Senegal’s economic slowdown in 2008 and 2009 – caused by rising food and oil prices and a decline in tourism and remittances from Europe – hurt its banks. Liquidity tightened, causing many of them to decelerate their lending. Yet it was testament to the opportunities that the country holds for banks that, even amid a sluggish economy, many still expanded their assets by between 5% and 15% in each of those two years.
Senegal’s growth has since recovered, its gross domestic product rising about 4% in real terms in 2011 and expected to do the same in 2012. Lending has once again picked up. Private sector credit expansion, still in single digits in the first quarter of 2011, had climbed to 16% year on year by May 2011, according to research by Standard Bank.
By late October, Yves Coffi Quam-Dessou, head of Ecobank Senegal, was predicting that his bank’s balance sheet would increase about 20% over the year. “We did not grow much in 2009 and 2010,” he said. “But 2011 has been very active.”
Attractive destination
Senegal’s attraction to banks rests on its macroeconomic and political stability. It is the richest country in Francophone west Africa on a per capita basis, having overtaken Côte d'Ivoire, which, although the biggest economy among such states, has been blighted by political upheaval for much of the past decade.
Dakar, Senegal’s capital, is also home to the central bank of the West African Economic and Monetary Union (WAEMU), an eight-strong bloc that also includes Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger and Togo.
Senegal is thus increasingly important as a WAEMU financial centre and an entry point for the region. Many analysts think it will soon be firmly placed as the focal point for banking in French-speaking west Africa, usurping Côte d'Ivoire, whose financial system was severely strained by its near civil war early in 2011, which followed disputed elections in the country.
“We have been able to make Dakar a financial hub,” says Abdoulaye Diop, Senegal’s finance minister since 2001. “Our political stability means it is chosen by many banks [as their regional headquarters from which] they spin off into neighbouring countries.”
Open to foreigners
Senegal’s open and fast-growing economy has enticed plenty of foreign banks. They now dominate the banking system, with five of the country's six biggest lenders by assets being foreign-owned subsidiaries, according to The Banker database.
Banks from France, of which Senegal was a colony until 1960, have long been present. Société Générale de Banques au Sénégal and Banque Internationale pour le Commerce et l'Industrie du Senegal (BICIS), the respective subsidiaries of Société Générale and BNP Paribas, are the second and third largest Senegalese lenders.
Institutions from elsewhere have also pushed into the market. Among them are Morocco’s Attijariwafa, which owns Banking Company of West Africa (CBAO), Senegal’s largest bank, and Togo-based Ecobank, whose subsidiary ranks fourth. United Bank for Africa, meanwhile, became the first Nigerian lender to enter Senegal when it started operations in 2009.
The sector’s openness has caused it to be highly competitive. Senegal has 19 banks for its population of 13 million. Regional neighbour Nigeria, by contrast, has just 24 lenders servicing its 160 million people. “That tells you about the kind of competition facing the banks here,” says Mr Quam-Dessou. “The competition is stiffer than in other countries in the WAEMU zone.”
Funding opportunities
Big Senegalese companies have benefited from the resulting rivalry, enjoying among the lowest funding costs in the monetary union. “It is very easy for us [to borrow],” says Cheikh Tidiane Mbaye, chief executive of telecommunications group Sonatel, the largest company on the Bourse Régionale des Valeurs Mobilières, the regional stock exchange. “All the banks want to lend us money and the rates are very low.”
Despite the frenzied market, banks are still able to make healthy profits. Many of the large ones made returns on assets of between 2% and 2.8% in 2009 and 2010, far higher than the average profitability for developed world banks in that period. Moreover, bankers believe these levels will rise along with Senegal’s economy.
Banks are already benefiting from the robust economic expansion. Amadou Kane, managing director of BICIS, says that the energy, construction, telecommunications and infrastructure sectors – in which the government and private sector are investing heavily – are among the main sources of growth for corporate banking. “The banking industry is driven by Senegal’s growth rate,” he says.
