While Senegal’s banks were deemed adequately capitalised in early 2020, the pandemic has caused an upheaval, with lenders under pressure to help out smaller firms. 


Senegal’s banking sector began 2020 in a sound position, benefiting from the country’s business-friendly economic reforms. “The banking system was broadly in a healthy state before the [Covid-19] crisis,” says Cemile Sancak, the International Monetary Fund's (IMF's) resident representative in Senegal. “At our most recent assessment [in January] shortly before the crisis, the banking system was adequately capitalised while transitioning to new Basel II/III prudential standards. There were no systemic issues.”

In common with their international counterparts, Senegalese lenders now face an uncertain future, however, thanks to the coronavirus pandemic. Though the authorities have been swift to act, capital injections may be required in the medium term to stave off the risk from corporate credit defaults.

Major regional economy

Senegal has the second largest economy in the West African Economic and Monetary Union (Waemu) behind Côte d’Ivoire, and at the end of 2018, its financial sector consisted of 25 active banks and four other financial institutions, according to the latest data from BCEAO, the bloc’s central bank. The country’s banking sector had combined assets valued at CFAFr7290bn ($12.5bn) at the end of 2018, compared with CFAFr6610bn a year earlier.

Yet profitability dropped that year, with net income across the sector falling 5.5% year-on-year to CFAFr94.3bn, according to BCEAO data, as several banks deleveraged to comply with newly introduced prudential regulations based on Basell II/III standards. The banking system’s after-tax return on average assets (ROA) amounted to 0.7% at the end of 2018 compared with 1.7% the previous year, according to the IMF, while after-tax return on average equity (ROE) was 7.2%, compared with 19.9%.

Of Senegal’s 29 banking institutions, 14 banks had assets in excess of CFAFr200bn at the end of 2018; six had assets of CFAFr100bn to CFAFr200bn; with the nine remaining lenders with assets of less than CFAFr100bn, according to the IMF. Five had a market share of just under 50% in terms of assets at the end of 2018; all are subsidiaries of French and African lenders.

Top five banks

Compagnie bancaire de l'Afrique occidentale (CBAO), a subsidiary of Moroccan banking group Attijariwafa, was the largest lender in Senegal by assets at the end of 2018, its base growing to CFAFr1020bn from CFAFr989bn at the end of 2017, according to the BCEAO. CBAO’s net income was CFAFr23bn in 2018 against CFAFr17bn in 2017.

Senegal’s second largest bank at the end of 2018 was the national subsidiary of France’s Société Générale, which had total assets of CFAFr930bn, against CFAFr873bn at the end of 2017. Its net income was CFAFr17.7bn in 2018 (CFAFr18.3bn in 2017), according to the BCEAO.

The local subsidiary of Ecobank is in third position with total assets of CFAFr701bn at the end of 2018 (CFAFr715bn in 2017) and a net income of CFAFr13.1bn in 2018 (CFAFr8.9bn in 2017). The fourth biggest bank is La Banque Internationale pour le Commerce et l’Industrie du Sénégal, a subsidiary of France’s BNP Paribas, which had total assets of CFAFr463bn at the end of 2018 (CFAFr442bn in 2017) and a net income of CFAFr9bn in 2018 (CFAFr10.3bn in 2017).

UBA’s Senegalese subsidiary rounds off the top five with total assets of CFAFr449bn at the end of 2018 (CFAFr459bn at the end of 2017). It had a net income of CFAFr8.5bn in 2018 (CFAFr11.4bn in 2017).

Capital adequacy and asset quality

The capital adequacy ratio of the country’s lenders has dropped markedly during the past few years, as they transition to the Basel II/III regulatory standards agreed by Waemu leaders in 2016. The new standards, for which implementation began in January 2018, have forced banks to write off non-performing loans (NPLs) after five years which, in turn, has had a negative effect on adequacy ratios. In the long term, the IMF says this should make the banking system more resilient by requiring more equity and improving credit quality.

At the end of 2018, the regulatory capital to risk-weighted assets (RWA) ratio stood at 12.4%, compared with 13.6% at the end of 2017 and 19.1% at the end of 2015, according to the IMF. Tier 1 capital to RWA amounted to 12.5% in December 2018, compared with 13.2% a year before and 16.3% at the end of 2015. Provisions to RWA amounted to 9.2% at the end of 2018, against 11.6% in 2017. Total loans to total assets stood at 61.3% at the end of 2018 and 60.5% in 2017.

However, the gross NPLs to total loans ratio has declined: it stood at 13.1% at the end of 2018 compared with 16.2% in 2017, and 19.3% in 2015, according to the IMF.

Under the BCEAO’s new prudential framework, banks must increase their capital to meet the 11.5% capital adequacy ratio targeted for the end of 2022 (from a minimum of 8.625% at the end of 2018). The regulator is also gradually reducing the limits for loan concentration risk as prudential norms are tightened: individual risk limits are being cut from 75% of a bank’s equity in 2017 under Basel I, to 25% in 2022 under Basel II/III.

“In light of the Covid-19 crisis, we are seeing vulnerabilities in banking systems throughout the world,” says Nathan Belete, World Bank country director for Senegal, Mauritania, Gambia, Cabo Verde and Guinea Bissau. “Before the Covid-19 emergency happened, the regulatory standards of the Waemu region were considered to be among the best in Africa but perhaps prudential standards were not as high as other parts of the world.

“[Prior to the crisis], the NPL ratio of Senegalese banks had been falling during the past few years. Banks’ exposure had been directly linked to large investments with a few big companies and state-owned enterprises. However, the banks have managed to gradually diversify their loan portfolios during the past few years.”

