Excess short-term liquidity is a chronic challenge for banks operating in Central Africa, creating significant mismatches between the maturity of liabilities and the economy’s longer-term needs. Banks now account for about 85% of financial assets in the Economic and Monetary Community of Central Africa (Communauté Économique des États de l’Afrique Centrale, CEMAC); growing liquidity thus reflects a lack of depth in the region’s capital markets. Given the limits on deploying short-term capital in Gabon, banks have tended to channel spare liquidity towards offshore assets through correspondent banks. Though government securities floated on the regional market provide some outlet for liquidity, the lion’s share goes to low-yielding deposits at the regional central bank, the Bank of Central African States (Banque des États de l’Afrique Centrale, BEAC).

As Gabon seeks to attain emerging market status by 2025, the government has sought to channel bank funding towards productive domestic uses, from mortgages to small and medium-sized enterprises (SMEs) and large-scale project finance. Oil, mining and forestry companies have long funded their Gabon operations from offshore, thereby impeding the banking market’s development. To remedy this, the government plans to require at least some repatriation of oil funds to onshore banks, which could help prolong the average tenor of banks’ liquidity. Another focus is better integration with the region’s financial markets, since this would expand banks’ market bases, “To solve the problem of market over-liquidity, we need to reduce the zone’s fragmentation and deepen financial integration,” Christophe Akagha-Mba, Gabon’s minister of economy and planning, told an IMF committee in April 2014.

Defining Liquidity

The debate on “over-liquidity” strikes at the very core of the country’s banking sector, pitting conservative lenders that defend prudent management against companies and individuals that are effectively cut off from the formal credit system save for short-term loans and overdraft. The sector’s rising loan coverage ratio, which grew from 136.1% in 2012 to 138.9% by May 2014, has exacerbated the problem. Even narrowly defined, liquidity has grown consistently over the past three years, with deposits at the BEAC rising 14.28% in the year to May 2014, to CFA734.05bn (€1.1bn), according to the Professional Association of Credit Institutions of Gabon (Association Professionnelle des Etablissements de Crédits du Gabon, APEC).

Growth Drivers

Although natural resource projects tend to structure their finance from offshore, Gabon’s banks have seen their balance sheets bulge as high oil prices have buoyed deposits. They typically either transfer their excess liquidity offshore or put it on deposit at the BEAC. The central bank cut interest rates twice in 2013, by 50 basis points in July and 25 in October, and once more in July 2014, by 30 points to 2.95%. By easing the refinancing rates for CEMAC banks, the BEAC sought to support monetary growth, thereby reconstituting external reserves and expanding the supply of domestic credit. Because of banks’ abundant liquidity, however, the interbank market has not yet sprung to life. “Liquidity that may be held by some banks does not circulate between credit institutions as they would in more developed banking markets, and access to loans and financings by companies in Gabon are therefore very limited,” noted the prospectus for Gabon’s December 2013 Eurobond.

Maturity Mismatch

As the value of funds has risen, the short-term bias of liabilities has only increased. The share of current-account (sight) deposits rose from 60.03% of deposits in April 2012 to 60.64% in April 2013 and 65.86% in May 2014, according to APEC, reflecting the low appeal of longer-term savings instruments like annual term deposits, which yielded only 3.5% as of July 2014. “The high liquidity in Gabon is entirely short-term current-account funds, which cannot be onlent for any medium-term loans,” Alain Fazili Bula, vice-president of global markets at Citibank, told OBG.

Keen to support banks’ ability to finance projects over the longer term, the government in 2013 announced plans to require foreign oil companies to transfer contingency funds maintained offshore for the dismantling of oil installations at maturity. Ernst & Young estimates the cost of unwinding an oil facility at about 0.25% of the asset’s value, while provisioning stands at 5% of dismantling costs on a 10-year contract period. The value of such funds could reach €500m, said Bula, which would be equivalent to 14.2% of Gabon’s total deposits as of May 2014, and would significantly extend the maturity profile of banks’ deposit bases, although enforcement was still pending in July 2014.


