The 16 countries that constitute West Africa, with their high population densities, their various trading and monetary union blocs, their natural resources, including oil, and the sheer dynamism of their businesses, form one of the most attractive groupings in the continent. But the development of the industry has been uneven in the region, with some countries left out of the loop of new technology and connectedness while others have developed sophisticated systems. However, as this special report shows, the region is becoming increasingly integrated with local- and foreign-owned multinational banks greatly easing the flow of commerce and investment in the sub-region. The 16 countries that constitute West Africa, with their high population densities, their various trading and monetary union blocs, their natural resources, including oil, and the sheer dynamism of their businesses, form one of the most attractive groupings in the continent. But the development of the industry has been uneven in the region, with some countries left out of the loop of new technology and connectedness while others have developed sophisticated systems. However, as this special report shows, the region is becoming increasingly integrated with local- and foreign-owned multinational banks greatly easing the flow of commerce and investment in the sub-region.
West African Banking
Benson Okoye, a 25-year-old petty trader, travels at least twice a week from Lagos, Nigeria, to Cotonou in Benin Republic. In the last six months, his income has improved significantly after opening a savings account with a Nigerian bank with a subsidiary in Cotonou. It was only then that he realised the benefits of choosing a banking product that supports his business anywhere he goes within the West Africa sub-region.
From ATMs, point-of-sale operations, fund transfers, treasury services to internet banking, customers are now realising that distance is no barrier in trade within the sub-region.
Banks such as Intercontinental Bank, Guaranty Trust Bank, Ecobank, Cal Bank, Barclays and Diamond Bank have products designed to help traders like Okoye run their businesses without stress.
This explains why many think the 16 countries that make up the West Africa sub-region are an excellent market for ambitious bankers. Nigerian banks, traditionally the first from the region to readily venture into new business territory, have been engaged in a polite but determined battle to carve up as much of the ‘West African enclave’ as they can.
In addition to the ease of doing business this process has produced, customers can now enjoy the luxury of choice. It has also created employment for citizens of the host countries and is actively chipping away at whatever trading hurdles still remain within the region.
However, the expansionist ambitions of Nigerian banks, rampant following the 2005 consolidation that whittled down some 80 banks to 25 strong institutions, are being curbed by tighter central bank regulation.
A spate of extremely irresponsible lending by some banks, margin trading to raise the value of bank stocks and other poor banking practices nearly brought the roof down on the industry. It led to CBN governor Lamido Sanusi having to bail out some banks, prosecuting some bank chiefs and drawing strict lines in the sand, the crossing of which would spell disaster for the offender.
Sanusi, like a cane-wielding headmaster, seems determined to root out any sign of profligacy in the industry. Banks, for example, are limited to authorising single daily cash transactions of no more than N150,000 ($954.) In an economy that is still cash oriented, many see this as an unnecessary inconvenience.
He also wants to ensure that banks can chew what they bite off in terms of expansion by setting a minimum of N100bn ($636m) for offshore licensing.
About four years after the banking consolidation in Nigeria, the same process was replicated in Ghana after the Central Bank in 2009 raised the minimum capital required for banking operations in the country from $7m to $60m. The seven Nigerian banks in Ghana and majority of the remaining 17 banks operating in the country have already complied with the minimum capital requirement.
And the Bank of Ghana, the regulator of the financial sector, seems to have taken keen notes from the Nigerian banking experience. Ghana has stepped up efforts to ensure that it develops a framework for a risk-based approach to supervision with a sharp focus on solvency and understanding the financial conditions of individual banks. It is expected that this will enable the Central Bank to better assess the risks faced by banks and take prompt action to forestall emerging problems.
Multinationals in W Africa
Standard Bank, Citi Bank, Stanbic Bank and Ecobank are some of the few international banks with subsidiaries in almost all the West African countries that have demonstrated that it pays to have offshore operations.
Standard Bank may not be able to capture the lower end of the market in the places where it does business, and therefore targets mainly the middle class. Citi Bank has a similar image, as the bank for the rich, but it is currently designing products that also address the needs of the lower segment. Stanbic too is opening new business units in Nigeria, while Ecobank has been able to capture the high, middle and lower ends of the West African market.
