Ever since emerging from its decade-long political and security crisis in 2011, Côte d’Ivoire has experienced an aggregate growth rate of around 9%, which has benefited the country’s financial services industry. The banking sector has seen sustained double-digit growth since 2011, reinforcing the country’s role as the UEMOA bloc’s primary banking centre. The potential for continuing that growth is significant, as is the impact a larger financial sector would have on the national economy. According to the World Bank, if Côte d’Ivoire’s financial sector were to reach similar levels of development as South Africa’s, the country’s entire economic growth rate would increase another 5% on top of existing levels.
That said, there are weaknesses in terms of sector performance with regard to its ability to lend, in particular. On average, banks in Côte d’Ivoire give three to four times fewer loans than other lower- and middle-income markets on the continent. Additionally, as with so many frontier markets, access to finance is a problem. According to the World Bank, two-thirds of companies in the country consider access to credit to be a major challenge that limits their own potential for growth, particularly for small and medium-sized enterprises (SMEs). This reflects the limited depth of the financial system. Furthermore, only 15% of Ivorian bank account holders deposit money into savings accounts – against an average of 25% across the continent. In addition, lowering interest rate caps on microfinance loans have made access to lending more difficult for the poorest Ivorians, as institutions cannot secure adequate collateral.
Another issue is the lack of transparency among borrowers, particularly SMEs, which makes banks more reluctant to go through a costly transaction for a high-risk loan. To address this, the authorities are currently steering a course of ambitious restructuring, namely the privatisation of low-performing public banks, in order to further clean-up the sector (see analysis). The restructuring plan’s primary goal is to make banking more profitable, as well as increase retail and corporate lending.
Banking
Côte d’Ivoire’s banking sector has been growing exponentially since 2011, with a 20% to 25% increase in deposits and credit each year, according to government statistics. Currently, there are 22 private banks, four public banks and two non-banking financial institutions. Public banks, with a continuously shrinking market share, hold 10% of the banking sector’s assets while the private sector holds 90%. As is the case in most of the region’s markets, activity is highly concentrated. In terms of job creation and account performance, eight banks form 81% of the total banking activity in the country.
The largest bank in Côte d’Ivoire, according to the French Ministry of Foreign Affairs, is a local subsidiary of French multinational bank, Société Générale. The Société Générale de Banques en Côte d’Ivoire (SGIC) holds a 15.4% share of the market, while the Moroccan subsidiary of the Banque Populaire du Maroc, Banque Atlantique, holds a 13.7% share. The third-largest is Ecobank, which is based out of Togo and holds 12.5% of the country’s banking market, while local privately owned Ivorian bank, NSIA, holds 9.5% of the market share. Local subsidiary of BNP Paribas, La Banque Internationale pour le Commerce et l’industrie de la Côte d’Ivoire (BICICI), holds 7.8% of the market, closely followed by Morocco’s Attijariwafa Bank subsidiary, Société Ivoirienne de Banque, which holds 7.6%. Banque Nationale d’Investissement, a public bank, holds 7% of the market.
Macro Performance
The banking sector is by far the largest of the UEMOA eight-member bloc, holding around 30% of all private accounts, 32% of ATM machines and 70% of the mobile banking subscriptions in the zone. At the end of 2014 the banking sector in Côte d’Ivoire counted around CFA6.7trn (€10.2bn) in aggregate assets, which represented 28% of all consolidated assets in UEMOA. This number substantially increased to CFA7.25trn (€11.06bn) in 2015, an approximate 25% increase compared to 2014 according to statistics released by the Professional Association of Banks and Financial Establishments in Côte d’Ivoire (Association Professionnelle des Banques et Etablissements Financiers de Côte d’ Ivoire, APBEF-CI). According to the APBEF-CI, this 25% increase can be attributed to an additional CFA1.5trn (€1.95bn) in deposits in 2015.
Financial inclusion is somewhat lower than West Africa’s other large economies. The country has around one bank agency for 38,000 inhabitants. When compared to an international norm of one agency for 5000 inhabitants, this puts Côte d’Ivoire at a 19% banking penetration rate as of 2015 as opposed to the regional average of 16%.
