Financial Sector Overview

Chad's financial sector is relatively underdeveloped with total assets of XAF 1,446.3 billion (USD 2.5 billion) in 2019 or 22.5% of the country’s GDP. It is dominated by the banking sector, which accounts for nearly 87% of total financial system assets. As at September 2021, in addition to nine banks in the sector, there was 62 microfinance institutions (MFIs), and three insurance companies, namely STAR Nationale, STAR vie and SAFAR Assurance. The sector also comprises two social security funds, the CNPS (Caisse Nationale de Prévoyance Sociale, a private fund) and the CNRT (Caisse Nationale de Retraite Tchadienne, a public fund), and a postal checking center (CCP) whose financial activity is limited to money transfer services involving small amounts. Two banks are authorized to provide services such as payment, issuance and electronic money management via a cell phone solution (Airtel and Tigo). Banking, microfinance and payment activities are supervised by the Central Bank of Central African States (BEAC) and the Banking Commission of Central African States (COBAC), two sub-regional authorities, the latter (COBAC) being largely dependent on the former (BEAC) in terms of budget allocation and staff. The country has access to a unified sub-regional stock market, since the merger of the two CEMAC stock exchanges in July 2019, namely the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC).

Banking Sector

The Chadian banking landscape is made up of nine banks, of which banks with predominantly local capital, and subsidiaries of either Pan-African groups or non-African foreign banks. The banking sector is relatively small, total assets reaching XAF 1,256.5 billion (USD 2.2 billion) in 2019, representing 19.5% of Chad's GDP and 8.9% of CEMAC's banking assets. The banking sector is also concentrated, with three banks holding nearly two-thirds of assets while 45% of assets are held by two state-owned banks (IMF, 2019). The Chadian government holds shares in four banks, making it a major player in the sector. Notwithstanding the pandemic, total bank assets reached XAF 1,409.5 billion (USD 2.4 billion) in 2020, an increase of 12% compared to 2019, highlighting an upward trend in the banking system's activities.

Deposits with banks are mostly made up of demand deposits, which, after a 20% jump between 2019 and 2020, reached XAF 721.3 billion (USD 1.2 billion), six times as much as the amount of time and savings deposits. The latter recorded an increase of 28%, driven by the importance of secured resources by companies. Relative to the country’s GDP, bank deposits have not exceeded 10% between 2000 and 2019, despite their regular increase since 2007. A deposit guarantee fund exists at the sub-regional level (Regulation N0 01/09/CEMAC/UMAC/COBAC of 20 April 2009). It is mainly financed by contributions from credit institutions comprising banks and non-deposit-taking institutions (XAF 5 million or USD 8,627).

The performance of the Chadian banking system has been strained by a significant decline in activity, due to the combined effects of the COVID-19 pandemic and oil price shocks. As a result, the quality of bank assets deteriorated. The ratio of nonperforming loan (NPLs) to total gross loans rose from 26.1% in 2019 to 27.7% in 2020 before contracting slightly to 26.1% in 2021, thanks to the loan restructuring programs initiated by the banks. However, loan quality remained poor in 2022 with NPLs further deteriorating to 27.7% in 2022.

The banking sector’s capital also negatively underwent the turbulences occasioned by the pandemic. This caused the COBAC, through its resolution 17/COBAC/SO.2/2020 of July 30, 2020, to lower the capital conservation buffer of credit institutions from 2.5% to 1.5%. As measured by the ratio of regulatory capital to total risk-weighted assets, the banking sector’s capital adequacy fell from 16.8% in 2018 to 6.8% in 2019, and even worsen in 2020 (2.9%). Similarly, the ratio of core capital to total risk-weighted assets decreased from 15.2% in 2018 to 6% in 2019 before reaching an even lower level in 2020 (2.9%) but registered a relative increase in 2021 (9.1%). The partial recapitalization proceeded by the government in 2021 for CBT, one of the two systemic public banks (XAF 4.5 billion or USD 8.4 million), BHT (XAF 2.6 billion) and BAC (XAF 2.9 billion or USD 4.9 million) has partly helped support the sector’s capital position. However, the capital adequacy fell below the statutory minimum of 7.5% in 2022 (6%), partly reflecting the changes in COBAC’s reporting requirements to Basel II standards. Bank’s liquidity ratio fell from 123.6% in 2019 to 122.2% in 2020. However, the loans granted by the banks were sufficiently covered by the clients' deposits, reflecting a rather comfortable liquidity buffer. The liquidity ratio remains above the statutory minimum of 100% in 2021 and 2022 despite a continued decrease.

