As the established banking centre of the West African Economic and Monetary Union (Union Economique et Monétaire Ouest-Africaine, UEMOA), Côte d’Ivoire’s financial services industry has sustained double-digit growth since emerging from the national crisis in 2011. The market still faces legacy issues, such as high aggregate non-performing loans (NPLs) and under-performing public lenders, but authorities are steering a course of ambitious restructuring and privatisation that should help sanitise the sector.
As in many emerging markets, lending is still skewed towards the high-end corporate segment. Yet growing competition among regional and international banks is driving efforts to attract both consumers and small and medium-sized enterprises (SMEs). With banking penetration still low as a share of the country’s regional economic weight, there is wide scope for the sector to further support economic growth.
With aggregate assets of CFA6.6trn (€9.9bn) as of November 2014, Côte d’Ivoire’s banking sector was roughly 40% larger than that of the UEMOA’s second-largest market, Senegal, according to the Central Bank of West African States (Banque Centrale des États de l'Afrique de l'Ouest, BCEAO). Banking assets have grown from 25.8% of GDP in 2003 to 26.8% in 2013, still far below the UEMOA average of 44.9%. Bank lending, meanwhile, remains low at CFA3.3trn (€5bn) or 18% of GDP in November 2014 – comparable figures in Morocco are closer to 72%. This is largely due to the market’s lower penetration, both by assets and number of clients.
On the number of Ivorians with financial access, estimates vary: 10.7% according to the IMF, 11.9% according to Ecobank and 14% (3m accounts) according to the country’s banking association, the Association Professionnelle des Banques et Etablissements Financiers, APBEF-CI). Unsurprisingly, penetration is still highly clustered in Abidjan and secondary towns, while the corporate market dominates lending and deposits. Data from the UN Capital Development Fund (UNCDF) show around half of all bank branches are in Abidjan, while the reach of microfinance institutions remains far more constrained than in Benin, the UEMOA’s leading microcredit industry.
Banks have long been conservative in reaching out to the potential rural retail market. More recently, disruptions linked to the decade-long crisis, which saw six central bank branches closed outside the capital, have also led to higher operating costs. “Given that the BCEAO has not reopened the branches in key rural areas in Côte d’Ivoire, it is a challenge for banks to open branches in those parts of the country since the cost of operation would be much higher,” Roland Gnezale, statistician at the APBEF-CI, told OBG.
Following a decade of lacklustre growth due to political unrest, the Ivorian banking system has seen a swift rebound since 2012. In the 10 years prior to this, the sector had grown far more slowly than its peer markets in UEMOA and anglophone West Africa: sector assets grew by an average of 8.8% a year to CFA4.95trn (€7.4bn) while lending rose by 6.8% a year to CFA2.3trn (€3.45bn), according to Ecobank. Aggregate equity among Ivorian banks grew by an average 10.6% a year over that decade, but sped up to 15.7% in the five years to 2012, thanks to the entry of seven new banks.
The run-up and aftermath to the 2010 Ivorian elections, however, caused a marked drop in loan growth. The sector’s loan-to-assets ratio dropped from 56.7% in 2009 to 46.4% in 2012 (below the regional average of 49.1%), while its loan-to-deposit ratio fell from 80.5% to 65.1% (compared to UEMOA’s 73.2%), according to Ecobank. Disturbances also caused more defaults on loans: the sector’s already-high NPL ratio rose from 15% in 2009 to a peak of 18.8% in 2011, before easing slightly to 16.1% in 2012 and 16.6% in 2013, according to figures from the IMF.
As the political situation stabilised and the economy began to rebound from its 2011 trough, loan growth accelerated from 2.6% in 2011 to 12.2% in 2012 and 23% in 2013, according to the APBEF-CI. While borrowers resumed servicing their debts in 2012, the bulk of remaining NPLs are legacy defaults that will require full provisioning and write-offs from banks’ balance sheets, according to Ecobank.
