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AfricaMay 4 2010

Treasure seekers

Prize target: a man sifts for diamonds in north-western Côte d'Ivoire. With the vast majority of the country's rural population unbanked, this section of society represents a huge opportunity for finance providersCôte d'Ivoire's huge unbanked population makes the country an attractive target for both local and foreign banks. With the west African nation's banking sector on the verge of a consolidation process, those left standing will be well placed to tap into this enormous potential. Writer Nick Kochan
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Treasure seekers

The banks of Côte d'Ivoire are modernising quickly and making up for lost time. Branches are opening at a rapid rate across the country, management is becoming more professional, banks are becoming stronger and product ranges are being expanded to cater to a more demanding clientele. According to Jacob Amematekpo, the chairman of local bankers association APBEFCI (l'Association des Banquiers de Côte d'Ivoire): "The banking sector is very dynamic. A lot is happening and a lot more can be expected."

The country continues to give pride of place to French bank SGBCI, a subsidiary of Société Générale, which has some 30% of the retail market and retains a key competitive force. The bank also has 20% of commercial business. But the progress of ambitious local banks such as Banque Atlantique and Bank of Africa has been marked, challenging the French bank's retail business and bidding for the large 'unbanked' sector of the market.

And the sector is becoming yet more demanding as Nigerian, Moroccan and even Lebanese banks see opportunities in a sector where change has only been recent and the wider economy is showing signs of stability and expansion.

Regulatory progress

The recent sector-wide regulatory development for local banks is an increase in the required minimum of paid-up capital for all banks across the West African Economic and Monetary Union region by the end of the year. Banks will be required by the Banque Centrale des États de l'Afrique de l'Ouest in Dakar, Senegal, to raise their paid-up capital from the current CFA Fr3bn ($6.07m) to CFA Fr5bn. The impact on the region's 80 banks and on Côte d'Ivoire's 21 banks is likely to be considerable.

Charles Kie, managing director of the locally owned Banque Atlantique, expects major change: "Something is going to happen in the market, particularly when it comes to small, local banks, which have not been able to properly capitalise until now. It will be hard to face that new requirement, starting next year. You can expect some form of concentration or acquisition or diversification of some of the banks. Any bank that has been losing money is obviously impacted. So this is one of the challenges that the banking industry will have to address, going forward."

Industry reaction

Opinions differ between bankers on the likely impact of the new measures. Mr Amematekpo envisages no more than two or three banks being forced out of the Ivoirian market by the new measures. He is unwilling to name those banks. "All of them will be around, maybe except one. There may be mergers between one or two; a maximum of two or three being taken over by someone else. You'll be talking about a banking system with 18 banks and that doesn't count newcomers in the pipeline," he says.

However, Mr Kie does not share that optimism. "In a country with 20 banks, the minimum you could have is 10 banks, on the basis of the Nigerian example," he says. Region-wide institutions will have to examine how they use their capital. "Shareholders have to decide how to allocate their capital throughout the region. Take the case of a small country where you have 10 banks today. The day the authorities say the minimum capital is CFA Fr10bn, probably only two banks will remain. The investor is likely to withdraw from the country and write off CFA Fr5bn of the CFA Fr10bn, rather than put up another CFA Fr5bn. There are going to be some very key investment decisions to be made in the very short future," says Mr Kie.

Paul Derreumaux, chairman of Bank of Africa, agrees: "Some banks will not be able to raise enough capital and they will die. Probably the number of banks will decrease, keeping only stronger banks. This will produce a more efficient means of serving the population."

Acquisition opportunities are expected to grow across the region as banks feel the pressure of the new capital requirements, says Mr Kie. He does not rule out Banque Atlantique picking up some of the struggling smaller banks.

Modernisation drive

The modernising of the banking system will be better accomplished by banks with deeper pockets and more modern structures, says one observer. Banks have risen to the challenge of a more modern system and a more demanding customer by launching programmes of branch expansion.

Bernard Labadens, the director-general for SGBCI, says that his bank has a programme for expanding its branch network by 10 branches a year. "It is critical to be close to the customer, wherever he is. There is a new interest in service and commitment by the banks. We are looking for new operations. We have been more retail-oriented until now, but we are devising more aggressive marketing to attract businesses. Our marketing policy should enable us to open some 30 more branches in the coming three years," he says. Bank of Africa plans to open about 60 branches each year across the 11 countries where it operates, with five branches a year over the next three years opening in each country.

