Burkina Faso: Financial Sector Profile
Burkina Faso has experienced a strong economic performance over the past decade. But despite significant progress, the country’s economy remains relatively undiversified and vulnerable to climatic and external shocks.
Real GDP growth averaged 5.7 percent between 2002 and 2008. However, lower cotton production and falling global commodity demand and prices following the global economic and financial crisis, combined with an energy crisis and heavy rains and flooding in 2009, contributed to a slowdown in economic activity. As a result, real GDP growth declined from 5.2 percent in 2008 to 3.2 percent in 2009. Economic growth is expected to pick-up in the next few years, with real GDP growth registered at 5.8 percent in 2010, supported by increased gold production and rebounding global markets, and projected at 5.5 percent in 2011 and 5.6 percent in 2012.
The Burkinabe financial system appears to have been somewhat affected by the global financial crisis. While still expanding, the growth of credit to the economy decelerated from 14 percent in 2008 to an estimated 3.2 percent in 2009, due to slower economic activity and a reclassification of doubtful loans in the banking sector.
Banks largely dominate the financial system, accounting for around 90 percent of total financial system assets. The banking sector, comprised of 12 commercial banks, is highly concentrated, with the three largest banks holding nearly 60 percent of total financial sector assets. Banks are generally adequately capitalized, but remain vulnerable due to their overexposure to the cotton sector. The government’s position in the banking system, a source of vulnerability in the past, appears to have stabilized, and compliance with regional prudential norms has marginally improved. As of end-June 2009, although none of the banks met prudential portfolio structure ratios, 11 banks maintained a capital adequacy ratio above the minimum prudential level, while 9 complied with minimum statutory capital and 8 met prudential liquidity requirements. However, while the ratio of regulatory capital to risk-weighted assets has remained constant at 12.4 percent, the ratio of gross non-performing loans to total loans has increased from 15.8 percent in December 2008 to 19.4 percent in June 2009. Bank lending to the private sector also decreased by 2.3 percent, reflecting a more cautious lending attitude. Earning and profitability have however improved, with after-tax returns on average assets and equity rising from -0.5 percent and -4.7 percent respectively to 0.5 percent and 7.1 percent over the same period.
Access to finance remains a major issue. World Bank estimates suggest that around 26 percent of the Burkinabe population has access to financial services. Access to microfinance is however expanding. According to a report by the Central Bank of the West African States (BCEAO) about 41 microfinance institutions (MFIs) operate in the country, serving around 800,000 customers.
Authorities have, in recent years, embarked on a series of reform programs to improve the business environment and facilitate financial transactions. Recent measures include the creation of specialized commercial chambers in the court system, as well as reforms to ease property registration and transaction procedures. Authorities have also adopted a new law on decentralized financial systems, enacted in 2009, which, in cooperation with the BCEAO, introduced a single authorization system, strengthened application examination procedures, and reinforced prudential rules and mandatory certification of accounts.
As a member of the West African Economic and Monetary Union (WAEMU) Burkina Faso shares a common currency, Central Bank (the Central Bank of West Africa, or BCEAO), and joint monetary policy with other member states. The BCEAO is not only responsible for the monetary and reserve policy of member countries, but also for the regulation and oversight of financial and banking sector activity. A legal framework regarding licensing, bank activities, organizational and capital requirements, and inspections and sanctions (all applicable to all countries of the Union) is in place and underwent significant reforms in 1999. Microfinance institutions are governed by a separate law, which regulates microfinance activities in all WAEMU countries. The insurance sector is regulated through the Inter-African Conference on Insurance Markets (CIMA).
While still relatively undeveloped, regional capital markets have been expanding in recent years. The payment and settlements system and clearing mechanisms were reformed in 2004 through the BCEAO, which established a Real Time Gross Settlement (RTGS) system and SWIFT facilities for banks, financial institutions, the stock Exchange and the Central Bank. Burkina Faso is also a member of the regional Bourse Regional des Valeurs Mobilières (BRVM) located in Abidjan, Ivory Coast. As of 2009, the regional Stock Exchange’s market capitalization reached nearly 10 percent of Burkina Faso’s GDP.
Burkina Faso’s fixed income market is integrated with that of other WAEMU countries. The Central Bank, governments and regional banks all issue bonds and treasury bills. Member states have started to increasingly issue treasury bills to finance public spending in an effort to move away from Central Bank loans, though the BCEAO remains the most important issuing entity in the region. As of April 2011, Burkina Faso received a long-term sovereign rating of B for both local currency and foreign currency by Standard and Poor’s.
Regional and national fixed incomes markets are still in their early development stages. Issuance by corporate entities remains limited. Investors can directly access primary markets, and various brokers and dealers provide indirect access, while foreign investors participate through local banks. Commercial banks still largely dominate the investor base as the main purchasers of treasury bills and bonds. Access to secondary markets within the WAEMU remains limited; transactions can only be conducted by certified intermediaries, while most investors adopt a buy-and-hold approach.
|2007||2008||2009||Average Africa 2009|
|Liquid Liabilities /GDP||0,201||0,216||0,232||0,412|
|Deposit Money Bank Assets / GDP||0,168||0,169||0,17||0,32|
|Other Financial Institutions Assets / GDP||n.a.||n.a.||n.a.||0,288|
|Private Credit By Deposit Money Banks and Other Financial Institutions / GDP||0,158||0,156||0,153||0,272|
|Bank Credit / Bank Deposits||0,975||0,839||0,701||0,728|
|Net Interest Margin||n.a.||n.a.||n.a.||0,069|
|Stock Market Capitalization / GDP||n.a.||n.a.||n.a.||0,947|
|Remittance Inflows / GDP||0,007||0,006||0,005||0,237|
|Mobile Cellular Subscriptions (Per 100 People)||10,943||16,759||-||40,33|
|Private Credit Bureau Coverage (% Of Adults)||0||0||0||4,539|
|Public Credit Registry Coverge (% Of Adults)||2,1||1,9||1,9||2,575|
For statistical coherence and comparability purposes, the FSDIs are extrapolated from a limited number of sources (AfDB, IMF, OECD, WB), where a common data collection methodology was applied to all countries surveyed. For additional data from other sources, please refer to the Documents section.