Microfinance Institutions (MFIs)

The prudential supervision of microfinance activities is implemented at the sub-regional level by COBAC and aims to ensure improved security of savers' deposits and sound financial sector indicators. MFIs in CEMAC collect savings either from their members with a view to granting loans exclusively to them (category 1), or from third parties to whom loans are granted (category 2). MFIs from category 3 grant loans to third parties without collecting deposits. In Chad, there are four major networks of cooperatives from category 1, of which the most dynamic, UCEC MK, comprises 55 cooperatives generally based in rural areas. FINADEV is the main MFI from category 2. MFIs grant loans to finance commercial or agricultural activities, housing construction or rehabilitation, and education. The collaterals accepted by MFIs are of various kinds, including livestock and land or equipment goods (IMF, 2016). There are 62 MFIs in Chad, but their activities remain relatively limited, with little impact. The total balance sheet of the sector amounted to XAF 30.3 billion (USD 52 million) in 2019, or barely 0.5% of GDP. Moreover, MFIs are characterized by poor geographic coverage (mostly in the south and the capital of the country), which limits their impact in promoting financial inclusion. In 2019, the sector had 260,850 clients and members for 180,598 deposit accounts. The identified branches and counters (139 in 2019) generally operate in areas where banks are already present.

Capital Markets

The capital market in Chad remains shallow. The country has access to the unified CEMAC financial market, which is the outcome of successive mergers of: (i) two regulators (COSUMAF and CMF ) since March 2019, (ii) three central securities depositories (BVMAC, CAA  and CRCT ) in June 2019, and (iii) two stock exchanges (BVMAC and DSX ), in July 2019. The CEMAC financial market now has only one regulator, COSUMAF, based in Libreville (Gabon), a single stock exchange, BVMAC, headquartered in Douala (Cameroon), and one central securities depository, the BEAC, for a transitional period.

The refinancing of the banking system increased in volume, in line with the resumption of liquidity injections, including the reactivation of those with longer maturities, in order to limit the effects of COVID-19. The average outstanding advances granted by the Central Bank to the banking system increased slightly to XAF 49.1 billion (USD 84.4 million) in October 2020, from XAF 48.1 billion (82.7 million) in October 2019. Chad's share was set to XAF 6.6 billion (USD 11.3 million) in October 2020, compared to XAF 17.1 billion (USD 29.4 million) a year earlier.

Between 2019 and 2020, the issuance of fungible T-Bills has more than quadrupled in value from XAF 532.5 billion (USD 912 million) to XAF 2183.5 billion (USD 4084.7 million), reflecting increased needs for the government to mobilize funds in the context of the COVID-19 pandemic. The issuance of fungible T-Bonds reached XAF 43 billion (USD 74 million) in 2020. Over the same period, outstanding fungible T-bills increased from XAF 270.5 billion (USD 465 million) to XAF 289.8 billion (USD 498.1 million), while outstanding fungible T-Bonds decreased from XAF 113.7 billion (USD 195.4 million) to XAF 43 billion (USD 74 million). The 52-week and 26-week bills remain the most popular in the T-Bills segment, with respect shares of 73.6% and 26.4% as at August 2021. The government is gradually rolling over the existing stock of domestic debt into longer maturities. The stock of existing government securities (XAF 333 billion at end-2020 or 6.3 percent of non-oil GDP), which consists mostly of 6-month T-bills, have started being converted into T-bonds with maturities ranging between two and five years. Moreover, the country has benefited from the BEAC's government securities purchase program on the secondary market for an amount of XAF 145 billion (almost USD 0.2 billion). 