Banks have therefore increased their level of provisioning, which rose from 67.3% of NPLs in 2011 to 79.6% by 2013, according to IMF figures. Meanwhile, aggregate deposit growth accelerated from its 9% average over the decade to 2012 to 17% in 2013, reaching CFA4.74trn (€7.1bn).“While deposit growth has usually outstripped any rise in lending, the situation was reversed in 2013,” the APBEF-CI’s Gnezale told OBG. “This is because banks continued to gather deposits during the decade of crisis, but their appetite for lending was severely constrained; it is simply a return to trend.” Such rapid growth, and the significant upside given Côte d’Ivoire’s low penetration rate, has attracted growing interest from international and regional banking groups.
The country’s 24 commercial banks and one financing company – which together hold around 75% of financial sector assets by the IMF’s estimate – dominate both lending and deposit-taking. Foreign arrivals have raised the number of banks from 18 to 24 in the four years to 2012 – higher than Senegal’s 19, Mali’s 13 and Benin and Burkina Faso’s 12 each. Banks from France, Togo and Morocco dominate the market, which is highly concentrated – the top five banks made up 59.5% of deposits and 60.4% of lending at the start of 2014, according to the latest data available from the APBEF-CI. In contrast, the still-limited microfinance market is dominated by inefficient mutual savings societies – although strong growth at two recently launched foreign-affiliated microfinance institutions is drawing the eyes of foreign investors (see analysis).
Of the 18 subsidiaries of international groups that together control 57.3% of the Ivorian sector’s assets according to the IMF, the market is split between the traditionally dominant French banks (Société Générale, BNP Paribas), regional banks like Togo’s Ecobank and Mali’s Bank of Africa (BOA), and relatively new entrants from Togo (Atlantic Bank, 1997) Nigeria (Diamond Bank, 2011), and Cameroon (Afriland First Bank, 2014). Regional institutions like Ecobank and BOA have increased their presence in Côte d’Ivoire following the retrenchments of the 2008 global financial crisis. But perhaps the most visible recent arrivals are Morocco’s three lenders – Attijariwafa, Banque Centrale Populaire and Banque Marocaine du Commerce Exterieur, all of which have been aggressively seeking to increase their market share since entering the country. Together, these Moroccan banks controlled 25.3% of lending and 25.8% of deposits by 2014.
A look at the country’s 10 largest banks clearly shows the clout of foreign institutions in Côte d’Ivoire – especially from France, whose Société Générale and BNP Paribas have been there the longest (since 1962). The largest Ivorian bank, SGBCI (72% owned by Société Générale), held 17.8% of sector deposits and 14.6% of loans at the start of 2014, according to the APBEFCI’s most recent data.
Listed on the local exchange in 1976 with a roughly 20% float, SGBCI runs the broadest private network, with 69 branches, of which one-third are outside Abidjan. The bank has a clear lead among public-sector employees – some 40% of whom bank there, according to brokerage Hudson & Cie – and counts more than 250,000 total clients. Having restructured its operations in 2013, including a wage hike to make its salaries equal to that of competitors, SGBCI aims to open 10 new branches a year.
Second largest is Ecobank, with 11.2% of deposits and 14.3% of loans. Present in the country since 1989, the Togolese pan-African lender has branches in 35 countries and is triple-listed in Abidjan, Accra and Lagos. In Côte d’Ivoire, it developed its network rapidly, reaching 33 branches and 429 employees as of early 2015. Despite challenges linked to its Nigerian operations that emerged in 2013, Ecobank has capitalised on French banks’ eroding market share in both corporate and retail. It is the largest of nine banks that run operations in at least four UEMOA markets, outpacing Société Générale and Bank of Africa.
Three Ivorian lenders also feature among the top 10. Banque Internationale pour l'Afrique Occidentale (BIAO-CI), ranking third-largest by lending (10.4%) and deposits (11%), was 80% acquired by the Ivorian insurance holding Nouvelle Société Interafricaine d' Assurances (NSIA) in 2006, and rebranded as NSIA Banque Côte d’Ivoire in 2014. Banque Atlantique-CI (BACI), ranking fourth by deposits (10.4%) and sixth by lending (9.4%), is half owned by Atlantique Financial Group, which sold a 50% stake to Morocco’s second-largest lender, Banque Centrale Populaire, in June 2012 for €1bn and took over its management, giving the Moroccan bank access to a network in seven UEMOA markets including Côte d’Ivoire.
