Financial services to see privatisation, new products and regulatory improvements in Algeria


Algeria’s banking sector has held up relatively well despite recent macroeconomic weakness. Credit growth remained in positive territory through the first three quarters of 2017, albeit having slowed from the double-digit rates seen prior to 2016. Lenders are capitalised well in excess of Basel III norms, while profitability remains high, particularly among private sector banks. However, a sharp reduction in liquidity has been one of the biggest challenges facing Algerian banks in recent times, with reserves, deposits and liquid assets all on the wane and, as a result, interest rates on the rise. Long seen as a closed system dominated by state-run banks and characterised by moderately unsophisticated products and technology, there are signs that the sector could be on the cusp of profound change. E-payments were introduced for the first time in late 2016, and if mobile banking is introduced in 2018 as expected, the impact could be significant in terms of boosting financial inclusion, as has happened in many other African markets. Meanwhile, Islamic banking services are on the brink of going mainstream, with the big six state-run banks committing to launch such offerings by early 2018.

Although precise plans have not yet been put in place, there are signals from the authorities that they are considering opening up the banking sector to more private sector and foreign competition, notably through the relaxation of the restriction on foreign ownership of majority stakes in local banks. Additionally, there have long been vague plans to privatise one or more of the state-run banks – including through listing on the local stock exchange – but fiscal pressures currently facing the government mean that this could move closer to reality in 2018.

Public Banks 

The six government-run banks continue to dominate the sector, accounting for 88.3% of the market in 2015 and holding a similar share of the sector’s total assets of AD12.9trn (€106.8bn) at the end of 2016. Of these, Banque Nationale d’Algérie (BNA) is the largest, with some AD2.8trn (€23.6bn) in assets in 2016, followed by Banque Extérieure d’ Algérie (BEA) with AD2.6trn (€21.3bn) worth of assets, according to the latest financial statements available. Although it has diversified its interests in recent years, BEA remains the bank of Sonatrach, the national oil company. In third place, Banque de Développement Local (BDL) posted assets of AD846.9bn (€7bn) in 2016. The other state banks are Banque de l’ Agriculture et du Développement Rural, Crédit Populaire d’Algérie (CPA) and Caisse Nationale d’Epargne et de Prévoyance (CNEP). These state banks are the main financiers of public and private investment, including the operations of state-owned enterprises (SOEs).

Private Players 

Private banks held the remaining 11.7% of sector assets in 2015. The local subsidiaries of France’s BNP Paribas, having been established in 2002, and Société Générale, which began operating in Algeria in 1987, are the leading private players. These two banks accounted for AD248.9bn (€2.1bn) and AD297.1bn (€2.5bn) of assets, respectively, in 2016. Bahrain-headquartered Al Baraka Bank, with $1.9bn in assets in 2016, has operated in Algeria since 1991 and is the country’s leading provider of Islamic banking products. Gulf Bank Algeria also has a major market presence, but its parent company, Burgan Bank of Kuwait, does not report country-by-country financial results. There are 14 foreign-owned private banks in total, composed of 10 subsidiaries, three branches of international banks and one joint venture.

Partly due to formal restrictions on the financing of SOEs, as well as continued reluctance among SOE executives to engage them, the private banks mainly focus on the private sector, and the external sector in particular. Together, they account for a share in excess of 50% of the trade finance segment, for example. According to the central bank – the Bank of Algeria – assets across the sector reached AD13.5trn (€112bn) as of June 2017, up 8.7% over the same month of 2016.


The branch networks of Algerian banks are not as dense as in neighbouring countries – counting one per 25,660 inhabitants, compared to 1:7437 in Tunisia, for instance. In total, there were 1469 branches in 2015, of which 1123 (77%) belonged to public banks and the remaining 346 to private entities, according to a report on the sector by Rachid Sekak, senior consultant at BRS Consultants. While public lenders are represented across the country, the private banks’ networks are largely concentrated in the urban conglomerations in the north of the country. Of the private sector banks, those with the largest branch networks were Société Générale with 87 branches, BNP Paribas with 71 and Gulf Bank Algeria with 63.

Algeria’s two largest banks figured among the top-ranked banks in Africa for 2016, with BNA in 13th place in terms of assets, closely followed by BEA in 14th, according to annual rankings by Jeune Afrique magazine. Both were down one place on 2015.

Privatisation Pipeline 

Amid fiscal pressure from weak oil prices and a reform agenda to diversify the economy while promoting private sector development, the authorities are understood to be readying one or more of the state-run banks for privatisation. This is not the first time the government has considered bank privatisations; it reached an advanced stage of preparations for the sale of a majority stake in CPA in 2007 before abandoning the exercise, citing the brewing global financial crisis. In order for future privatisations to move forward smoothly, however, industry players have identified the need for more stringent procedures regarding non-performing loans (NPLs) at state-owned banks. In addition, the undertaking and publishing of stress test results by the central bank would enhance the attractiveness for investors considering these privatisations.

