Webinar Report: Recent Trends in the Banking Sector in West and Central Africa
The Making Finance Work for Africa Secretariat, the European Investment Bank (EIB) and BMCE Bank of Africa, on 11 July 2019, organised a webinar on recent trends in the banking sector in West and Central Africa. This webinar was the third in a series of webinars designed to support the dissemination of the EIB report on the African banking sector entitled "The African Banking Sector: Delivering on Financial Inclusion, Supporting Financial Stability". Three panellists represented the two institutions that helped to write the chapter that was the subject of the webinar:
- Jean Philippe Stijns, Principal Economist, European Investment Bank;
- Emmanouil Davradakis, Principal Economist, European Investment Bank;
- Mamoun Tahri-Joutei, Director of Business Intelligence, BMCE Bank of Africa.
Amine El Kourchi and Said Hidane, both of BMCE Bank of Africa, also contributed to the content and preparation of the webinar.
2. Session Format
This one-hour webinar covered two French-speaking regions of Africa: the WAEMU area composed of 8 countries (Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, Togo) and the CEMAC area composed of 6 countries (Gabon, Cameroon, Central African Republic, Chad, Republic of the Congo and Equatorial Guinea).
The presentation of the economic context of each zone preceded that of the banking sector.
3. Summary of the Session
The economies of both regions are resilient despite the potential impact of external shocks, particularly the slowdown in economic activity in China, which has an impact on commodity prices.
In the West African Economic and Monetary Union (WAEMU) area, economic growth remains strong and public finance aggregates appear to have taken a sustainable path. Inflation in the region's eight countries remains under control and, despite external imbalances, foreign exchange reserves have continued to improve. In the Central African Economic and Monetary Community (CEMAC) zone, the relative upturn in oil prices helped to reverse the real growth trend in the zone, which stood at 1.7% in 2018, but is still lower than in the period following the global financial crisis (2008-2015). Public finances are improving under the programmes signed with the IMF, but the increasing risk of over-indebtedness and the slow stabilisation of foreign exchange reserves (<2.8 import months) remain worrying. In addition, economic performance varies significantly from one country to another and the disparate level of human development illustrates strong inequalities among countries.
3.1. Overview of the Financial Sector in the West African Region
In 2017, there were 30 banking groups and 144 credit institutions in the WAEMU zone. 7 commercial banks held more than 62% of the sector's assets with Ecobank (14%) and BMCE Bank of Africa (10.5%), constituting the market leaders. The sector's aggregate balance sheet total has almost doubled in 5 years, from EUR 30.5 billion in 2013 (45% of GDP) to EUR 54.2 billion in 2017, or 54% of the region's GDP. Côte d'Ivoire accounts for more than 31% of the balance sheet total with 25 banking institutions. Bank loans were extended to all sectors of economic activity and reached EUR 28.9 billion in 2017 compared to almost half in 2012. Due to a very short-term deposit structure, 75% of loans in 2017 had a maturity of up to two years and were mainly granted to large companies. The increase in credit underpinned the improvement in the sector's net banking income (NBI), which stood at CFAF 1,827 billion, or EUR 2.8 billion, up 11% year-on-year. Although the overall margin declined slightly due to increased competition, profits improved with a net profitability of 25% of GDP for the sector as a whole. In 2017, 9 out of 10 credit institutions met the solvency standard. Prudential standards are respected consistently across countries and banks in the region are converging on the implementation of Basel II and Basel III rules.
The Central Bank's implementation of initiatives to promote access to financial services, its accommodative interest rate policy and its actions to strengthen mechanisms for resolving banking crises and protecting savers have contributed in various ways to drive up the rate of use of financial services in the region, which rose from 26% in 2010 to 65% in 2016. Mobile money has also made a significant contribution to improving financial inclusion and the players behind the expansion of electronic money have successfully adapted to the legal and regulatory framework established by regulators.
3.2. Overview of the Financial Sector in the Central African Region
The rise in oil prices has improved overall banking sector activity. In 2017, the 55 banks in the region held 78% of the total assets of the regional financial system and the top 10 banks accounted for nearly 52.3% of the total assets of the banking sector. In 2018, the banks' total balance sheets amounted to EUR 19.9 billion. Deposits grew by 3.6% year-on-year, as did gross loans, which increased by 0.9%. Bank financing of the economy remains short-term and is mainly oriented towards the tertiary sector. The net result of banks operating in the sub-region increased by 59.7% to CFAF 139.4 billion, or EUR 212.5 million. However, the sector's profitability declined compared to its 2013 level, due to regulatory constraints in terms of the strengthening of equity capital, which also helped to improve prudential ratios. In fact, the CEMAC banking sector as a whole has fairly comfortable prudential indicators and the regulatory arsenal has been strengthened for increased oversight of the sector.
Public measures for the promotion of financial inclusion and harnessing of the digital ecosystem by industry players have also led to encouraging progress in financial inclusion.
3.3. Challenges of the Banking Sector in the WAEMU and CEMAC Zones
Banks in these regions have initiated an agenda of compliance with prudential regulation, in particular Basel III. The challenge in this area is for the sub-regional authorities and countries concerned to select and adapt the most relevant regulatory elements from the Basel II/III toolbox to local markets. In the CEMAC zone, the restructuring of public banks, particularly in Cameroon and Gabon, is ongoing. Exposure to shocks in the oil sector in this region must be mitigated and foreign exchange reserve management controlled. The increase in non-performing loans should be monitored to ensure the financial stability of the economies of both currency zones and the protection of savers' deposits.
3.4. Interaction with Participants
The questions focused mainly on regulation, especially the impact of the application of Basel III rules on banks' credit and performance and issues related to mobile money activity by banks and telecommunications operators. Participants were also asked about the potential impact of the creation of the Caisse de Dépôts et de Consignation (CDC) on the financial landscape in the countries of these regions.