Société Ivoirienne de Banque (SIB) – the fifth-largest by deposits and fourth by lending, at 9.5% and 10.7% respectively – is 49% state-owned, with the other 51% having been sold in 2009 by France’s Crédit Agricole to Morocco’s largest bank, Attijariwafa. Under this new management, SIB has been rapidly expanding its network to drive retail penetration, reaching 48 branches as of early 2015, up from 16 at the time of Attijariwafa’s purchase.
Banque Internationale pour le Commerce et l' Industrie de la Côte d'Ivoire (BICICI), which is 60% owned by BNP Paribas, holds sixth place by deposits (8.9%) and fifth by lending (9.9%). With 35 branches – the latest two having been opened in San Pédro and Adjamé in November 2014 – BICICI is focusing on retail and SME business to rebuild its lead after suspending operations during the 2011 civil unrest. Coming in at seventh by both deposits (7.7%) and lending (7.5%), the largest majority state-owned bank is Banque Nationale d’Investissement (BNI).
Following Attijariwafa’s move in 2009, Banque Marocaine du Commerce Exterieur, Morocco’s third-largest lender and part of the Finance Com Group, followed suit and raised its stake in the regional BOA Group from 42% to a majority 51%. Currently present in 14 African markets, BOA-CI controlled 5.9% of deposits and 5.1% of loans, ranking eighth by both measures.
Rounding out the top 10 are Caisse Nationale des Caisses d'Epargne (CNCE), which was spun off from the postal service in 1998 and has the ninth-highest share of deposits (2.8%); Alios Finance Côte d’Ivoire, which is one of the oldest private banks in West Africa and now accounts for the 10th-highest share of lending (1.9%); and Bridge Bank Group, which ranks 10th place by deposits (2.4%) and ninth by lending (2.4%). Bridge belongs to the Senegalese Teylium group, which reduced its holding to 51% by selling a 30% stake to Tuninvest’s West Africa private equity fund in March 2014. Despite its relatively small size, the bank has emerged as a key player in the market for SME customers and could use its private equity backing as a springboard for acquisitions, potentially of state-owned banks – the government announced plans to restructure and privatise key banks in December 2013, though this has been delayed.
Some emerging regional groups are following in the footsteps of Ecobank and Attijariwafa by acquiring lenders that are already licensed in Côte d’Ivoire. “Regional banks like Orabank and Afri-land are trying to replicate the success of Ecobank in establishing a regional retail banking franchise,” Pascal Djereke, director of financial institutions relations at BNI, told OBG. Afriland, based in Cameroon and the second-largest bank in francophone Central Africa, acquired the failing Ivorian operations of Nigeria-based Access Bank in December 2013 and injected CFA17bn (€25m) into the lender, some 18 months after Orabank bought state-owned Banque Regionale de Solidaité, which was previously under public administration, in June 2012 (see analysis).
The market is also welcoming greenfield investment targeting the under-served SME segment. These include Libya-based Banque Sahélo-Saharienne pour l'Investissement et le Commerce (BSIC) in 2009; Burkina Faso’s second-largest lender, Coris Bank, in February 2013; and the Banque de Développement du Mali (BDM), which is expected in early 2015. So far, all of these command market shares below 2%.
While the Ivorian market is attracting a lot of attention from newcomers, developing a sizable asset base is not always an easy task. Access Bank, Nigeria’s fourth-largest, with operations in nine regional markets, was the first Nigerian bank to launch an Ivorian subsidiary in 2008. The new operations, however, proved a challenge and, faced with losses of about $20.7m in 2012 and an NPL rate of 85.53%, Access sold the Ivorian outfit to Afriland First Bank for $1m in December 2013.