Financial inclusion and Digital Finance

Financial inclusion was one of the priorities identified in Chad's National Development Plan 2017-2021. It has gradually improved over the years. According to data from the IMF’s Financial Access Survey, the number of registered mobile money accounts also increased from 162.7 to 226.2 per 1,000 adults over 2019-20, and became even greater in 2021 (267,7 per 1,000). This is partly attributed to an increase in mobile penetration, from 40% to 53.5% between 2019 and 2020. In Chad, the use of phone call credit as currency, which is not allowed by the central banks, has become a growing practice, hindering electronic transaction and financial inclusion. According to World Bank's Findex data, the proportion of the adult population with an account (any type of account) increased from 9% in 2011 to 12.4% in 2014, before reaching 21.8% in 2017). 15.2% of adults had a mobile phone account compared to only 8.8% who had an account with a financial institution. Nonetheless, financial inclusion in Chad remains well below the sub-Saharan average (42.6% in 2017), demonstrating a relatively low level of financialization of the Chadian economy. Data from the IMF's Financial Access Survey (FAS)  also show a reduced number of bank branches per 100,000 adults, from 0.99 to 0.85 between 2017 and 2021, evidencing a decreasing population coverage of bank services.

The activity of issuing and managing electronic money is performed under the regulations No. 03/16/CEMAC/UMAC/CM of December 21, 2016 on Payment Systems, Means and Incidents, and No. 04/18/CEMAC/UMAC/CM/COBAC of December 21, 2018, on payment services in CEMAC. The financial infrastructures include: (i) a real-time gross settlement system (RTGS) or automated large value settlement system (SYGMA), (ii) the bulk settlement system known as the Central African Teleclearing System (SYSTAC), and (iii) the Interbank Monetics System (SMI). Full electronic money interoperability is effective in the CEMAC since July 2020. It is performed by the GIMACPAY network and includes payment instruments (card, cell phone and transfers), payment channels (mobile, ATM/EPT/WEB) and electronic transactions (money transfer, merchant payment network). This Interoperability involves national treasuries, banks, MFIs, payment institutions, money transfer companies and fintech service aggregators.

SME Finance

In Chad, 20% of SME (26% for microenterprises) are financially fully constrained and 25% of SME (20% for microenterprises) are partly constrained, according to SME Finance Forum. The current supply of MSME finance, which is worth USD 282,238,635 million (3% of GDP) largely remains below their potential demand for finance (USD 1,416,310,911 million), leaving a finance gap of USD 1 134 072 275.6 million (10% of GDP).

The pandemic has created significant damage and financial losses for Small and Medium-sized Enterprises (SMEs). The World Bank Enterprise Surveys reveal that 20% of Chadian enterprises, of which 17% are small and 34% are medium-sized enterprises, were confirmed to have permanently closed. This financial distress of SMEs has resulted in payment delays, liquidity challenges and solvency crises. For example, 16% of Chadian firms, of which 18% of small enterprises, experienced delays of at least one week in payment commitments to suppliers, owners or tax authorities. This rate is relatively low among medium-sized firms (2%). In addition, 89% of Chadian enterprises, of which 88% of small and 100% of medium-sized firms, have experienced a drop in liquidity or cash flow problems due to the COVID-19 crisis. Broken down by sector of activity, this rate stood at 20% in the manufacturing sector and 14% in the service sector. According to the "Circle of Reflection and Orientation on the Sustainability of the Chadian Economy (CROSET)", the pandemic has caused the closure of 37,820 enterprises for an estimated loss of XAF 74 billion (USD 127.2 million).  In the restaurant sector, 2,280 establishments have closed, creating a monthly loss of revenue that exceed XAF 6 billion (USD 10.3 million). In the transport sector, losses are estimated at XAF 1.5 billion for air travel and XAF 219 billion (USD 376.4 million) for land travel (DGT, 2021). However, the support provided by the government to curb the shocks caused by the pandemic covered only a limited number of firms: only 8% of firms, of which 7% of small and 23% of medium-sized enterprises (World Bank Enterprise Surveys for Chad, 2020).