In 2013 CPA was included on a list of eight public enterprises that would be considered for privatisation by way of flotation. In addition to CPA, CNEP and BEA are also seen by analysts to be among the entities ripe for privatisation, likely by way of a stock market listing. While the flotation of Biopharm in 2016 was viewed as a success, the subsequent abandonment of the listing of Société des Ciments de Aïn El Kébira has since curbed enthusiasm for similar developments (see Capital Markets overview).

Foreign Restrictions 

In 2009 the government introduced restrictions on foreign investors holding majority stakes in Algerian businesses, including banks. Since the move was not retroactive, it did not impact banks already operating in the country, but it has constrained new investors entering the market. As part of broader efforts to reform the economy, this limit was removed in 2017 for all business sectors not deemed strategic. Despite the authorities having signalled in late 2016 that the restriction may be relaxed for banks, it appeared by mid-2017 that this would not be the case, since the strategic energy and financial sectors remained subject to the same 49% limitation according to the latest draft of the law in June. “In order to face the crisis, the 2018 Finance Law should aim to give more freedom to economic actors, increase the level of transparency among companies and institutions, and rethink the tax system,” Mohammed Tifour, general manager at FransaBank, told OBG. “It will enable banks and financial institutions to participate in a larger fashion to the national economy.”

While privatisations of state-run banks could still take place with the restriction in force, they are unlikely to be attractive acquisition prospects for foreign investors without the possibility of securing a majority stake. Whether by initial public offering or trade sale, the opening up of Algeria’s banking sector to greater private and foreign ownership in the medium term could be a big game-changer, both for the sector itself, and in terms of its contribution to broader economic development.

Regulatory Framework 

While the Ministry of Finance is a key player in the sector, being the majority shareholder in the six state-run banks that dominate it, regulatory responsibilities fall to the Bank of Algeria. The bank determines which financial institutions can do business in Algeria and under what conditions. It also sets the limits for the capitalisation and liquidity ratios under which banks operate, and is responsible for ensuring that norms are respected. The Parliament also plays a critical role as the ultimate arbiter – deciding the fate of the restriction on foreign investors holding majority stakes in local banks, for instance.

Algeria’s banks already operate according to Basel II standards, and are transitioning to the more stringent, risk-based norms of Basel III. In its 2017 Article IV review, however, the IMF urged the authorities to “accelerate the transition to a risk-based supervisory framework, enhance the role of macroprudential policy, strengthen the governance of public banks and develop a crisis resolution framework”. The fund points to heightened risks arising from the oil price shock, manifesting themselves in reduced liquidity, higher interest rates and elevated default risk.


Having trended lower over the five years to 2014 among public and private sector banks alike, capital adequacy ratios have since improved significantly at public banks, while continuing a gentle decline among private banks.

Although the public banks continue to operate with lower capital buffers than their private sector counterparts, the levels in both cases are still relatively high. Tier-1 capital adequacy across the banking sector bottomed out at 13.3% of risk-weighted assets in 2014 before improving to 15.9% in 2015 and rising further to 16.4% in 2016. This was driven by the recapitalisation of public banks, which saw their Tier-1 ratio increase from a low of 11.7% in 2014 to reach 15.6% in 2016. Private sector banks, meanwhile, having operated with Tier-1 buffers greater than 30% towards the end of the last decade, have seen a steady decline to 19.7% by 2016. In any case, these ratios at public and private banks remain comfortably above Basel III norms.


Although Algeria’s banks have traditionally been profitable, and they remain so in comparison to their peers in other countries, the more challenging conditions have led to an erosion of profitability since 2014. According to the IMF, the return on assets (ROA) across the banking system remained relatively high, at 1.9% in 2016, having been stable around this level for a number of years. However, this masks a deterioration in the performance of private banks, whose average ROA slipped from 4.6% in 2012 to 2.8% by 2016, albeit still comfortably higher than the 1.8% ROA that was recorded by the government-owned banks that year. “Regulatory restrictions have curbed the ability of the private banks to achieve the same high margins and commissions that they were previously able to achieve in the active trade finance segment. This has hurt their profitability in recent years,” BRS Consultants’ Sekak told OBG.

Because public banks operate with smaller capital buffers, their return on equity (ROE) was higher than those in the private sector – at 20.8% and 15.1%, respectively – despite the higher ROA of the latter. Public and private sector banks’ ROE have declined from 25.1% and 19.6%, respectively, since 2014.

