Interview: Daouda Coulibaly, Charles Daboiko and Jean-Louis Menann Kouame
What can be done to increase banking penetration and savings rates?
DAOUDA COULIBALY: While there are a great number of banking products on offer, banking penetration remains low. As a result, local banks should devise products that fit the needs of Ivorians. It is safe to say that this low rate is mainly due to the predominance of an informal economy and the large number of rural communities. The challenge here is to find ways to develop services that meet people’s requirements. Mobile banking is one such solution. Indeed, simple products must be created so that customers do not physically have to go to a branch. Additionally, for the past two years, and in accordance with the Central Bank of West African States (Banque Centrale des Etats de l’Afrique de l’Ouest, BCEAO), basic banking services have been free of charge.
Competition has also increased over the last few years, which has resulted in lower product prices.
CHARLES DABOIKO: When looking at the statistics of the past few years, one can see that banking penetration is relatively low compared to Western countries. Depending on the source, the rate is around 14-15%. There are different factors that can explain this low rate. For example, following the post-election crisis in 2011, a number of banks significantly reduced the size of their branch networks. Today, by increasing the number of branches throughout the country, banks could also boost the penetration rate. That being said, banking activity conducted solely through physical branches has limits. The banking industry needs to think beyond this and support the concept of financial inclusion as a whole. Many people already have access to banking through alternative channels such as mobile banking.
JEAN-LOUIS MENANN KOUAME: Efforts have been made in terms of banking penetration, but there is still some room for improvement. Local banks should improve their relationship with the people, especially in rural areas. From a banking perspective, opening a branch is costly, and it would be challenging to open a branch in every village, but there are other ways to reach out to remote communities, particularly as Côte d’Ivoire has a mobile penetration rate of a 100%. Since all of the rural class have a mobile phone, it should be easier to create a link between the banks and the communities they serve. If we can solve the issues surrounding payment for agricultural products, then we can also solve this problem of low banking penetration.
In terms of virtual money, how can mobile operators and banks better work together?
DABOIKO: Mobile operators are an example of how easy it can be to reach out to people without physical banks by maintaining a large client base instead. I think banks are now looking at this model closely and are willing to develop a digital bank. Mobile operators like Orange have already taken action and are issuing virtual money through platforms such as Orange Money. Banks now need to move forward and take this as an example in order to offer a similar service. Banks should have a mobile-money service that is open to all mobile operators. Mobile operators could have access to banks’ clients, which would be a tremendous advantage. This is already the case in Ghana, for instance, where the central bank did not authorise exclusive partnerships between banks and mobile operators, hence market there remains open. That is the way forward.
MENANN-KOUAME: The three main mobile operators have obtained — or are working on obtaining licences — to become electronic money issuers. As such, those operators have broken the link they had with the banks. Consequently, banks do not play the role of electronic money issuers or guarantors anymore. Banks are now simply the custodians of this fiat money. That being said, I believe that banks should not be limited to this role. I am in favour of creating a multi-bank and multi-mobile-operator platform that would allow a client from one bank to make a transfer via mobile phone to a bank or carrier of his choice. This would liberalise the market. Basically, it would allow market players to conduct cross transactions and would allow banks to take advantage of this technology. Otherwise, mobile operators will be the only players in the sector.
COULIBALY: That is an important question. To be honest, we do not know what the relationship between mobile operators and banks will be in the future. Both parties understand that they have very divergent interests, while also possessing a few shared interests. Both industries need to think of what they can do in terms of “common SIM cards”, and see how they can work together. The truth is that banks cannot stay out of this line of business. Every bank is thinking about the best strategy, and we are honestly asking ourselves what the banks of tomorrow will be like. I think that mobile operators can offer a few banking services, but every nation needs a sound and secure financial sector supported by strong financial institutions such as banks.
What sort of scope is there for increased consolidation of the banking industry?
MENANN-KOUAME: There are currently 27 financial institutions in the country, as well as two leasing specialists. Currently, the minimum capital requirement for banks in the UEMOA zone is CFA10bn (€15m). Banks that do not currently meet this requirement have until mid-2017 to comply. However, for banks that are not be able to meet this requirement, the BCEAO will take the necessary measures. Taking a closer look at the minimum capital requirement, it is a relatively low figure to ensure a significant presence of banks in the country. Indeed, comparing UEMOA’s regulations to countries like Ghana or Nigeria, the capital requirement here in Côte d’Ivoire is relatively low. Hopefully the authorities will manage to increase it eventually through the implementation of Basel II and III requirements.
Banks have ratios to respect, among which is the “single lending limit”. This is basically the aggregate maximum amount that a bank can lend to a single given borrower. The single lending limit is linked to a bank’s equity and therefore varies depending on the bank. Basically, if the capital is significant, then banks can lend more money.
COULIBALY: Current regulations are being tailored to engender a more concentrated banking sector. It is better to have a few large and financially stable banks that can also finance important projects, such as power plants. I am sure the mix of banks will change, as we are slowly implementing the Basel II and III regulatory frameworks, which call for a higher capital requirement level.
Therefore, smaller banks will need to ask their shareholders to invest more money, or we will witness some mergers and acquisitions being conducted by larger banks. As of 2017, we will begin applying the Basel II requirements, but with a transitional period of five years – with the goal of implementing Basel II fully thereafter. In terms of capital requirement, we are currently at CFA10bn (€15m), which is the first step.
DABOIKO: The market remains very concentrated. The top five banks represent at least 75% of the total market share. I would like to see the sort of change that took place in Nigeria a few years ago. At the time, there were something like 100 banks in the market there, but the central bank increased the capital requirement and consequently the smallest banks disappeared. We are slowly replicating this here. As my peers have mentioned above, the central bank is increasing the capital requirement level, but in my opinion it should be even more aggressive.
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