Interview: Mohamed El Kettani
What can be done to improve access to finance and banking services in rural areas?
MOHAMED EL KETTANI: In Côte d'Ivoire the decade-long political crisis negatively impacted the banking sector, leaving market players with little room to grow. Nonetheless, the country is back on track and considerable progress has been made. However, when it comes to access to finance, it is still a question of supply rather than demand. Despite a wide array of financial institutions and a creditwo rthy customer base, banks have failed to design their distribution models with a view to steadily improving access to finance. As banking services are financial products at heart, access can only be increased through the adaptation and improvement of distribution models. Clearly, whether seen through a bank assets-to-GDP ratio or in terms of population per branch, there is still a ways to go. Indeed, we know there is a problem when the revenue growth of banks depends upon such a small percentage of the population.
Increasing the rural population’s access to banking services is, before anything else, a question of geographic planning. Despite rapid urbanisation across Africa, many people still live in the countryside. As such, bankers must carefully follow urban planning in order to best assess opportunities for branches in remote areas.
What obstacles must small and medium-sized enterprises (SMEs) in Africa overcome in order to gain access to long-term financing?
EL KETTANI: Improving SMEs' access to financing is a global issue, even when SMEs create wealth and jobs. Unfortunately, issues with financial accountability and the high cost of long-term resources are common to many sub-Saharan African countries. In terms of financing, SMEs are often confronted with good governance and transparency issues. To alleviate said problems, there is a strong need to foster a managerial and entrepreneurial culture in the younger generation. Indeed, education and other training systems are not keeping pace. What matters most to bankers is confidence in the ability of SMEs to sufficiently control the future and thus to meet their commitments and honour their engagements. It is a question of the quality and rigour of management. While public policies can help increase the participation of local SMEs in the real economy, those measures must also be progressive and in line with the banking sector in order to fully succeed.
How can banks structure their assets and liabilities with a view to mitigating risk?
EL KETTANI: Without going into too much detail, one can easily understand that short-term resources (deposits) can, by definition, be quickly withdrawn from banks’ reserves (total assets). However, retail banks, within the scope of their financial intermediation services, use their clients’ short-term resources to provide long-term loans. When banks lend money long-term, they are likewise reimbursed long-term; however, clients retain the ability to withdraw their short-term deposits at any given time. So, long story short, banks are naturally exposed to imbalances between their short-term assets and their long-term liabilities. That said, banks are prepared for this dilemma and many mechanisms exist to mitigate potential issues. Real problems come into play when exogenous shocks, such as socio-political or financial crises, affect the system as a whole.
How can Côte d’Ivoire work to reduce the ratio of non-performing loans (NPLs) in the country?
EL KETTANI: While the NPL ratio is a key measure of bad credit, one must not forget the crucial role that a clean business environment plays in addressing and reducing the quantity of bad loans. This is largely dependent on variables outside the financial system. For the banking sector itself, better risk control is needed to guarantee effective operations management and governance. Commercial decisions should be kept from unduly influencing risk assessments. To that end, the banking sector typically uses the “four eyes principle“ as a precaution. The survival of the bank is at stake.
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