Rising interest rates have seen the net interest margin improve from 66.8% of gross revenues across all banks in 2015 to 72.4% in 2016. There was a particularly strong improvement among public sector banks – from 65.8% to 72.1% over the same period – seeing a convergence towards private banks, which rose from 71.5% to 73.4%. Public banks have been more efficient in keeping non-interest expenses down as a share of earnings before tax: from 31.6% in 2010, public entities had reduced this to 25.4% by 2016. From a similar starting point of 31% in 2010, private sector banks have gone in the other direction, with non-interest expenses reaching 38.2% of pre-tax earnings by 2016.

Credit Growth 

Having recorded a strong double-digit increase of 11.3% in 2015, the IMF estimates that credit growth is on course to slow, from 9.8% in 2016 to 6% in 2017 and down to 2% in 2018. This slowdown is the result of both supply and demand factors. More stringent control of liquidity and lending by the central bank means that banks are not in a position to play their full traditional role as principal financiers of economic growth. Meanwhile, the slowdown in GDP growth – expected to come in at 0.76% in 2018, according to the latest IMF estimates – means that demand for credit is also on the wane.

In an effort to bolster demand and support industrial development, at the end of 2015 the government eased restrictions on consumer lending and auto loans that were originally introduced in 2009 as a way to prevent households from becoming over-indebted. Lending caps were lifted on seven categories of goods produced or assembled domestically – such as vehicles and a number of electronic products – which are now eligible for loans ranging from three months to five years. “The current environment is positive for local and well-established manufacturers. Consumer demand will only naturally increase,” Elie Maroun El Asmar, CEO of HSBC Algeria, told OBG. “Hopefully this will be an incentive for entrepreneurs to reinvest their profits to expand their businesses and an invitation for local investors to venture into production.”

In 2009 the government required all importers to use documentary credits as a way to control and reduce the level of imports. “Banks were allowed to issue documentary credits up to four times their capital, but this multiple was reduced to two times in 2014 and halved to one times capital in 2015,” Sekak told OBG. These restrictions have proved particularly onerous for the private banks, which are over-represented in the trade finance segment.

Outstanding credit across the sector has more than doubled over the past six years, from AD3.7trn (€30.7bn) in 2011 to AD8.5trn (€70.5bn) in June 2017. Lending to the public and private spheres has largely moved in tandem, and by the end of 2016 the figure was almost evenly split: AD3.97trn (€32.9bn) to the public sector (including local government) and AD4trn (€33.2bn) to the private sector. Beyond 2018 the IMF expects credit growth to accelerate in line with the economy – which is due to recover – reaching high single-digits from 2020 onward.

Interest Rates & Liquidity 

According to the IMF, the recent shortage of liquidity has meant that some banks have had to borrow from the central bank or other sector players through the interbank market, and the excess reserves commercial banks had previously held at the central bank have largely dried up. Until it was reduced to 3.5% in September 2016, the central bank’s discount rate had been remarkably stable, at 4% since March 2004. By contrast, the combination of reduced supply and continued demand for borrowing by banks has led to higher interbank rates: the day-to-day rate climbed from 0.34% at the end of 2015 to 2.88% at the end of 2016, and remained elevated at 2.30% in June 2017. Moreover, while the average monthly interbank rate has fluctuated between 0.52% and 2.20% from December 2015 to December 2016, it jumped from 0.93% to 2.53% in May 2017.

For many years, the banking sector had an abundance of liquidity, with liquid assets comprising over half of all assets as recently as 2011. This meant funding was readily available to public and private businesses on relatively attractive terms. However, the oil price decline has seen a similar reduction in liquidity; as a result, liquid assets fell from 38% of the total in 2014 to 27.2% in 2015, before rising slightly to 27.5% in 2016. This improvement was entirely driven by augmented liquidity at public banks, since the proportion of liquid assets at private banks continued to fall, from 35.9% in 2015 to 28.1% in 2016. The central bank has moved to ease the liquidity crunch by reducing the reserve requirement from 12% to 8% in April 2016 and reopening the discount window – where banks can swap eligible bonds for cash – in March 2016.


Reduced liquidity has seen declining deposits, with demand deposits falling from a high of AD5.9trn (€48.9bn) in 2014 to AD5.1trn (€42.3bn) in 2015 and AD4.9trn (€41bn) in 2016. The central bank also reduced the obligatory reserves requirement in August 2017 from 8% to 4%. Meanwhile, term deposits increased 8.8% to reach AD4.44trn (€36.8bn) in 2015. They then declined slightly to AD4.41trn (€36.5bn) by end-2016. The combination of strong credit growth and stagnant or declining deposits has seen the loan-to-deposit ratio rise from 50.6% in 2011 to 84.6% in 2016. This may have bottomed out, however, as both the stock of demand and term deposits rose during the first half of 2017, to AD5.2trn (€43.1bn) and AD4.6trn (€38.1bn), respectively.