In 2009 United Bank for Africa (UBA), Nigeria’s third-largest lender with operations in 18 markets, followed Access Bank’s lead and entered Côte d’Ivoire. In 2011 UBA restructured its Ivorian operations to mimic its success in Burkina Faso, and as a result, achieved a 1% share of deposits and 1.2% share of lending by the start of 2014, although it still faced a high NPL rate of 9.68%. “It is not always easy for an anglophone bank to establish in a francophone market,” Olivier Dadjeu, managing director of Afriland, told OBG. “Customers’ needs are different and therefore banks need to adapt to the local market.”
A second pair of Nigerian banks has entered since 2012: Nigeria’s fifth-largest lender Guarantee Trust Bank (GTB), which is present in five markets, and its seventh-largest, Diamond Bank. Diamond has benefitted from new BCEAO rules that allow regional branches and has established a subsidiary in Benin with operations in Côte d’Ivoire, Togo and Senegal. While Diamond controls just 0.7% of the sector’s deposits and 0.8% of its loans, GTB remains much smaller at 0.1% and 0.03%, respectively.
Although new entrants from Morocco have focused on developing retail by building on existing networks, most previous entrants launched greenfield projects, focusing – as is often the case in emerging markets – on the lucrative corporate market.
Established in Côte d’Ivoire in the 1970s and counting a majority of Ivorian bankers as its alumni, Citibank focuses on top-tier multinationals like Cargill and has structured some corporate and sovereign loans and bond issues, although its local balance sheet remains small, with 1.51% of sector deposits and 1.25% of loans. In recent years, the US bank has not been as active on regional bond issuance, although it underwrote Côte d’Ivoire’s $500m eurobond issue in July 2014 alongside Standard Bank and Deutsche Bank.
The UK’s Standard Chartered has operated in the country since 2001, joined by newer entrants like Gabon’s Banque Gabonaise et Française Internationale (BGFI), Coris, GTB and Diamond, all of which have focused on the corporate market, operating out of one Abidjan branch each. South African lenders are also expanding their presence, with Standard Bank opening a representative office in Abidjan to cover francophone West Africa in February 2014, while Nedbank holds a convertible bond of 20% of Ecobank’s equity. Lebanese investors like Bank of Beirut and Fransabank announced their interest in joining the crowd at the end of 2013, likely focusing on Lebanese owned larger SMEs, but as of early 2015 neither’s plans had materialised, partly due to long delays in government plans to privatise five state-owned banks.
The government maintains majority stakes in five lenders, as well as minority stakes of 10% in BIAO-CI and 49% in SIB. As announced in late 2013, it plans to sell the minority stakes by offering them on the regional exchange, and to restructure the wholly owned lenders. The sale of the stakes in BIAO and SIB should be relatively straightforward; however, it may be challenging for the government to privatise some of the smaller state-owned banks, given the need to restructure their books.
Of these five, the BNI is the only lender that retains net equity, while the other four hold negative equity. Having contracted PwC in 2013 to audit the five banks and propose a privatisation plan, the government in 2014 included CFA50bn (€75m) in its budget for their restructuring then set up a committee for the privatisation in February. In May, the committee announced that the privatisation would include Versus Bank, valued at CFA3bn (€4.5m), and Banque pour le Financement de l’Agriculture (BFA), both of which were 100% state-owned. In September 2014, the government liquidated BFA, though it still holds a 49% stake in SIB valued at CFA4.9bn (€7.35m), with the other 51% owned by Morocco’s Attijariwafa.
Although concrete details had yet to emerge as of early 2015, many bankers expect the government to merge BNI and CNCE into a larger and more competitive institution before selling off the three other banks. While the BNI focuses on the corporate and SME markets, the CNCE’s legacy as a savings society turned commercial bank (with around 180 branches in 2004) gives it a significant retail base, with about half of all bank accounts in the country, according to Ecobank. Restructuring the two other banks – SME-focused Versus Bank and mortgage-focused Banque de l'Habitat de Côte d'Ivoire (BHCI) – will require significant capital injections from the government in order to return them to positive net asset value prior to any sale (see analysis).