Sectors for growth
Bankers in Dakar also think that business from the mining sector will increase substantially in the next few years. Senegal has deposits of phosphates, iron ore, gold, titanium and uranium, which for years were not extracted in large quantities. But recently, thanks to high global commodity prices, investment has picked up.
Phosphate mining has the biggest potential, with Senegal expected to become one of the world’s 10 largest producers of the chemical – used to make fertilisers – within five years. “The mining sector was in very bad shape, but in the past few years it has begun its rebirth,” says Mr Kane. “We want to increase our participation in it.”
Small and medium-sized enterprise (SME) banking is also likely to mature. Such companies, despite accounting for about 90% of business in the country, are poorly served by banks. The absence of a full-time credit bureau is partly to blame. But the expected introduction of one this year should help by reducing lenders’ aversion to providing SMEs, which often lack suitable collateral, with unsecured funding.
Tapping the unbanked
Yet perhaps the main opportunities for Senegal's banks lie with the country's unbanked population, which has steadily decreased over the past decade but still amounts to about 80% of the total.
Bankers say that tapping unbanked Senegalese will be one of the main ways for them to maintain their profitability over the coming years amid intense competition elsewhere. “The banks should try to make the cake bigger by banking more people,” says Ecobank’s Mr Quam-Dessou. “There is a long way to go.”
Ecobank has pushed into the largely unexploited student market over the last 12 months. In early 2011 it reached an agreement with Senegal's government for the students' scholarships to be routed through its branches. It hopes these students – almost 60,000 of whom have been given accounts – will continue to use the bank once they have finished studying.
Mr Quam-Dessou thinks it is an innovative way of tapping a group that should be a mainstay of Senegal’s ever more wealthy middle class in the coming decades. “This is the first time in the sub-region, I believe, that this size of banking of students has been achieved,” he says.
Moves by the government, such as requiring all monthly salaries of more than CFA Fr100,000 ($208) to be paid into a bank account, rather than in cash, have also helped. Abdelkrim Raghni, head of CBAO, which has doubled the number of its retail clients in the past three years, says that whereas being part of the banking system used to be seen as a luxury for most Senegalese, measures such as this are slowly making it more accessible.
Reaching out to more of Senegal’s rural population will be also be a priority, given how little of it is banked. Most lenders are still heavily concentrated in Dakar. Ecobank has 20 of its 35 branches located there, despite it being home only to one-fifth of the population.
Bankers say they are keen to deepen their operations elsewhere. For that, they will have to open more branches and develop their mobile banking services. They will also be required to increase their exposure to the agricultural sector, which accounts for most of the economic activity in rural areas but which has traditionally struggled to access credit.
This is slowly changing, largely because of government efforts to make the country self-sufficient in food production. The result has been the use of more modern methods of farming and greater investment in support industries such as storage and transportation, the development of which makes lending to farmers less risky.
Great potential
Senegal’s banks are forecast to grow substantially in the next 10 years as the country's economy expands and its many unbanked businesses and individuals are targeted. The Economist Intelligence Unit says that total banking assets, which stood at $3.8bn in 2009, should rise to between $11bn and $18bn by 2020.
Ensuring this rise is sustainable will be crucial. There were signs of stress during the recent downturn, with non-performing loans amounting to 16% of total loans in 2010. But bad assets have since been reduced as lenders have focused on cleaning up their balance sheets.
The central bank’s regulation of the sector, moreover, remains robust. WAEMU banks are required to have steep reserve ratios (the amount they must hold at the central bank as a proportion of their deposits) of 7%. Senegalese lenders are thus highly liquid. And most have capital adequacy ratios of well above 10%.
Bankers in country say that they have also benefited from less meddling by politicians over the past 10 years. “The banking supervision is more efficient than it was before,” says Mr Kane of BICIS. “And there is not as much political intervention. It used to happen. But now nobody – not the minister of finance, the prime minister or even the president – can tell me to give credit to this company or that one. If there is a mistake, it will be our mistake.”