According to local media reports, the APBEF-CI is currently aiming for a 30% to 35% banking penetration rate by 2020, based on an improvement in bank performance, sectoral restructuring and a push to boost mobile activity. Disparities between rural and urban areas are highlighted further by the IMF, which stated that, only 10% of adults in rural areas have an account at a financial institution, compared to 20% of adults in urban areas, according to its 2015 household survey. Indeed, the country has enjoyed high levels of economic growth, but this growth has not spread evenly throughout the country, the report noted. The country has not seen a strong redistribution of resources, for example.
Profitability
Banks in the UEMOA have historically seen lower margins than counterparts in other parts of the African continent, namely due to higher operating costs and lower returns on investments. However, this situation has significantly improved in recent years, in part thanks to the post-conflict rebound. According to the World Bank’s 2014 “Global Financial Development Report,” at 18.5%, the return on equity for Ivorian banks was higher than other countries; such as Senegal (13.5%), Morocco (12.2%) and South Africa (7%). The return on assets was more in line with the average of the more developed markets on the continent.
At 0.6%, Côte d’Ivoire is on par with South Africa’s, but much lower than Senegal (1.4%) and Morocco (1.8%). Additionally, their cost-to-revenue ratio is also much higher than neighbouring countries at 77.8%, compared to Senegal, South Africa and Morocco with 64.5%, 50.3% and 44.2%, respectively. This is explained by Côte d’Ivoire’s stubbornly high personnel and operational costs.
Privatisation Push
The gradually diminishing public sector share can largely be attributed to the Ivorian government’s progressive disengagement from the banking sector, which is being done to not only reduce direct state ownership in the sector but also to help improve the performance of public banks through private ownership. Since 2011 the government of Côte d’Ivoire has been divesting its shares in banks, as well as restructuring public banks in an effort to make the sector more profitable, dynamic, and beneficial for consumers.
Following a consultation with consulting firm PwC, the government opted to privatise the Banque de Financement de l’Agriculture, as well as sell its 49% share in the Société Ivoirienne des Banques in 2015. The government began the privatisation process for public bank Versus in 2015, when it announced it was going to sell 100% of its shares. Furthermore, in June 2016 the government approved the sale of its 10% direct stake in the Banque Internationale pour l’Afrique Occidentale for an undisclosed amount. Of the shares, 5%, will go to the Conseil Café-Cacao, the regulatory body for the coffee and cocoa sectors in Côte d’Ivoire, while the remaining 5% will be sold on the regional stock exchange.
However, the government will retain ownership of the Banque de l’Habitat, which acts as a savings bank for individuals who want to invest in real estate and housing, as well as Banque Nationale d’Investissement (BNI), which focuses on promoting local investments and economic development in Côte d’Ivoire. In 2014 the government explored the potential of selling part or all of its stake in BNI, but ultimately decided to maintain its ownership of the bank. “BNI is the seventh or eighth bank in Côte d’Ivoire with a market share between 5% and 10%,” said Dominique Banny, director of corporate and investment banking CI and UEMOA of Standard Chartered. “It also has a 20% to 25% return on equity so it remains profitable, unlike many others,” he told OBG. More than 40% of BNI’s assets come from the public sector and more than half of its credit is public, including loans to public companies as well as government secured debt. However, for BNI, as with banks across the region, non-performing loans (NPLs) have remained an issue, with a third of its loans becoming non-accural. According to the IMF, the Ivorian government expect BNI’s situation will be resolved by converting the bank’s public sector unfunded liabilities into new securities debts with longer maturities and grace periods. The government is also aiming to restructure the internal governance of national savings bank, Caisse Nationale des Caisses d’Epargne (CNCE), which has come under scrutiny for high maintenance fees, poor governance and financial mismanagement practices that have been widely reported in local and regional media. According to the IMF, CNCE will be restructured but retained as a public bank due to its country-wide reach. Indeed, with 131 branches, the savings bank is seen by the authorities as a key facilitator to enable access to financial services – such as salary payments – throughout the country, even in remote areas. CNCE is present in 56 remote areas where it is the only institution providing banking services. Despite its presence in key niche areas, the bank’s income covers just over a third of its costs, and only an estimated 10% of deposits have been invested in performing assets, thus making the bank insolvent and operating at loss and requiring restructuring. To save CNCE, the government announced to local media in March 2016 that the authorities intended to inject CFA39bn (€59m) into the bank to help it maintain payments of more than 800 salaries and continue providing services to over 700,000 clients countrywide across all branches.
