Interview: Boualem Djebbar, Karim Eddine Khellili
What role can new credit guarantees play in terms of encouraging increased financing for small and medium-sized enterprises (SMEs)?
KARIM EDDINE KHELLILI: The creation of new credit guarantee funds highlights a willingness to strengthen SMEs’ position vis-à-vis banks. As any banker knows, there are several risks related to investment projects initiated by SMEs, and Algeria is no exception. Banks’ own lack of funds and meagre capitalisation combined with limited debt capacity makes it challenging for them to fully assist SMEs in their development plans. A weak financial structure, absence of rigorous accounting procedures, lack of financial transparency, poor cost control, time overruns and weak management are among the factors that handicap projects. With the creation of the Caisse de Garantie des Crédits d’ Investissement and a guarantee fund for SME loans, public authorities have adopted a policy of encouraging business creation by decreasing lending risks for important but underdeveloped segments. The funds are tools that facilitate access to credit for SMEs.
The development of the Algerian financial market and the promotion of the Algiers Stock Exchange will provide a funding alternative and diversify financing sources. The market offers several modes of financing for companies, whether public or private, in the medium and long term through the issuance of new shares and bonds. It allows for industrial restructuring in the sector and the creation of new productive centres by directly injecting savings into new issues.
BOUALEM DJEBBAR: Financing SMEs is a priority for public authorities given their importance in the development of the national economy. As a result, SME financing is a strategic axis of the banking sector, and in recent years the creation of new financial instruments, such as the public guarantee funds and leasing companies, have helped SMEs access expanded financing. The relationship between large state-owned banks and guarantee funds is complementary – indeed, they minimise operational risk while helping expand the SME segment.
What do you see as the most pertinent obstacles to increasing the scale of the banking sector?
DJEBBAR: The banking sector has been significantly reformed in recent years to help increase the size and scope of public banks. Several players, including large public banks such as ourselves, have implemented a lengthy process of development and modernisation for several years now. This consists, among other things, of modernising payment instruments, improving electronic banking and, perhaps most importantly, diversifying and adapting the means and modes of financing the economy. This means expanding bank loans, leasing, equity participation, capital investment and mechanisms for credit guarantees for SMEs. This also includes the development of the Systeme Interbancaire de Telecompensation, or automated clearing house system that has been operational since 2006, and the expansion of electronic banking by encouraging widespread use of debit cards.
In addition, increasing bancassurance activity could be a vector for the improvement of the sector and will allow for increasing the activity of agencies. Other fundamental reforms are being taken to address some of the more intractable challenges of the past. Actions are already being taken to modernise bureaucracy and work culture. For example, we are aiming to create a more customer-oriented approach that is still responsive to the needs of legal and regulatory frameworks.
KHELLILI: A reliable, efficient and safe national telecommunications network would prove to be a real catalyst for the full realisation of modern banking services.
Commercial banks have been in negotiations over the last decade with the Post and Telecommunications Regulatory Authority and Algeria Telecom for the creation of a high-speed, efficient and secured closed network for financial institutions. This multi-service network could contribute to the establishment of a centralised architecture that would facilitate exchange of inter- and intra-bank data and end-to-end payment transactions. Such an infrastructure will provide any customer access via his or her preferred channel, whether it be an ATM, electronic payment terminal or the internet. These services add significant value as well as provide banks with three great advantages: faster transmission of data, increased efficiency of administrative services and a significant reduction in interchange processing fees.
In your opinion, what will be the impact of Algeria’s new rating system on the sector?
KHELLILI: The new rating system is focused on supervision from a risk management perspective, because it allows for the classification of banks according to their performance and relative to the level of their risk management. The creation of a rating system allows for early detection of vulnerable banks and financial institutions, preserving the stability of the system, but also ensuring the protection of customers. It will also allow for accurate assessment of risk, which will help the market to address differentiated borrowing rates in the interbank market while taking into account the financial solidity of individual banks. Furthermore, banks will be able to both retain proper functioning and reduce vulnerability while increasing their anticipation capacity through the implementation of firewalls in both periods of exogenous and endogenous crisis, allowing banks a better method for billing customers. A similar system for customers is crucial as well. Regular and direct contact with the customer as well as computerisation of refund tracking for different types of credits could be a possible solution. The introduction of a scoring system for all customers could also have a positive effect and ensure flexibility of the organisational schema.
DJEBBAR: This system will strengthen the supervision of banks, thereby ensuring financial and banking stability in Algeria. Indeed, it will encourage banks to further improve their trade performance and prevent internal oversights. One of the areas in which this will be most relevant is the general risk profile of banks, which will likely change as more banks become – as we have already said – more active in riskier segments, such as SME lending. Incentives to grant SMEs loans and mortgages as well as plans to reschedule the debt of viable SMEs should have a positive economic impact. However, it is still necessary that banks ensure that these tools translate into an improvement of their portfolio and development of their sector of activity. While the credit guarantee funds will help, an outside system for evaluating risk, reducing vulnerability and communicating weakness will improve stability in the sector.
What sorts of skills are lacking and how will this shortage hamper the sector’s growth?
DJEBBAR: In order to ensure the continued expansion of the sector not just in terms of size but in terms of sophistication as well, there is a clear and obvious need to ensure that employees are qualified on all levels. This not only means ensuring access to good secondary and university education among the populace, but introducing continued education programmes to improve the quality of sales teams, the effectiveness of risk management and, more broadly, increased business intelligence – all of which allows us to get in step with the evolving international standards of Basel II and Basel III.
KHELLILI: Undoubtedly training is all about responding to a lack of competency by introducing the appropriate skills sets and developing individual training plans, either internally with experts or externally in partnership with national or foreign bodies. Strategic training initiatives are being designed to address specific abilities that include: management skills, such as leadership and coaching; capacity planning and decision-making; functional competencies, which entail self-confidence, autonomy, negotiation and persuasion, and communication; and generic skills such as adaptability, flexibility and customer service.
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