West African banking system

West African banking system

The West African banking system is characterized by two (2) main banking markets. On one hand the UMOA zone ( West African Monetary Union ) having a common currency for the West African CFA franc (XOF ) and regulated by the Central Bank of the States of West Africa (BCEAO) . On the other hand, the market of English-speaking countries mainly dominated by Nigerian banks which are becoming increasingly important in the entire West African region, occupying the first places in regional ranking.

In recent years, the UMOA banking market presents itself as a target of opportunity for big African financial institutions, more than it was before for European companies, especially the big French banks who used to be major participants in the Francophone West African banks.

Understanding this burst of interest, means to first understand the characteristics of the UMOA banking market.

The monetary policy of the BCEAO is based on four (4) main principles which are: the liberalization of banking conditions, the use of specific interest rates at the banking institute, the renovated money market and the system of reserve requirements.

The liberalization of banking conditions is reflected in lending rates applicable to loans to customers, free and fixed by mutual agreement, which do not exceed any costs, charges and fees of any kind including  the double of the discount rate of the BCEAO.

The lending / borrowing between banks in the same country or from different countries of the UMOA have also been liberalized to further reduce the pressure on the central bank money that should keep its character as a resource of extra.

The UMOA banking landscape is diverse, with significant increase in the number of banks and financial institutions authorized, reaching 121 at the end of 2011, and is characterized by a strong presence of affiliates of major international banking groups.

In terms of activity, the total assets and resources of credit institutions are strengthened, as well as funds to ensure a satisfactory overall solvency.

Total of credits given by banks in UMOA region, except trade discounts and overdrafts, rose from XOF 3.506 billion in 2007 to XOF 5.999 billion in 2011, representing an annual average growth of 14.4%. This increase was mainly driven by higher cash requirements of companies, the main customers of banks, but also by the extension and intensification of the banking network.

The amount of deposits meanwhile rose from XOF 2.814 billion in 2007 to XOF 4.582 billion in 2011, representing an annual average growth of 13%. This increase is observed in almost all UMOA countries, and highly significant in Guinea -Bissau (78.7 %), Niger (29.2 %), Togo (26.3 %), Mali (17.5 %) and Burkina Faso (13.9 %). The origin of this increase is mainly the improving access to banking services and the flow of public funds in some countries.

Eight (8) major groups dominate the banking landscape UMOA at end of 2011. They are : Ecobank Transnational Incorporeted (ETI) , Societe Generale, Bank of Africa ( BOA Group) , Attijariwafa Bank, BNP Paribas , Atlantic Financial Group ( AFG ) , United Bank for Africa (UBA ) and the Sahel-Saharan Bank for Investment and Trade ( BSIC ) . Their influence extends to almost all the UMOA countries. They represent 64% of total assets, 59 % of branches, employ 60% of total agents, hold 49% of customer accounts and control 69 % of ATMs.

Private companies remain the largest depositors, growing from 36% in 2011 against 31% in 2007. Long term deposits accounted for 99.2% of investments made by the customer, and the main activity of UMOA banks is retail banking, due in particular to the financial market structure.

Will the arrival of Moroccan and Nigerian banks on the UMOA market reinvigorate activity for UMOA banks that demonstrate strong economic growth? Will we observe a financial upgrade coupled with the evolution of the economic situation? But above all, how to explain the growing interest of Moroccan and Nigerian banks for UMOA market?

Gaïcha SADDY, Analyst, Infomineo.

Source: The Central Bank of the States of West Africa (BCEAO)