Lending
Over the past five years the number of loans has steadily increased by 10% per year. According to the APBEF-CI, the total amount of loans at the end of 2015 amounted to CFA6.7trn (€10.1bn), a 25% increase year-on-year, which can be largely attributed to a 32% increase of the share of individual household loans. According to Ismael Fanny, deputy-director general of the APBEF-CI, 67% of all loans are short-term – a trait that is common in most of Africa’s frontier markets. The average interest rate today falls between 7% and 8% compared to the 10% to 11% rate in 2011. They have declined significantly below the level of interest charged in the region’s other major economies, Nigeria, which was 14%, and Ghana, which was 25.5% as of January 2017. The reduction can be explained by a decrease in the interest rates of the Central Bank of West African States (Banque Centrale des Etat d’Afrique de l’Ouest, BCEAO), from 4.25% to 3.5% in 2014, and linked to the fact that banks are now only obliged to maintain a 5% reserve rate. Banks therefore have more liquidity and more leeway to issue loans in the country.
This does not, however, necessarily translate into the country’s banks maximising their loaning potential, particularly when compared with other countries in UEMOA. While Senegal’s loan-to-deposit ratio has reached almost 100%, Côte d’Ivoire’s banks only typically issue loans up to 75% of their liquidity – a more common trend in anglophone West Africa.
The low level of lending is reflected in part by the government’s willingness to issue securities, which are said to represent close to 25% of total bank assets – although this is significantly lower than in neighbouring countries, such as in Ghana, where government debt issuances represent closer to 75% of total assets. However, the purchase of government debt dampens the availability of credit for lending in the private sector. Loan volumes among the various banks have also followed diverging trajectories in recent years, in part due to ownership changes. Between 2010 and 2014, for example, SGCI and BICICI lost seven points of market share in the credit sector, while the subsidiaries of Ecobank, Banque Populaire du Maroc and Attijariwafa, all saw increases.
Borrowers
The public sector – represented by state-owned enterprises and the government itself – accounts for more than 70% of all loans, while large private companies account for around 20%, with individual households covering the remaining 10%, according to a 2016 interview with APBEF-CI. The share of loans going to SMEs remains nearly negligible, largely due to such enterprises failing to demonstrate a strong organisational structure or financial management system. The poor governance by SMEs not only makes it more difficult to borrow — more than 70% of SMEs claim difficulty in accessing bank loans — but it also means they also have a riskier borrower profile. However, the large number of SMEs in the country and the push to increase private sector credit means both banks and the government are looking to reverse this (see analysis).
“Banks operating in the market in Côte d’ Ivoire have been reluctant to grant loans to small and medium-sized companies as they are considered higher-risk customers, but this segment is likely to become a major driver of growth with the provision of state-backed guarantees for SME loans under the government’s Phoenix plan,” Mohamed Saïda Soumano, CEO of BMS-CI, told OBG.
As a result, the government has outlined a number of potential tools to boost SME credit, including the possible establishment of a CFA10bn guarantee fund under the Phoenix Plan, an SME support programme announced in 2014. Olivier Dadjeu, CEO of Afriland First Bank, told OBG, “To see more banks financing SMEs, the establishment of a local guarantee fund – such as the regional guarantee fund – that ensures reimbursement in case of insolvency is under way. SMEs must be able to provide proper accounting information or financial statements, as well as have a long-term perspective.”
Indeed, SMEs will have to keep better records of their activities if they want to increase their likelihood of obtaining credit. Ousmane Sana, CEO of Coris Bank, told OBG, “The institution of a SME guarantee fund will provide a strong incentive for banks to finance the segment. However, SMEs will still need to undergo a rigorous vetting process – with regard to liquidity levels, accounting management and so on – before being provided with a loan.” In the long run, insurance of bad debt has the potential to help both the SME sector as well as the banking sector.