Insurance Sector

Insurance companies in Chad operate under the supervision of the Inter-African Conference on Insurance Markets (CIMA). Through its Regulation No. 007/CIMA/CE/2016 of April 8, 2016, CIMA raised the share capital of insurance companies to XAF 5 billion (USD 8.6 million) and the equity capital to at least 80% of the share capital. The insurance sector in Chad remains shallow, with cumulative life and non-life insurance assets of XAF 13.7 billion (USD 23.5 million) in 2018, which is less than 1% of the country’s GDP. The volume of the sector's gross premium decreased from XAF 14.8 billion (USD 27.7 million) in 2020 to XAF 14.2 billion (USD 24.5 million) in 2021, of which 82% was from non-life premium. In 2020, the market share of non-life insurance was dominated by accidents and illnesses (28.9%), motor (23.8%) and fire (19.6%). Insurance companies' investments (life and non-life) increased between 2020 and 2021, from 19.9 billion (USD 37.2 million) to 21.2 billion (USD 36.6 million), an increase of about 6.5%. Cash, followed by real estate rights constituted the largest share of the sector’s investment structure in 2021, 54.9% and 29.5% respectively.

Like other CEMAC countries, the Chadian insurance sector faces several challenges. The increase in premium arrears, particularly in the non-life subsector, is affecting the already low level of activity. Premium arrears accounted for 24.1% of non-life insurance's total premiums in 2020 against 11.8% in 2016. The non-compliance with Article 13 of the CIMA Insurance Code partly explains this increase. The sector also faces the risk of concentration of its investment portfolio, which is mainly comprised of bank deposits, real estate, shares and bonds. This poor portfolio diversification is due to the lack of dynamism of the capital markets, coupled with the absence of a real investment policy.

Pension

Social security organizations (SSO) operate under the authority of the Inter-African Conference on Social Security (CIPRES). The level of assets in the sector remained unchanged in 2018 and 2019, at XAF 145.8 billion (USD 250.5 million), or about 2.3% of GDP and 8.2% of the volume of assets held by the CEMAC SSOs. The benefits provided relate mainly to old-age disability and death pensions, occupational accidents and diseases, family benefits, and health insurance whose coverage remains low. The resources from the contributions collected remained at the same level, at XAF 22.3 billion (USD 38.3 million), while the benefits paid increased by 28.2% to XAF 8 billion (USD 13.7 million) in 2019. Net results showed a loss of same amount (XAF 1.5 billion or USD 2.6 million) in 2018 and 2019. The lack of investment opportunities results in a high exposure of SSOs to banks and, consequently, to the difficulties that may emerge in the banking sector. Time deposits made up the largest share of the SSOs' investment portfolio (57.6% in 2019), followed by the equity interests (21.8%) (Table 3). The prudential situation of SSOs comply with the indicated standards. The immediate cash ratio was 192.6% in 2018 and 2019, above the minimum threshold of 100%.

Housing Finance

The housing finance niche is almost solely dominated by commercial banks in Chad. According to the Global Findex 2017, 3.2 % of adults have an outstanding mortgage. Some banks provide mortgages and rates are set at between 7-17 % (2018). Orabank offers a mortgage for a loan repayment term between five and 10 years, at an average rate of 9% not to exceed CFA 30 million (USD 53 436.59) to those who are formally employed, private companies and multinationals. The Sahel-Sahara Bank for Investment and Commerce also offers property loans.  The newly created housing bank - Banque de l’habitat du Tchad (BHT) - established in August 2017 is expected to provide loans at rates between 7-8% for a 15-year term.