Non-Performing Loans 

Having improved steadily in previous years, the rate of NPLs spiked in 2016, hitting 11.4% from 9.8% a year earlier. The IMF partly attributed this to delayed payments by the government to its suppliers, but noted the banks have a high level of provisioning (55.4%) in place. This aggregate figure also masks a divergence between public and private banks. Totalling 23.6% of all loans from public banks in 2009, NPLs improved to 9.7% by 2014 before deteriorating to 12% in 2016 as the economy faced headwinds. Among private sector banks, however, NPLs more than doubled from 3.8% of all loans in 2009 to 8.8% in 2015, before falling back to 7.8% in 2016.

Financial Inclusion 

While many Algerians remain outside the formal banking sector, major progress has been made in recent years; according to the World Bank, the share of the adult population with an account at a financial institution increased from one-third in 2011 to one-half in 2014. Still, adults earning low incomes or living in rural areas remain much less likely to become account holders. Digital and Islamic banking are both in the early stages of development in Algeria compared to neighbouring countries, but hold promise to make significant future inroads in financial inclusion as they reach more of the population. “Islamic banking is a niche with growing demand and banks should be well prepared to supply it. These alternative banking products imply specifications that call for trained knowledge and new commercial approaches,” Mohamed Krim, CEO of BDL, told OBG.

Digital Banking 

Physical branches are the principal channel through which people interact with their banks. Indeed, banking and payment activities have largely been low-tech in Algeria until recently, with ATMs and electronic payment system devices numbering only 1250 and 3000, respectively. In the past, a lack of confidence in their reliability meant many of the machines in place went largely unused. According to the World Bank, between 2011 and 2014 the percentage of the population reporting that they used an ATM as their principal mode of cash withdrawal fell from 14.2% in 2011 to 10.3% in 2014, even as the proportion with a debit card increased from 13.5% to 21.6%. To align with the digital era, important steps have been taken since October 2016 to provide the option of electronic payments using bank cards through the internet, as well as electronic payment terminals in places of business. More companies began to facilitate e-payments during 2017, while the authorities signalled that the rollout of mobile payment services could begin as early as 2018 (see analysis).

To reach a better flexibility in treating transactions and credit requests, as well as enhancing the efficiency of export operations, several Algerian public banks – such as BDL, BNA and BEA – have been investing in new information systems. “The next revolution for the Algerian banking system is to work with high technical information systems that allow banks to keep real time control of their operations and offer an advanced banking experience to customers”, Mohamed Krim, CEO of BDL, told OBG.


Although Islamic banking institutions have been in Algeria for decades, sharia-compliant financial products only began to enter the mainstream market in 2017. Leasing has been growing strongly for a number of years, partly because some products are considered consistent with the Islamic faith. The segment is made up of six specialty providers and seven banks that provide leasing products. The two leading specialists are Maghreb Leasing Algérie and the Arab Leasing Company, while Société Générale and BNP Paribas are the best-placed banks.

Having tripled in size in the seven years to 2014, the leasing market stagnated in 2015 and declined by 12.1% to AD40bn (€331.8m) in 2016 as economic conditions deteriorated. However, things are looking up. “Activity during the first half of 2017 suggested full-year activity could come in at AD55bn-60bn (€456.2m-497.7m), which would result in annual growth of up to 50%,” El Amine Senouci, director at Maghreb Leasing Algérie, told OBG. “There is huge growth potential in leasing because the market is far from reaching saturation. Leasing accounts for less than 1% of total credit, which is not as developed as in Morocco and Tunisia, for example.” However, another economic crisis could reduce investment, which would hit leasing activity, he noted.


While Algeria’s banks remain profitable, 2018 is likely to prove challenging. With economic growth set to slow to below 1%, NPLs can be expected to creep upward, undermining asset quality. Given that they have smaller capital buffers, are experiencing more rapid increases in NPLs and will be more negatively affected by fiscal austerity, public banks are faced with having to raise additional capital in the medium term. The onus is also on sector authorities to transition to a more robust regulatory framework in line with IMF recommendations to prevent financial instability arising from economic weakness. Under the Basel III framework and its net stable funding ratio, banks will assess long-term capital expenditure loans more carefully, given their impact on liquidity ratios.

Overall, the longer term outlook for the banking sector is bright, with credit expected to pick up with economic growth from 2019. The possible privatisation of state-run banks, coupled with the prospect of an end to the 49% limit on foreign shareholdings, could represent an attractive entry opportunity for foreign investors. Meanwhile, increased utilisation of digital and Islamic banking products represents organic growth opportunities, and may herald a shift away from the prevailing cash preference in society.


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The Report: Algeria 2017

Financial Services chapter from The Report: Algeria 2017

The Report: Algeria 2017

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