sector closer to international standards. It will empower Cobac to intervene earlier in failing financial institutions, when clear criteria have been met on capital adequacy ratios, liquidity levels and anomalies thrown up by audits. Furthermore, temporary administrators will have the power to stop lending to clients deemed not to be creditworthy. There are currently 43 banks operating in the six-country regional grouping, Communauté économique et monétaire de l'Afrique centrale (CEMAC). In aggregate they are in sound financial health. According to Mr Nchama, at the end of September 2010 amounts of deposits, credit and reserves had all improved to sound levels.

The encouraging overall picture hides acute difficulties faced by several of the region's banks, particularly the smaller ones. Although Cobac has not named the offenders, the watchdog concedes that a number of institutions have not met Cobac's modest minimum-capital requirements. Several banks failed to meet a deadline of June 2010 to hold at least CFAfr5bn (around US$10m) of capital, due to rise to CFAfr10bn by June 2014. This indicates that there are a large number of financial institutions whose lack of capital makes them unviable.