Credit Transparency
While the investment in government securities upwards of 25% of their total assets reflects the attractiveness of guaranteed steady returns from government debt, it also is an indication of the limited supply of reliable borrowers. As is the case throughout the emerging and frontier market world, credit transparency is limited in Côte d’Ivoire, although the country performs comparatively worse than elsewhere on the continent, with only around 2.5% of the adult population covered by a public credit registry or credit bureau – roughly one-third the average in Africa. This is due in part to difficulties in securing collateral. According to the World Bank reports, banks in Côte d’Ivoire do not loan much as customers do not always have strong enough guarantees. Up to four requests out of 10 are rejected due to insufficient guarantees, largely because land – a traditional loan guarantee for collateral – is poorly registered. Up to 30% of land in the country does not have a valid property title. To encourage bank lending, the Commercial Court in Abidjan created a property credit register in 2012 to help boost the use of property as collateral, with more than 2500 properties registered as of 2015.
Deposits
Saving in Côte d’Ivoire presents additional issues. Ivorians save more on average than households in the rest of Africa, but they do not necessarily put their savings into financial institutions. Despite a 14% increase in savings in December 2015, less than 20 out of every 100 households with savings use a bank account in Côte d’Ivoire, which is lower than the average of 25 in sub-Saharan Africa. According to the World Bank, in 2016 only one in eight Ivorians used a bank account or financial institution. This rate was close to two times lower than the Africa-wide rate, and almost three-times lower than the average for low-income countries. IMF data shows that Côte d’Ivoire’s domestic savings as a percentage of GDP was forecast at 20.8% for 2016, but the proportion of bank accounts is five times lower on average than other lower-middle income countries. The low rates of financial inclusion in the country means that an entire portion of the population, namely in rural areas, are unable to access a bank account to deposit savings.
Indeed, according to Banny, approximately 15% of the population has a bank account, with 80% to 90% of them based in urban areas, particularly in Abidjan, which holds the highest proportion of bank agencies per person. The majority of bank branches and ATMs are in large metropolitan areas such as Abidjan, San Pedro and Yamoussoukro. Additionally, the lack of attractive deposit and savings options deter potential customers from going through the lengthy process of opening a bank account and incurring high fees associated to maintaining the account. Ibrahima N’Diaye, CEO of La Banque de l’Union de Côte d’Ivoire, told OBG, “Banking penetration still faces headwinds due to the difficulty by some segments of the population to provide the necessary documentation to open a bank account. The delays incurred to open an account also vary depending on the time it takes to collect and verify clients’ information.”
Because of the obstacles in having an account due to proximity, cost and convenience, customers with substantial savings will therefore choose to invest their savings in the housing market or other alternatives – including sending their funds abroad– while the poorest will opt to keep their funds in cash at home. However, alternatives to the banking system have begun developing over the past few years and are slowly starting to offer alternatives to traditional banks – namely mobile banking services.
Mobile Money
According to the Telecommunications/ICT Regulation Authority of Côte d’Ivoire, the country had a mobile penetration rate of 109.2%, with more than 25.4m registered users at the end of 2015, a huge jump from the 12.3% penetration rate and 2.3m registered users a decade earlier. While this is indicative of the tendency towards multi-SIM card ownership, the high penetration rate does also highlight the disparity between access to mobile phones and access to formal financial services. As is the case across the continent, this has led authorities to attempt to increase mobile money activity. While Côte d’Ivoire lags well behind Kenya – where mobile money transactions equal by some estimates as much as 40% of annual GDP – mobile money technology has seen a significant increase in usage. According to the ministry, there are more than 8m mobile money users, and daily mobile money transactions country-wide amount to more than CFA15bn (€22.5m).
The BCEAO recognised mobile money’s potential for increased financial inclusion early on and issued a regulation in 2006 allowing non-banks to qualify for an e-money issuer licence – meaning that mobile money services in the UEMOA region could be provided by a bank in partnership with a mobile operator, as well as by a non-bank institution that has been licensed by the BCEAO.
“Mobile money is a big competitor to traditional banks,” Banny told OBG. “It offers a better quality of service compared to many traditional banks in Côte d’Ivoire, with improved transactional capacity. Mobile services have even begun offering savings and credit services to a wider array of people who otherwise would not have access to traditional banks,” he added. “That said, mobile money in Côte d’Ivoire has not quite yet reached the level of maturity to offer all the basic services of a traditional bank. Traditional banks, therefore, still have opportunities to seize, if only they strived for more profitability,” Banny told OBG.