FinBank, one of the banks still trying to recapitalise in Nigeria, had invested in the Arab Gambian Islamic Bank Limited (AGIB), the first and only licensed Islamic bank in The Gambia. Finbank acquired the bank to implement strategic diversification and expansion of subsidiaries within sub-Saharan Africa.
The bank was incorporated as a private limited liability company and was granted a banking licence by Central Bank of The Gambia. The investment is strategic because the bank provides interest-free banking to Gambia, a country with a substantial Muslim population.
But many of the international banks operating in that country are already scaling down their operations because, as they later found out, there seem to be too many banks chasing too few customers.
The managing director of GTBank’s Gambian subsidiary, Olalekan Sanusi, narrated how, five years ago, the bank spearheaded the influx of Nigerian banks to the country, becoming a major operator. GTBank’s entry, he noted, after some stiff resistance from older players, has paid off, with confidence growing daily. But he admitted that not all the international banks that came into that economy are doing well. “If you divide the number of banks in this country by the population of about 1.7m people, you have an average of 100,000 people per bank,” he said.
Many of the banks operating within the West Africa region offer global payments, and trade and cash management services to the increasing number of international and regional clients, which include governments, financial institutions, as well as high-net-worth investors with business interests across the world.
There has also been a call by shareholders of the banks for increased transparency in financial reporting to ensure efficiency in the operations of the banks in the region.
Financial Derivatives Managing Director Bismarck Rewane insists that the bank rate in Africa is still low, making it hard to overcome the challenge of developing financial services necessary to strengthen African economies. In the eight West African Economic and Monetary Union (WAEMU) states, which have 84m people and some one hundred banks, this rate – which is less than 10% – does not allow for the establishment of a solid and sustainable development strategy for a mass financial system.
Several initiatives are, however, under way to reverse this trend. These include adapting regulations, sensitising various actors, educating the population on the financial culture, providing adapted and accessible services at reduced costs, and ensuring the security of financial transactions to instill confidence in clients.
Rewane said electronic banking is, and will remain, an essential element in efforts to expand banking services to the population, given that it targets people with or without payment means. The major challenge facing banks is therefore to establish and provide competitive electronic payment systems to the continent’s increasingly demanding population.
With a fairly high penetration rate of about 50% in West Africa, mobile phones will, within the next years, undoubtedly become a payment method that will revolutionise the continent’s financial and banking landscape. The bank will be electronically connected and it will be close to its clients. This will also enable banks to innovate and earn new commissions from financial services, thereby increasing their net banking revenue.
AROUND WEST AFRICA
Nigeria: A new more transparent era?
Banking used to be filled with suspicion and uncertainty in Nigeria until Central Bank Governor Sanusi Lamido instituted radical reforms that defined the way the financial services industry is currently run. Michael Nwadike reports on a new era that seems more transparent than decades ago when bank executives ran financial institutions like private businesses.
A 61-year-old civil servant, Adebola Ozubakun, who lost his life savings in one of Nigeria’s failed banks in the ’90s is still too scared to go near any bank over a decade later. Perhaps, if government had kept its promise of paying depositors’ funds when banks go under, such fears would have disappeared.
Millions of depositors, like Ozubakun, face similar experiences in a country where abuse of corporate governance practices and outright stealing of depositors’ funds by bank executives had led even ‘too big to fail banks’ into extinction. Inadequate disclosure and lack of transparency about banks’ financial positions were also rampant.
But there seems to been some positive changes over the past two years, after Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi assumed leadership of the bank. In 2009, Sanusi decided to turn around the fortunes of a sector struggling with bad loans in excess of $12bn, aside from other domestic financial challenges.
The creation of a transparent and stable banking sector, where depositors have no fears of losing money based on the central bank’s guarantee, is a major feat for the regulator. Even when eight banks were at the point of collapse, $4.2bn was pumped into them, to restore their liquidity positions.
Regulator’s policy response
Firstly, the CBN commenced a special joint examination in conjunction with the Nigeria Deposit Insurance Corporation (NDIC) to ascertain the true state of the banking industry. The outcome of the exercise showed that eight banks exhibited imminent signs of collapse, constituting systemic risks to the financial services industry and economy.
