Algeria: Financial Sector Profile
Real GDP growth, averaging 5.5 percent a year between 2002 and 2005, has slowed since 2006 to an average of 3.1 percent a year over the 2006-2011 period. The collapse of oil prices in late 2008 following the onset of the global economic and financial crisis and general instability in the region has further affected economic activity and GDP growth declined to 2.4 in 2011. Real GDP growth is projected to increase to 2.6 and 3.4 percent in 2012 and 2013 respectively, supported by rising global oil prices, increasing public investments and strong growth in non-oil sectors.
The Algerian financial system appears to have been rather resilient to the effects of the global financial crisis. As a result of public spending and credit to the economy, money supply increased by 21.7 in July 2012. Despite of this, private sector credit remained limited, underlining the difficulties in access finance for both business and household. In particular, credit to households was low and accounted for only 8 percent of credit to the economy, hindered by the ban on consumer credit decided in 2009.
The banking sector, comprising 26 banks (6 of them public), is profitable, well capitalized and very liquid. The sector's exposure to global financial markets has been rather limited as Algerian banks receive relatively little external financing and rely heavily on domestically mobilized assets. The solvency rate stood at 24 percent in 2011 and the nonperforming loans ratio (NPLs) declining to 14 percent. The banking sector as a whole continued to expand and bank deposits increased from 51.3 percent of GDP in 2008 to 58.1 percent in 2009 (last figure available). However, bank intermediation is still relatively low, and lending activities to public entities by state-owned banks dominates intermediation.
Access to financial services remains an issue. By 2011, 372 out of every 1000 adults were depositors in commercial banks, while banking networks featured 5.27 commercial branches and 6.5 ATMs for every 100000 adults.
Banking and financial sector reform processes have continued over the past few years. Authorities recently strengthened banking supervisory and regulatory frameworks, quadrupled capital requirements, enhanced financial intermediation instruments, introduced a new banking accounting system, and set key interest rates and excessive rate limits as well as new prudential management ratios for financial institutions. New regulations on investment flows introduced in 2009 now set a 49 percent cap on international investor ownership for certain key ventures, block the takeover of financial institutions by foreign banks, and prevent the entry of new foreign-majority controlled banking institutions. The presence of government representation on the board of private banks has also become mandatory. Authorities also plan to establish a new bank rating system and central credit registry, assist banks in modernizing their operations and means of payment, and facilitate the expansion bank branch networks and the extension of credit to small and medium enterprises (SMEs).
The Algerian equity market remains relatively shallow and underdeveloped with only three listed company and capitalization of 0.1 percent of GDP in 2011. While the Algerian Stock Exchange -"la Bourse d'Alger"- experienced steady growth from its creation in 1997 up until 2008, trading activity, in terms of both volume and value, has since declined through 2009 and 2010. The money market, for its part, is predominantly centered on the Treasury bills market, with average interbank rates and deposit facility interest rates serving as benchmark rates. The interbank weighted average rate remains fixed within a 3.1 percent to 3.6 percent band, while the Bank of Algeria regularly intervenes on the interbank foreign-exchange market to correct any discrepancies between the nominal and real effective exchange rates.
Algeria's fixed income market is fairly active and features a growing and increasingly diversified investor base. Authorities regularly issue a range of debt instruments of varying tenures, and demonetarized treasury bills and bonds represent about 82 percent of outstanding government debt. Non-government securities are also regularly issued by major corporations and financial institutions to meet financing needs. As of March 2013, Algeria received no long-term sovereign rating by any of the three major credit rating agencies.
As of December 2009, 20 banks and 5 financial institutions actively participated on the country's capital markets but no issuances on the private bond markets were registered in 2011 and 2012. While all investors, including foreign investors, have equal access to primary and secondary markets and can engage in market transactions through any of the 13 authorized primary dealers operating in the country, foreign participation remains small and commercial banks, mutual funds and insurance companies represent the main investors in the market. The secondary market is rather liquid but transaction volumes remain limited. The Algerian derivatives market, for its part, currently features some off-shore non-deliverable forwards, but offers no interest rate or cross currency swaps.
The insurance sector, liberalized in 1995, is still dominated by government-owned institutions and so far accounts for only a small part of the economy as total premium volume amount to approximately 1 percent of GDP.