Flush with short-term funds – a common trait in many African markets – Gabonese banks, like their CEMAC counterparts, have welcomed recent sovereign bond issues on the regional stock exchange. Although direct bank lending to the state fell from 24.9% of total loans in 2010 to 21.9% at end-2012 and 12.36% in May 2014, according to APEC, Gabon’s banks remain among the key buyers of Treasury bonds and bills. Their aggregate exposure to Treasuries and other state deposits has grown exponentially, from CFA141.2bn (€211.8m) in 2010 to CFA419.9bn (€629.9m) in 2012, according to Banque de France. The state was an important source of new issues, with CFA240bn (€360m) in new Treasury bills in 2013 alone and the same amount planned in the 2014 budget, alongside CFA268.7bn (€403m) in external borrowing. The issues are typically underwritten, and bought, by Gabon’s top five banks, alongside Afriland and other Cameroonian banks, Credit du Congo and Standard Chartered. Yet compared to banks’ total liquidity, Treasury bills absorb only a limited share. Sovereign and corporate bonds listed on the regional bourse have emerged since 2008, with eight issuers raising a combined CFA262bn (€393m) in the five years to 2013, but trading has remained thin with most investors (mainly banks and pension funds) buying to hold, making this an illiquid security. Such investments, though limited, are profitable: sovereign bonds yielding 5.5% put a healthy spread on a low-interest deposit base yielding 1% on under-30-day deposits. Meanwhile, lending rates range wide, from 7.5-8.5% annual rates for medium-term loans to blue-chip borrowers to 12% for SME loans covered by partial risk guaranties and up to 20% for overdraft facilities. “Cheap short-term deposits end up being good for banks’ profitability since they charge high rates for short-term credit lines,” said Bula.

Restarting Interbank

Financial innovations may also help bridge the mismatch. In June 2014 the regional African Export-Import Bank opened a $100m interbank facility, consisting of a collateral swap of its own securities for local eligible collateral. The aim is to ease liquidity challenges within banks by tapping surplus funds of some lenders through a relaunched interbank market. While smaller lenders in need of liquidity may struggle to raise the required collateral, the bank expects the market to develop gradually on the back of its Afreximbank Trade Debt-backed Securities.

Capital Deployment

Over the longer term, banks will need to find new ways to deploy this growing source of excess short-term capital. BEAC’s prudential rules limit banks’ single exposure to 25% of paid-up equity, about CFA2.5bn (€3.75m) per bank, while the liquidity rules constrain transformation of short-term liabilities into longer-term assets.

Such liquidity has at least lowered short-term rates. “The excess liquidity has pushed lending rates down to around 5-6% on short tenors and 7-9% on mid-to-long tenors,” Christian Gondjout, director of strategy and development at Banque Internationale pour le Commerce et l’Industrie du Gabon, told OBG.

The rates for Africa are striking: they average as much as 10 percentage points lower than similar loans in West Africa, where commercial lending rates regularly exceed 20%. The spread between rates on loans and deposits, which has trended down in the past three years, should stay below 6%, according to the December 2013 Eurobond prospectus. Firms in Gabon remain cash-rich in 2014, with lending growing only 0.86% in the year to May 2014, while deposits rose 6.46%, according to APEC. “SMEs are a challenge, as bookkeeping and transparency are sometimes problematic. As a result, banking and lending initiatives need to be tailored to the real capacities of such clients,” Mamadou Sanon, the CEO of United Bank for Africa-Gabon, told OBG. On larger deals, like Olam’s $228m CFA-denominated loan in 2012, local banks have turned to syndication to overcome capital constraints.

While tapping a pool of longer-term deposits such as oil firms’ contingency funds could help lengthen the maturity of banks’ liabilities, deeper reforms will be needed to open the lending taps and improve the intermediation of lenders. The regional central bank is striving to improve CEMAC’s information architecture by reforming its centrale des risques and supporting the establishment of a private credit information bureau. Donors, too, are supporting SME lending through partial risk-guarantee funds. But faced with the prospect of growing liquidity, banks and authorities will need to collaborate to create the capital markets instruments and refinancing mechanisms that are needed to transform short-term liabilities into mid- to long-term assets.