On 14th August 2009, the CBN replaced the executive management and in some cases, replaced board directors of the affected banks with new ones. It subsequently referred the cases of some of the principal officers to the law enforcement and prosecution authorities. One former CEO was recently convicted and other cases are already being tried.
To boost liquidity and enhance the safety and soundness of banks, the CBN in conjunction with the Federal Ministry of Finance also established the Asset Management Corporation of Nigeria (AMCON).
The body was seen as a resolution vehicle, meant to acquire bad loans from the banks at different prices and replace them with government-guaranteed bonds. So far, the agency has paid over $10.9bn to the banks for the bad loans, and will be acquiring more risk assets as they exceed the 5% margin set by the CBN.
The AMCON’s running costs will be met by the 24 banks and the CBN, by contributing to the banking sector resolution cost fund, the Sinking Fund. The fund is an agreement between the banks and the CBN to contribute three basis points of audited total assets at the end of each year to help the AMCON to pay some of its recovery expenses.
The CBN and the banks would make contributions to the sinking fund over a period of 10 years, starting from this year.
The eight banks bailed out with tier two capital have been ordered to recapitalise by 30th September or have their licences revoked by the regulator. The banks face two challenges – how to regain liquidity after losing over N1 trillion ($6.359bn) in assets and also how to recapitalise to meet CBN’s capital adequacy level. According to Sanusi: “By 30th September, we will withdraw our inter-bank guarantees for the rescued banks and we will pull the planks and hand them over to the Nigeria Deposit Insurance Corporation (NDIC) for liquidation.”
The rescued banks include Intercontinental Bank, Oceanic Bank, FinBank, Bank PHB, Afribank, Union Bank, Equitorial Trust Bank and Spring Bank. These banks have to recapitalise to enable them raise funds to pay government the $4.2bn used in rescuing them from collapse.
New market leaders may emerge
Several proposed mergers and acquisitions between the rescued banks and the ‘big banks’ show that new market leaders may emerge at the end of the exercise.
The anticipated inflow of $750m into Union Bank of Nigeria from the African Capital Alliance Consortium (ACA Consortium) after a sealed Memorandum of Agreement (MoA) is a notable example.
Access Bank and Intercontinental Bank have also signed a Memorandum of Understanding (MoU) to operate as one entity. First City Monument Bank has signed a MoU with Finbank while Afribank Nigeria has signed with Vine Capital Partners Ltd and Phoenix Acquisition Company Ltd.
Habib of Pakistan will be acquiring majority stakes in Platinum Habib Bank while Equitorial Trust Bank (ETB), led by the business mogul, Mike Adenuga, is looking for a partner – and there are several others searching for suitable institutions to link with.
The process will be subject to the approval of the banks’ shareholders, the CBN, the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange and the Federal High Court in order for mergers to be binding.
Recoveries from bad loans and some cost saving measures adopted by new management of banks have returned some of the rescued banks to profitability in the 2010 financial year. Intercontinental Bank said it had swung to a N65.59bn ($420m) pre-tax profit in 2010 from a N238.08bn ($1.5bn) loss in 2009. Springbank also reported a pre-tax profit of N6.2bn ($40m) in 2010 compared to a N28.7bn ($182m) loss in the previous year, although the bank is yet to announce recapitalisation plans. Wema Bank’s 2010 results showed that profit before tax stood at N13.1bn ($83m) in 2010, from the N8.8bn ($56m) loss recorded in 2009. Analysts said these are positive signs that the reforms are working.
The thinking in many quarters is that although the banking crises may not have been fully resolved, the regulator has provided a short-term solution to avoid what would have been a collapse of some banks.
For Richard Obire, former executive director Bank PHB, Sanusi’s next assignment should be to get the banking crises resolved completely. That, he insisted, will create the leeway for banks to provide credit to the real sector as being currently canvassed.
The managing director of the Financial Derivatives Company, Bismarck Rewane, said the challenges being faced by banks in their recapitalisation plans may not pose a long-term risk. “The negotiations will be allowed to run after the legal bottlenecks are removed,” he said.
But if what the representative of BNP Paribas in Nigeria, Ronke Onadeko, said is true, then certainly banking is taking new turns in Nigeria. “I have noticed that credit risk assessment and corporate governance have improved in recent years following the Central Bank reforms. Now, the issue of transparency is better. It is now easier for one to know where money is from and where money is going to. It is not possible now for banks to exceed their sectoral lending limits. In the past, banks went beyond and above their limits,” she said.