Microfinance
As is the case elsewhere in West Africa, formal and semi-formal mutual savings and loan societies have been developing since the 1970s in order to provide microcredit to lower-income individuals. According to an annual report issued by the Ivorian Treasury, in 2015 there were 62 government-sanctioned microfinance institutions, 22 less than in 2010. The total amount of deposits in microfinance institutions amounted to CFA175.7bn (€263.6m) at the end of 2015, while loans amounted to CFA138.2bn (€207.3m) during the same time, bringing the total end of year balance sheet to CFA229.8bn (€344.7m). This performance has more than doubled since 2010, where the end of year balance amounted to CFA95bn (€142.5m), with CFA96.5bn (€144.8m) in deposits and CFA28.5bn (€42.8m) in outstanding loans. The microfinance sector remains small compared to the traditional banking sector, and faces significant challenges. The two largest microfinance institutions, Unacoopec – a network of small savings societies in rural areas – and RCMEC-CI – the second-largest network that primarily services second-tier cities – remain in a difficult situation both financially and structurally, which is posing a threat to the stability of the microfinance sector. Unacoopec incurred losses of CFA2.1bn (€3.2m) from 2011 to 2014 and has been under provisional state administration since 2013 for restructuring purposes. Additionally, according to the Ivorian Treasury, 300,000 inactive accounts were closed in Unacoopec.
The number of accredited microfinance institutions has been steadily decreasing since 2010 due to the government of Côte d’Ivoire’s bid to increase the stability of the microfinance sector by revoking licences from least-performing institutions. However, the number of clients has been slowly increasing, from 1,025,212 clients in 2010 to 1,028,340 clients in 2015, despite losses incurred by the institution.
A number of smaller entities remain in the sector, despite the government’s policy of revoking an increasing number of licences. When Unacoopec’s financial losses are taken away from the calculations, the aggregate liquidity of microfinance institutions stands at CFA19.9bn (€29.9m). This indicates that one of the largest and most troublesome problems in the segment is Unacoopec and its structural and financial problems, and its mismanagement.
Securing microfinance opportunities for those in rural areas and lower socio-economic standing is still problematic due to decreasing interest rate caps, and an increase in non-accural loans. “NPLs in the microfinance market are relatively high, which is definitely a cause for concern. This is the reason behind the high interest rates provided by microfinance institutions.” Francois Barnabé, CEO of MicroCred, told OBG. “The current 24% interest cap on microfinance products in Côte d’Ivoire differs from policies in neighbouring countries such as Ghana or Nigeria, where interests are not capped,” he added.
Interest rate caps have disincentivised microfinance institutions from entering the most economically underdeveloped segments. Grégoire Danel-Fedou, CEO of Advans Côte d’Ivoire, told OBG, “The decrease of the interest rate cap that was implemented in 2014 – from 27% to 24% – has made it all the more challenging for microfinance institutions to offer adapted products and quality services to the most disadvantaged communities, especially in rural areas.”
Leasing
Although, despite the challenges facing the segment, microfinance remains in good shape – despite some bad actors – and leasing services offer a new solution to broadening financial services to emerging markets. Issiaka Savané, CEO of Unacoopec, told OBG, “Cash loans can be risky because people might divert it to other activities or expenses. Thus, microfinance institutions have begun leasing tools or materials directly, instead of just providing money, in order to avoid the misuse of funds.”
However, there still remains legal institutional problems which need to be addressed by the government. Eric Leclere, CEO of Alios Finance, told OBG, “Despite some progress by the government on judiciary aspects – such as the creation of the Commercial Court and Court of Appeal – it is clear that the delays in obtaining a judgment are long and do not allow a quick recovery of the asset leased.” He added, “This results in the commitment made by the creditor very rarely being covered at the time of resale.”
Outlook
Côte d’Ivoire’s banking sector has seen strong growth over the past few years, well in excess of the levels in many other UEMOA markets and inching above those seen in West Africa’s larger anglophone economies. This is part a reflection of the health of the country’s largest lenders, who are well-capitalised and retain strong balance sheets, as well as BCEAO’s focus on reducing interest rates and spurring lending. There are still challenges and many will continue through the coming three to five years, including limited private sector credit, a poor borrowing environment and a handful of institutions in need of reform. However, the potential in the near and medium term is strong. Current modest financial inclusion and banking penetration rates, the push to improve collateral requirements and registries, and steady growth in mobile money all look promising.
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