As larger banking groups expand their presence in UEMOA, the region’s central bank has been making moves to strengthen banks’ capital and solvency profiles.
Among its many tasks, the BCEAO dictates monetary policy for the CFA currency zone, which is pegged to the euro, while its regulatory division, the Banking Commission, supervises the regions banks. It also runs the regional money market, conducting Treasury bill auctions for sovereigns as well as repurchase operations with banks on bills and bonds, and runs banking infrastructure such as the real-time-gross-settlement system set up in 2004 and the GIM-UEMOA network of low-value payments.
The BCEAO has gradually tightened regulations for banks operating in the zone, doubling capital requirements to CFA10bn (€15m) by 2012 and enforcing a capital adequacy ratio (CAR) of 8%. Roughly a quarter of Ivorian banks missed the initial deadline, yet compliance has improved with the recapitalisation of two banks by foreign companies since mid-2013. The central bank also caps the exposure of any single borrower at 75% of a bank’s equity, and limits lending to affiliated companies within a group to 20% of equity.
As banking groups have expanded regionally, the BCEAO has revised its licensing and oversight rules to better reflect growing cross-border investment. In late 2012 it opened a “window” that allows banks operating a subsidiary in one UEMOA market to open branches in others. It has also begun calculating CARs based on banks’ total cross-border operations rather than on that of each jurisdiction separately.
The first bank to make use of this window was Diamond Bank, which opened a subsidiary in Benin and branches in Togo, Côte d’Ivoire and Senegal. Other would-be entrants like Mali’s BDM are expected to follow the same path. Growing investment from foreign banks is also prompting closer ties with other central banks in the region. “We have established mutual information exchange agreements with regulators in Central Africa, Morocco, Nigeria and soon Ghana to enhance our cross-border group supervision,” Tiémoko Meyliet Koné, governor of the BCEAO, told OBG.
A more structural challenge lies in the sector’s chronic excess liquidity, linked to the faster growth of deposits relative to lending in the decade to 2013, and also to intra-UEMOA fund flows. Though Ivorian banks’ high reliance on deposits insulates them from significant debt refinancing risk, the short tenure of most deposits has hampered banks’ long-term asset creation.
With an asset-to-deposit ratio of 70.3%, Côte d’Ivoire ranks as the country in UEMOA that is most heavily reliant on such low-cost funds, compared with 69.4% in Burkina Faso, 66.3% in Mali and 66% in Senegal, according to Ecobank. “Regionally Côte d’Ivoire has been sucking in liquidity from neighbouring countries like Mali, as there is a lack of assets in the region generally,” Pierre Aimé, head of corporate banking at Citibank-CI, told OBG. “This excess liquidity has helped to push corporate lending rates down.”
Banks have traditionally recycled excess liquidity into Treasury bills and sovereign bonds from the four UEMOA issuers – Côte d’Ivoire, Senegal, Burkina Faso and Mali – or into deposits held at the central bank yield-free. For example, larger banks like SGBCI and BICICI have long retained liquidity levels at the BCEAO far above the mandatory 5% reserve requirement: these were around CFA120bn (€180m) and CFA70bn (€105m), respectively, in the first quarter of 2014.
The central bank has traditionally applied a “transformation ratio” rule, which restricts the extent to which banks are allowed to convert short-term deposits into medium- to long-term loans, at 25% of the total. As a consequence, lending by Ivorian banks has remained highly skewed towards the short term, with loans of under two years accounting for a full 62.9% of the total in 2013 – virtually unchanged from the 63% rate in 2010 – while medium- and long-term loans accounted for 29% and 3%, respectively, according to figures from the BCEAO.
In a bid to improve banks’ intermediation, the UEMOA Council of Ministers revised the transformation rule, raising the ratio in question from 25% to 50%, effective from January 2013, to give banks more flexibility in expanding their loan books. “By relaxing the transformation ratio our aim was to encourage more longer-tenured bank lending to the real economy,” the BCEAO’s Koné told OBG. To make lending more affordable, the council also reduced the interest-rate cap on loans from 17% to 15%, effective from January 2014.