According to her, before now, there were creative ways banks took transactions off their balance sheets and put them on the balance sheets of their mortgage companies. There were all sorts of ways of breaking the rules which have been curbed. “We now know who owns the banks and the value of their investments. It seems the Central Bank is inside these banks sniffing around,” she said.
In June, Sanusi announced the lifting of the one-year restriction of the holding period of the Certificate of Capital Importation (CCI) in the fixed-income market, further integrating Nigeria into the global financial system.
Ghana: Awaiting the oil dividend
Over the last two years, the Ghanaian economy has witnessed an influx of international banks, all wanting a share of the financial opportunities that the new oil discovered in the country’s offshore waters promises. From Nigeria alone, seven banks moved into Ghana, playing important roles in building the economy.
The governor of the Bank of Ghana, Kwesi Bekoe Amissah-Arthur, says banks have demonstrated a growing confidence in the economy and that the discovery of oil makes it imperative for them to explore opportunities in the energy and petroleum sectors of the economy. The Ghanaian economy is projected to grow at 23.7% in 2013, making it one of the fastest growing in the world.
Several incoming banks, which have complied with a capital base requirement of $60m set by the government, want to fund projects in real estate, service industries, oil and gas and infrastructure to create a business hub before the oil production meets its peak.
Oseini Amui, director of PwC Assurance, said banks have to review their risk-management way in the face of increased capitalisation requirements ($60m). According to him, the last three years saw total shareholders’ funds for the industry more than double from GH¢792m ($52m) to GH¢1.8bn ($119.5m) as the banks injected new capital and retained earnings to meet the minimum capital requirements. The last five years has seen unprecedented growth within the industry.
It is anticipated that the current sustained economic reforms and stability, improvements in budget deficit and the new oil discovery will all serve to attract foreign investments and promote economic activity. “The appetite for credit will increase and banks should focus on developing an efficient, effective, and flexible banking infrastructure to ensure growth,” Amui comments.
In addition to the stable macro-economic trends that will encourage savings, with the private sector entering into the pensions market, individual pension contributions will provide another source of funds for banks. This could skew revenue opportunities for financial institutions more towards savings and wealth management products and away from lending products.
Notwithstanding this phenomenal growth, high interest rates continue to be a major concern for borrowers. Banks are being called upon to justify such a high interest rate regime in the country. The new capital requirements may lead to an improved buffer for risk absorption in the sector.
The high lending rates have been a source of worry to many, particularly in industry, as they inhibit investment and economic growth. Currently, lending rates in the country have gone up to 30%, while deposit rates are less than 10% even though the central bank’s Benchmark Policy Rate has fallen to 13.5% and inflation fallen below 9%.
President John Atta Mills has consistently urged banks to reduce the cost of lending to enable SMEs and the agricultural sector access cheaper funds to stimulate economic growth.
There has been a worrying spate of non-performing loans for banks to deal with. The increased default has been attributed to the unfavourable macro-economic conditions that prevailed for most of the year and the poor credit decisions made by banks in prior years. The 11% growth in the industry’s gross loan book is the slowest in the last three years.
Standard Chartered, CAL and Barclays are among the lead players in Ghana’s economy. From helping customers purchase computers through segmented payments to strengthening of the Bancassurance unit and support for education, the bank is strongly rooted in the economy.
Barclays Ghana also offers personal banking, corporate banking, treasury and securities services and it maintains a strong hold in real estate , probably because it has had a presence in this sector for over half a century. But when it comes to remittances, CAL Bank Ghana is the market leader.
In March, Ghana’s parliament finally passed the much-anticipated Petroleum Revenue Management Bill that will determine how the government manages and invests its substantial energy revenues to secure the country’s future for generations to come. The new legislation, which was backed unanimously by MPs, will provide Ghana with the opportunity to secure loans from foreign banks and financial institutions against future oil revenues.