Banque Atlantique is likewise beefing up its branch network. Mr Kie says: "We are the second largest bank in this country, by asset size. We have between 11% and 12% of market share in terms of liabilities or total assets. At the same time, we have the largest footprint in terms of branches in the country. We have a bit more than 70 outlets all across the country." The bank has the same plan to get close to the customer. "We have an aggressive retail banking strategy where we aim to create more accessibility to our customer base by being present in all the main areas in the country," adds Mr Kie.

New arrivals

One factor bringing aggression to the local marketplace is the arrival of Nigerian banks, including UBA and Access Bank. These banks are participating in the branch opening process says Mr Amematekpos. He envisages the banks opening three to five branches across Côte d'Ivoire in the immediate future, as well as increasing the number of ATMs in operation.

Opportunities in the commercial market have been spotted by Standard Chartered Bank, says local managing director-general Serge-Philippe Bailly. He says the bank focuses on financing local cocoa and coffee producers and participants in the oil sector: "We have redirected our efforts from the retail to the corporate customer. The revival of the Côte d'Ivoire economy offers this sector opportunities and our regional and wider network gives us a competitive edge."

Technological innovation and investment promises to transform local banking in today's more enterprising environment. Mr Kie says: "We have 130 ATMs in all our regional banks but most of them are in Côte d'Ivoire. That number is going to increase. One of the challenges is to make sure that they do work effectively - and all the time. It is about service."

The bank says it is in the process of raising the quality of networking between banks and headquarters. Mr Kie says: "This is all in the process and it is taking a long time. We've been pioneers in this process for quite some time. This is now being sorted out and managed at a regional level by a separate entity. The good thing is that it is coming."

The need for proximity to customers and their markets is emphasised by Mr Derreumaux of Bank of Africa. He says: "The percentage of the population holding bank accounts is very small and one of the targets of the central bank is to increase these rates - and increasing competition is one of the best ways to reach this target." Mr Kie also puts emphasis on his bank's closeness and commitment to the market, saying: "We are a local bank and we are seen as a local bank in every single country where we are. There's no such thing as moving away or leaving a country - and particularly here. We have to stay."

Tapping into the unbanked

The final hurdle for the banks is to reach out to a very large body of unbanked Ivorians. These represent no fewer than 90% of the working population and they are either too poor to afford bank products or too suspicious of banks to commit their money to local institutions.

Innovative ways are being explored by all Ivorian banks to sell services and products to those who lack bank accounts but need financial services. "Of the 15 million population of Côte d'Ivoire, only about 6% to 7% have bank accounts," says Mr Kie. "The fact that someone doesn't have a bank account doesn't mean those people don't need financial services, because they have access to money transfer actions through the likes of MoneyGram or Western Union. The key challenge for us today is to make sure we can tap into the unbanked by offering all sorts of products that don't really require opening a bank account. People need to spend money, therefore they need to have means of payment, they also need to have access to cash, meaning they need to have outlets to draw that money from."

Cards onto which cash can be loaded are a key product for Banque Atlantique and other local banks seeking to service the unbanked. Mr Kie says: "People tend to use a lot of cash, with all the risks that go along with that. One of the reasons why people don't want to go to banks, or they don't want to take a cheque or make a transfer, is that there is not a lot of confidence in the banking system. It will make a tremendous difference when you can manage to convince customers that their money will be safe when loaded onto a small card that they can travel with."

He says these cards are of particular interest to people travelling between Côte d'Ivoire and neighbouring countries. "Côte d'Ivoire is country of entry to the hinterland, or to the land-locked countries. There has been a lot of immigration into Côte d'Ivoire and there are people working here who bring money home and also travel home for personal purposes, or even for business. These kinds of products are particularly useful for these customers. We are working hard to make sure this differentiates us from the competition," says Mr Kie.

Banks are bidding to reach the unbanked through teaming up with mobile phone companies to facilitate phone banking. So SGBCI has teamed up with the telecoms company MTN, while Bicici, the local subsidiary of BNP Paribas, has teamed up with Orange. Mr Amematekpo believes there is great scope for innovation in reaching the unbanked part of the population. He says: "You're talking about 7% of the population having bank accounts, so there is really a large margin for progression of the banking industry. Those who are providing new ideas, new products, adapted to the local market of course, and local population, will of course grow pretty fast and pretty well."

Another route to the unbanked can come through the microfinance sector and many local banks have explored an involvement. SGBCI says it is on the verge of buying a local microfinance institution.

While banks want to sell to the unbanked as well as the banked, local managers are also looking forward to changing regulations in the medium term. These involve relaxation restraints on foreign currency accounts for the better-off middle class. Mr Kie says: "Companies or individuals are only allowed to have local currency-denominated accounts, and therefore this is something that could maybe be an attractive element for the future."

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