Interview: Claude Ayo-Iguendha; Abdelaziz Yaaqoubi
What has been the impact of exogenous pressures on the banking sector?
CLAUDE AYO-IGUENDHA: Despite a 5-6% drop in outstanding credits, Gabon has handled external pressures better than other CEMAC countries. The drop in outstanding credits is not due to liquidity pressures, but instead due to a lack of interesting opportunities in the market. Given the weight of oil revenues on state coffers, public banks have been heavily affected, but repercussions on large private banks have been unsubstantial. Nevertheless, companies are taking a wait-and-see approach for the moment, and are refraining from investing. However, the state’s treasury shortages have trickled down to specialised financial institutions through the non-refund of the advanced payments made on salaries of civil servants or “pré-escomptés”, which reached CFA19bn (€28.5m) as of December 2015.
ABDELAZIZ YAAQOUBI: Although liquidity levels have experienced a slight drop, our treasury has only been modestly impacted by the drop in commodity prices. The proof is that in 2015 UGB’s total loans have actually increased, driven primarily by the sectors of hospitality, industry and logistics. Loans to the real estate sector remained lacklustre, primarily due to housing projects by the state, which have experienced delays or were not successfully brought to financial closure. To reduce exposure to these kinds of risks, banks have been diversifying their portfolio by targeting sectors that are experiencing growth, such as agriculture, services and logistics. I believe that banks are pursuing the ambitions of the Emerging Gabon Strategic Plan in regards to diversification.
What can Gabon do to work towards improving transparency in regards to credit?
YAAQOUBI: The payment incidents registry, which will identify individual account holders with a single centralised number, is a positive step towards increasing credit transparency in CEMAC. This measure will decrease the instances of fraud and allow for a better management of our portfolio.
In this regard, given the lack of historical data, a foreseeable challenge will be collecting information from all our clients. The Bank of Central African States (Banque des Etats de l’Afrique Centrale, BEAC) already has a risk centre, although it is not easily accessible, nor reliable enough. The forthcoming credit bureau, will also allow for a better apprehension of the risks associated with issuing a loan. However, the issue is once again technical, especially when identifying clients who may have taken several loans with different financial institutions.
AYO-IGUENDHA: Banks are currently in the trial period for the BEAC’s payment incidents registry project. This project will substantially improve transparency in the sector and ease the circulation of money by increasing trust in checks and credit card payments. In short, each client in the CEMAC will have a single biometric identification number, through which all of their payment information will be centralised and verified when making a transaction. Another project is the credit bureau, which will be developed by the private sector and will replace the risk centre. Tenders will begin around June 2016, and we expect it to come on-line around the same time in 2017. In a country such as Gabon, which has laws to protect personal data, the challenge lies in harnessing the historical information needed for such a project.
How can the banking sector better respond to the needs of small and medium-sized enterprises (SMEs) operating in Gabon?
AYO-IGUENDHA: A significant network of SMEs such as is found in Europe, Côte d’Ivoire or Cameroon is not prevalent in Gabon. Therefore, we must first define what an SME really is, because in many instances they are simply start-ups. Start-ups should use leasing companies, which are more flexible in their practices. This is not to say that banks in the country are not willing to finance start-ups; however, we are more stringent concerning the risks associated with a lack of financial information.
Another factor contributing to banks’ rigid lending policies is the country’s insecure judiciary system and the non-penalisation of payment defaults.
YAAQOUBI: There needs to be a guarantee fund dedicated to better responding to the needs of SMEs. Our lending criteria has remained standard, yet the lack of guarantees, coupled with a low level of financial literacy among SMEs, makes them ineligible for a loan. There are several projects, such as the SME incubator organised by the chamber of commerce, which will seek to help SMEs in developing business plans. Moreover, if the chamber of commerce also puts in place a database with basic sector-specific information, banks would be able to check predictions and judge the viability of credit applications. Indeed, improvements in transparency and a better handle of accounting principles would allow for more visibility of a company’s eligibility.
How can banking penetration be increased?
YAAQOUBI: In the last couple of years, the government has substantially helped banking penetration. The first step was requiring civil servants to have their salaries paid through the banking system. Now, student loans and grants also need to be processed by a bank, and the state is also encouraging retirees and temporary workers to enter the system by opening an account. I believe that today, banks can increase penetration by developing their retail activities while simultaneously decreasing the costs of operating an account. Today, ATMs are limited to providing traditional services, such as money withdrawals and cash deposits. However, services such as fund transfers and bill payments are still missing from the country.
AYO-IGUENDHA: As of January 31, 2016, the number of people with a bank account reached 407,000. Given its population of 1.8m and the share of these with active accounts, Gabon’s banking penetration is much higher than the CEMAC average of around 8%. The challenge – or opportunity – lies within the informal sector, which continues to elude the banking industry. In this regard, the Gabonese people remain somewhat sceptical of banks, and therefore rely on their community through the use of mechanisms such as tontines. There is a certain moral constraint to operating with a bank, and a lack of understanding of the benefits it implies.
How can financial intermediation be encouraged?
AYO-IGUENDHA: At the CEMAC level, there are several texts under consultation for the introduction of marketable securities such as certificates of deposit and treasury bonds. For instance, in order to meet short-term liabilities or quick financial needs, a company should be able to issue commercial paper. Additionally, collective investment in transferable securities would allow for more diversity in our portfolios. Banks are also often asked to finance medium-and long-term credits, while our resources are only equipped to handle short-term credit.
YAAQOUBI: Today, mortgage credits are the main driver for long-term financing. BICIG and UGB are pioneering the issuing of loans of 10-year maturity, starting with the housing project in Bikele, developed by the Société Nationale du Logement Social. However, to finance anything longer, we will require long-term resources. Indeed, if solutions are found to this challenge, real estate can quickly become a driver for growth. Moreover, the challenge with mortgage financing lies with the developers. A number of key infrastructure projects are not brought to financial closure because developers want them to be fully financed through banking loans, which is not possible.