Senegal: Lifeline for ailing banks
Senegal’s banking institutions have returned to life after major reforms of the financial sector. Its once-ailing banks were restructured in line with region-wide financial reforms adopted by the West African Monetary Union (UMOA). The reforms led to the closing of weak banks and helped strengthen viable ones through a programme of partial privatisation and financial recapitalisation.
Although the scheme failed to recover nonperforming loans, particularly from large borrowers, it succeeded in helping the remaining banks become solvent.
After completion of the banking reforms, the government embarked on currency devaluation this year.
The banks were in relatively good shape, thus enabling the financial sector to remain calm during the adjustment. The experience once again highlights the importance of a strong banking sector in countries undergoing adjustment.
The reforms closed loopholes regarding credit limits by bringing crop credits and refinancing of government guaranteed loans under the central bank’s responsibility and by abolishing preferential borrowing costs. It also strengthened bank supervision by giving the central bank the sole oversight of accounting standards, setting prudential ratios, and supervising banks in all member countries.
The plan was that no bank should survive unless it was profitable, solvent, and liquid after the restructuring. It was also expected that the surviving banks should be able to allocate credit on the basis of economic rather than political considerations.
Along with these reforms, mobile banking has now taken root in the country. With a mobile banking system operating in Senegal, people now pay for services through their mobile phones.
One mobile banking system, called Yoban’tel, is a partnership between Obopay and Société Générale de Banques au Sénégal and allows customers to use text messages to transfer money to satellite TV and cellphone providers. Users walk into a participating store and make a deposit into their Yoban’tel account, just as if they were purchasing airtime. They can then use that money to pay bills with their phone.
Obopay hopes to extend Yoban’tel to other utilities, such as electricity and water. Other collaborators in the country include Tigo, a telecommunications provider; CanalSat Horizons, a satellite provider; and Crédit Mutuel du Sénégal.
Richard Hababou, managing director of Société Générale Innovations Group, said: “In Senegal, traditional banking services are typically very limited but Obopay allows us to establish innovative and convenient mobile money transfer and payments for those Senegalese who have previously not had access to such services.”
Over 18 banks in Senegal are expected to help fund businesses in the country’s main industries that include food processing, mining, cement, fertiliser, chemicals, textiles, refining imported petroleum and tourism.
The banks will also help companies in the export of their key products such as fish, chemicals, cotton, fabrics, groundnuts and calcium phosphate to the principal foreign market in India, the US, the EU and the UK.
The Gambia: Robust competition
The Gambia’s financial system is built around the Central Bank of The Gambia, and comprises 13 commercial banks, foreign exchange bureaux and several insurance companies. In addition, there is a non-bank parastatal, the Social Security and Housing Finance Corporation, that invests its available funds to meet future pension and provident fund obligations.
Other components of The Gambia’s financial system include micro-credit institutions engaged mainly in small-scale rural project financing.
The liberalisation of the banking environment, and conformity with the WTO’s agreement on financial services, has helped the banking sector to become competitive and thus offers a wide range of financial products and services to meet the development needs of the economy.
The chief executive of GTBank (Gambia), Lekan Sanusi, notes that there have been many improvements in the way banking is conducted in The Gambia, adding that customers are now exposed to robust and competitive banking with improved service delivery.
According to him, despite the initial mistrust of foreign banks, especially those from Nigeria, some of the banks have recorded major achievements in profitability, branch network expansion and product differentiation.
The Gambian economy, depending substantially on agriculture and tourism, has discovered a goldmine in the business of cash shipments.
The process, spearheaded mainly by Nigerian banks operating in the country under an agreement with Credit Suisse, involves the transfer of large quantities of foreign currencies by traders and importers on weekly basis to beneficiaries abroad.
Experts say that the coming of Nigerian banks into The Gambia has triggered a rapid transformation in the sector and created value for customers.
The initial resistance met by the banks has given way to a wide confidence in their products and services. In terms of project financing, he said the banks have been involved in syndicated loans running into millions of dollars to major telecom operators, Africel and Gamcel in the Gambia.
Côte d’Ivoire: Business restarts
Many of the 18 banks in the Côte d’Ivoire that had suspended operations during the country’s political crises have reopened. Major banks, including Standard Chartered, BNP Paribas, Société Générale and Citibank have all resumed operations.