These measures had a marked impact. In 2013, long-term lending grew some 27% to CFA90bn (€135m), though this still made up just 2.9% of the total, while medium-term loans grew 28.2% to CFA854bn (€1.3bn) or 30% of lending, according to BCEAO figures. “We saw very strong growth in medium- to long-term loans in 2014,” APBEF-CI’s Gnezale told OBG. “While part of the reason may have been the change in the transformation ratio, another key factor is the significant investment in infrastructure, in which many banks have participated.”
Given lenders’ mix of liabilities, banks have clustered in the larger corporate and commodity trade finance markets. Excess liquidity and new competition have driven down prime corporate lending rates on medium-term loans (with a maturity of around two years) to the 6.25-7% range, while short-term capital of a three-month tenure can fall as low as 3.75% for blue-chip borrowers.
While larger corporates like Petro Ivoire, EcobankCI and SIFCA have been able to raise eight-year debt on the regional bond market at rates below 7%, most companies still finance themselves through banks. The government’s large infrastructure projects are mostly financed by development finance institutions, yet banks have expanded their lending to contractors and utility companies, while increasingly pooling their resources for larger corporate deals. Syndicating loans is becoming more common, as individual lenders’ financial capacity is relatively low by international standards. For example, SGBCI, the largest bank in the country, has a book of only CFA900bn (€1.35bn).
One notable recent example of syndication is the three-year, $360m structured crude oil financing programme agreed for the country’s refinery, Société Ivoirienne de Raffinage, running for three years and underwritten in June 2013 by Ecobank, Diamond Bank, BSIC, BIAO and BGFI. Another instance of this is the five-year, CFA130bn (€195m) finance deal for the country’s road maintenance fund, Fonds d’Entretien Routier, which was backed in February 2014 by Ecobank, UBA, SGBCI, BOA, SIB, BICICI and BGFI.
The largest syndication for a private borrower, however, dates from 2009, when South African MTN’s Ivorian subsidiary raised a four-year, CFA76bn (€114m) loan from BOA, BIAO, Ecobank, SGBCI, SIB, Access Bank, UBA and Standard Chartered. While banks have their eyes on emerging opportunities in the mining and hydrocarbons sectors, pressure on lending rates is spurring major lenders to expand competition into retail. “Banks are increasingly focusing on growing their fee revenue to compensate for downward pressure on their net interest margins,” Losseni Diabaté, Ecobank’s head of domestic banking in Côte d’Ivoire, told OBG. “This explains the competition on extending branches, since proximity to retail and SME clients will be key for fee growth.”
Banks in UEMOA have long been less profitable than their counterparts in anglophone African countries due to their higher operating costs and lower returns on investable securities. Indeed, while Ivorian banks’ return on assets rebounded from -0.8% in 2010 and -0.3% in 2011, this remained a low 1.1% in 2012 compared to an average of more than 2% in Nigeria. In terms of return on equity, the rebound was more dramatic, rising from -9.4% in 2010 to -4.5% in 2011 and 13.4% in 2012, according to IMF data.
Meanwhile, personnel costs have remained stubbornly high, at 79% of banks’ aggregate net revenue, down only marginally from 82.2% in 2009. With some 95% of profits derived from net interest margins, lenders are highly exposed to the downward pressure on corporate lending rates.
This trend is supporting larger banks’ increasing outreach to the under-tapped retail and SME segments, as well as their drive to develop fee revenues associated with transaction banking, corporate deal underwriting and sales of non-bank products. “While most banks are witnessing downward pressure on net interest margins, they are seeking to grow fee revenue not only through traditional commissions but also through relatively new sales – through bancassurance for instance,” Jean-Philippe Touré, director of retail and wholesale banking at Versus Bank, told OBG.
As with the sector as a whole, retail banking is highly concentrated in a handful of lenders. The top five lenders (SGBCI, Ecobank, SIB, BICICI and BNI) account for 75.3% of loans to individuals, while the top five by deposits (SGBCI, Ecobank, BIAO-CI, BACI and BICICI) account for 70.1% of retail savings of CFA1.44trn (€2.2bn), according to APBEF-CI.
As elsewhere in Africa, consumer lending in Côte d’Ivoire has been limited mostly to the narrow class of formally employed workers, given the need for collateral. “Most consumer lending remains collateralised, usually backed by employers,” Touré told OBG. “The challenge is that only a fairly narrow set of employers are seen as credible and solvent by the banks, which means only around 200,000 Ivorians have ever had access to credit.”
Nonetheless, competition has heated up. Nigerian banks like UBA and Morocco’s SIB have cut minimum lending amounts to as low as CFA5000 (€7.50). Meanwhile, some banks have cut rates drastically on specific promotions: BICICI, for example, unveiled a deal for 0% interest on education loans up to CFA1m (€1500) for 10 months – though the fees applied add up to the average consumer lending rate of over 12%.
As a result of rising competition, lending to individuals has sped up, growing 30.1% year-on-year (y-o-y) in 2012 and 31.4% y-o-y in 2013, according to APBEFCI. Total sums remained low, however, at CFA439.4bn (€660m) as of November 2013 – amounting to just 12.2% of total bank lending. Banks are also eyeing the potential to expand their very limited mortgage books by leveraging the government’s low-cost housing programme. “The consumer finance market is growing rapidly, both in volumes and value, even if NPLs remain an issue,” Hubert de Saint Jean, SGBCI’s managing director, told OBG. “Over the longer term the greatest potential lies in the mortgage market.”
According to state estimates, the total housing deficit sits at roughly 600,000 units and is rising by some 40,000 each year, with half the demand coming from cities outside Abidjan. To help address this, the government plans to build a total of 60,000 homes by 2015 with a budget of CFA428bn (€642m), targeting lower mid-market units priced up to CFA20m (€30,000) for lower-income earners (see Real Estate chapter). This will speed up the pipeline of projects for which banks can underwrite mortgages. “A key challenge for mortgage lenders is the relative lack of houses to finance,” Ecobank’s Diabaté told OBG. “To increase the supply of houses, we are forced to finance developers, who tend to under-estimate construction costs.” Although Côte d’Ivoire has a state-owned mortgage bank, the BHCI – which has only 1.05% of total loans but a high NPL rate of 9.89%, according to APBEF-CI data – authorities have been encouraging private lenders to expand their mortgage books through a regional mortgage refinancing mechanism.
Established in 2011, the Togo-based Caisse Regional de Refinancement Hypothecaire (CRRH), refinances lenders’ mortgages at 6% throughout UEMOA and issues guaranteed bonds on the regional market on a needs-driven basis. The CRRH – whose equity of CFA3.43bn (€5.1m) is funded 60% by 29 regional banks, 25% by the BOAD and 15% by housing finance firm Shelter Afrique – had issued three CFA20bn (€30,000) sets of 12-year bonds by the first quarter of 2014, with every issue oversubscribed. “The CRRH mortgage refinancing mechanism is clearly working, as it has started floating bonds since September 2013,” Hermann Boua, head of research at Hudson & Cie, told OBG. “This provides banks with a source of long-term financing for mortgages.”
While the absolute sums remain low, this mechanism has allowed banks to offer longer-maturity mortgages to consumers. Ecobank first offered 20-year mortgage loans in early 2013, followed by BACI and BIAO, although the market’s average is 15 years, compared to 30 years in the US. The banks most active in using CRRH refinancing are Ecobank, SIB, BICICI and SGBCI. As part of its civil housing agenda, the Ivorian government is asking lenders to offer rates of just 5.5% on mortgages for households with monthly income below CFA850,000 (€1275). To help meet this request, the CRRH is currently seeking concessional funding from the World Bank.