The country is the biggest cocoa producer in the world and the price of cocoa has been trading at its highest levels for a year. Côte d’Ivoire is part of the eight-country West African CFA monetary zone, with a single central bank based in Dakar in Senegal, but with national headquarters in each country.
Banking services such as ATM transactions, cash collections at customers’ premises, issuance of certificate of deposits, the introduction of mini bank branches and other offerings are all in place.
Standard Chartered has commented that many of the banks in the country are maintaining a firm grip on expenses.
Margins in cash have improved slightly since the year-end, while trade revenues have seen some further pressure as competition increases. The bank said while rapid political change can be disruptive to business activity in the short term, it can also create opportunities.
Togo: Ecobank rules African roost
Ecobank Transnational Incorporated (ETI), registered in Lome, Togo, is the parent company of the leading independent regional banking group in Africa. The bank is one of the biggest in Togo, and currently has a presence in over 30 African countries, including Côte d’Ivoire, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau. Others are Kenya, Liberia, Malawi, Mali, Niger, Nigeria, Rwanda, São Tomé and Principe, Senegal, Sierra Leone, South Africa, Tanzania, Togo, Uganda and Zambia.
ETI is listed on the stock exchanges in Lagos, Accra and the West African Economic and Monetary Union (UEMOA). The Group is owned by more than 180,000 local and international institutional and individual shareholders.
With over 11,000 employees from 31 different countries in over 750 branches and offices, Ecobank is a full-service bank providing wholesale, retail, investment and transaction banking services and products to governments, financial institutions, multinationals, international organisations, medium, small and micro businesses and individuals.
It is seen as a major competing brand in many West African countries, and just recently became M-Pesa Super Agents, a money transfer services where bank customers can access electronic float and make cash withdrawals.
Additionally, the bank has introduced M-Pesa bulk payment services, where corporate and institutional customers can pay their employees through the service.
Other banks that dominate the Togolese banking environment include Financial Bank Togo, Banque Sahélo-Saharienne pour l’Investissement et le Commerce, Banque Atlantique Togo, Banque Régionale de Solidarité, Banque Togolaise pour le Commerce et l’Industrie and Banque Internationale pour l’Afrique au Togo among others.
Liberia: Modernisation under way
The Liberia banking industry has evolved over a long period. Its banking platforms are old enough to command the respect that it currently gets from customers.
The introduction of Oracle International’s Flex-Cube 10.2 software is helping the Liberia Bank of Development and Investment (LBDI), to offer effective services to its customers.
The LBDI management spent nearly $2m to purchase this modern software in anticipation of the bank’s drive to unleash a series of modern products amidst fierce competition in the banking sector. But Finance Minister Augustine Ngafuan warned that with fierce competition in the banking sector, some banks may eventually ‘evaporate’, if they fail to improve the quality of services they offer their customers. LBDI was created by the National Legislature in 1961, under a joint initiative of the Liberian government and major international financial institutions that purchased equity in the bank.
In 2010, LBDI successfully acquired a total of $6.8m equity funding from Proparco and the Ecowas Bank for Investment and Development, (EBID). About $2m of this amount is an equity fund being made available by EBID, while $4.8m is being extended by Proparco, the French development finance institution. The LBDI was able to acquire an estimated $13m as a long-term loan from EBID and other financial institutions, including the AfDB.
Also, in a country where less than one in 100 of the population uses formal banking, Access Bank Liberia (ABL) concentrates on providing financial services to the country’s ‘informal’ business sector.
A wide clientèle of low-income retail shop owners, street vendors, craftsmen and farmers has already benefited from Access’s services in a country not long ago devastated by a civil war. Confident in the positive economic and social benefits generated by such ‘informal’ private sector initiatives, the EIB, alongside Access Holding of Germany, the AfDB and the International Finance Corporation have all supported the start-up of Access Bank Liberia. With over 50,000 customers, the bank can now boast of over €3.3m clients’ deposits as well as equity of some €7m.
Another bank, GT Bank Liberia, is throwing its weight behind laudable reconstruction works going on in the country. It also hopes to increase investor and business confidence in the country’s banking sector.
Ecobank Liberia is another leading player in Liberia. Other banks competing for businesses in the country include First International Bank (Liberia), Global Bank Liberia and United Bank for Africa Liberia.