Spurred by new entrants and the drive by more established banks to bolster their networks, the number of bank branches nearly doubled in 2008-13, rising from 281 to 497, according to UNCDF. Ecobank has been especially ambitious in expanding its ATM network, and has sought to boost cost efficiency by setting minimum in-person withdrawals at CFA300,000 (€450). The bank now operates 127 ATMs, compared to about 100 for BNI and about 70 for SGBCI, with the latter operating the most branches. While many banks are investing heavily in bricks and mortar branches – and increasingly outside Abidjan – strong growth in mobile money since 2012 is spurring more banks to launch mobile services as a means to bridge the distribution gap, especially in the under-served north and west (see analysis).
Despite accounting for more than 80% of companies in Côte d’Ivoire, SMEs remain a broadly neglected segment – a common theme in Africa. To fill this gap in financial services, foreign donors operate partial risk-guarantee funds aimed at supporting banks in lending to SMEs. The French Development Agency, for example, runs the Arise programme, which guarantees 50% of the risk on pools of SME loans for fees of 1-3% – a similar scheme to the World Bank’s SME guarantee fund, the African Development Bank’s African Guarantee Fund for SMEs and the West African Development Bank’s Gari Fund.
The most active users of such guarantee funds are foreign-affiliated banks whose groups are Basel III compliant, such as BICICI and SGBCI. The largest aggregate lenders to SMEs are Ecobank and BOA, each of which lend roughly CFA70bn (€105m), although the most exposed to SMEs as a share of their loan books are smaller banks like Bridge Bank and Versus Bank, for whom SMEs account for roughly 70% of their lending. Building on the initial success of such guarantee funds – as well as a similar fund established by the employers’ association, the Confédération Générale des Entreprises de Côte d'Ivoire – the government announced a comprehensive plan for SME support in early 2014, covering the business environment, capacity and governance, as well as financing for SMEs (see Economy chapter). “The key to financing SMEs is to ensure strong corporate governance and accountability,” Charles Daboiko, managing director of Ecobank Côte d’Ivoire, told OBG. “Banks are too often discouraged to lend money because of a lack of guarantees, both from regulators and SMEs.”
Despite these advances, however, some 70% of SMEs claim difficulty in accessing bank loans, and 60% of SME lending is short-term working capital (with maturity of less than one year), according to the Ministry of Finance. Part of this is related to lack of basic skills like bookkeeping: “Small business owners often confuse turnover with profit, leading to an accounting mismatch,” Albert Kouatelay, former managing director at BFA, told OBG. Nevertheless, channels exist for those with sufficient organisation. “Private equity firms can be a good source of financing for SMEs that are well-structured,” said Daouda Coulibaly, SIB’s director-general. Though the BCEAO does operate a credit bureau, the Centrale des Risques, its data is limited to larger corporations.
The UEMOA has already moved to ease constraints on credit to SMEs, when in 2012 it implemented the Uniform Act on Secured Transactions promulgated by the Organisation for the Harmonisation of Business Law in Africa. The act considerably broadens the types of assets that can be used as collateral for loans, including future assets, and provides for the possibility of out-of-court settlements. Yet to bridge the wide information gap between banks and SMEs, the BCEAO is steering a drive to set up regional credit information bureaux that should unlock financing. “Lending to SMEs will only grow sustainably if the information asymmetry is rectified,” BCEAO’s Koné told OBG. “This is why the new credit bureaux are so significant.” In June 2013 the UEMOA Council of Ministers enacted a new law creating the legal framework for the creation of regional credit bureaux.
Such structural reforms will be key to improving the ways in which banks can function as intermediaries. While lenders expect another year of high double-digit credit growth in 2015 – bolstered by the state’s infrastructure stimulus and rebounding private investment – the medium-term outlook remains clouded and is a cause for banks to remain conservative. For example, the elections scheduled for late 2015 have in part curbed banks’ appetite for extending long-term financing to smaller companies, as they do present some uncertainty.
The rapid growth in mobile money platforms indicates clear potential in the under-served retail market. And though lenders are expanding their retail presence through both traditional branches and new technologies, capital spending is expected to remain conservative in the run-up to the November 2015 elections, according to Ecobank. Barring an upset, in the medium term financial institutions are likely to significantly expand their outreach, and to target many previously neglected areas in the north and west.
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