Financial inclusion

Senegal had been making big strides to improve financial inclusion, one of the biggest challenges in the country, in the months before the pandemic. The banking system had a total of 1.81 million customers at the end of 2018, according to BCEAO, out of a population of around 15.85 million. The share of adults with a deposit account at commercial banks rose to 19% from 8% between 2004 and 2018, according to the IMF. 

“The banked population in Senegal is still limited but the country has a lot of banking groups, creating fierce competition,” says Papa Massamba Sall, chief country officer at Citi Senegal, which had total assets of CFAFr107bn at end of 2018, according to BCEAO. “One of Citi’s advantages is that we operate throughout [the] Waemu region, with offices in Senegal and Côte d’Ivoire, and operations with non-presence countries, and [we] are able to help foreign investors navigate the regulatory frameworks in each country.

“Many investors do not realise that certain rules and regulations can differ from country to country despite the existence of monetary union. Citi’s business strategy in Senegal is similar to that in other African countries in which we operate,” he adds.

Microfinance and credit

Beyond the big banks, Senegal has the biggest microfinance sector in the Waemu region. According to the BCEAO, the country had 48 microfinance institutions (MFIs) in 2018, the highest number in the eight-strong bloc, with Burkina Faso coming second with 29. Senegal accounted for 38% of the regional microfinance market and its MFIs had total assets of CFAFr751bn in 2018.

Despite the thriving microfinance sector, surveys in Senegal show access to credit for households and smaller firms is hampered by informality, information asymmetries and difficulties with enforcing contracts. The IMF says improvements must be made to facilitate the use of real estate for collateral, to strengthen the credit bureau and to improve access to credit for small and medium-sized enterprises (SMEs).

Before Covid-19 hit, the government planned to have a national financial inclusion strategy, to complement the existing regional Waemu strategy, in place by June 2020. This would identify constraints and policy options to expand access to financial services.

The country’s credit bureau is rapidly expanding and will improve its data sources by using information from large billers such as utilities. This will enable it to improve information availability and to reduce information asymmetries by December 2020.

SME credit

Of particular importance to the government is improving SMEs’ access to credit. Since 2008, the International Islamic Trade Finance Corporation (ITFC) has played an important role in supporting SMEs in the country. The organisation has approved trade financing valued at $708m to Senegal, focusing on agriculture, energy and financial institutions that support SMEs and the private sector. 

Since November 2019, the ITFC has partnered with Coris Bank International Senegal, the Delegation for Rapid Entrepreneurship and the International Organisation of la Francophonie to implement a pilot programme that helps finance 200 SMEs in Senegal for a 15-month period. 

“SMEs are crucial to economies, not just in Senegal but all over the world,” says Nazeem Noordali, chief operating officer at ITFC. “SMEs represent 90% of businesses in west Africa and provide 80% of private sector jobs. That is why ITFC was inspired to initiate the West Africa SME programme, which aims to reduce the trade finance gap for SMEs in the region. The programme – which is implemented in phases – provides financing lines, capacity building and advisory services to partner banks and SMEs within [the] Waemu zone.”

Covid-19 measures

As elsewhere, Covid-19 is expected to take its toll on Senegal’s banks, following a general economic slowdown prompted by reduced domestic activity and demand, together with a reduction in overseas remittances. “Uncertainty about the timing and pace of the economic recovery will make it hard to assess borrowers’ future repayment capacity and, in the longer term, [Senagalese] banks’ asset quality is likely to come under pressure,” says Janine Dow, senior director at Fitch Ratings.

The rating agency downgraded the long-term issuer default rating of UBA Senegal in early May, noting that the bank was entering the economic downturn with high levels of overdue public sector loans, high single-name borrower and depositor concentrations, and limited capital buffers. 

The BCEAO announced measures on March 21 to preserve financial stability and provide additional liquidity across Waemu to support banks in the midst of the coronavirus crisis. The central bank encouraged banks to adopt a flexible approach to customers’ debt servicing, to enable lenders to better manage their loan classifications and ease short-term pressure on capital ratios. 

The BCEAO provided CFAFr340bn additional liquidity to bring the total made available to banks by weekly and monthly auctions to CFAFr4750bn, while also extending the collateral framework to access the BCEAO’s refinancing to include CFAFr1050bn of bank loans to 1700 prequalified private sector companies.

“These liquidity support measures are important to reduce the spillover effects of the crisis on the banking sector,” says the IMF’s Ms Sancak. “At this stage, the most important effort is to prevent the liquidity constraints of the private sector from turning into solvency constraints.”

Payment extensions

At the start of April, the central bank advised lenders to grant companies that requested it an extension of maturity on loans for a period of up to three months – renewable once – with no interest charges, fees or penalties for late payment.

“The gradual removal of solvency support for corporates and the mere duration of the crisis could lead to increases in credit defaults, weaken bank balance sheets and raise premia. In some cases, capital injections may become necessary,” says Ms Sancak.

The BCEAO also introduced new measures – initially effective for 30 days but renewed at the start of May – to encourage digital transactions rather than hand-to-hand cash exchanges. Fees would no longer be applicable on minor transactions, including digital money transfers under CFAFr5000. Withdrawal and transfer fees at ATMs were also cut by 50%.

On April 21, the BCEAO announced plans to help member states to access low-cost financing through the issuance of Treasury bills – dubbed ‘Covid-19 bonds’ – with a three-month maturity. Lenders would be able to obtain liquidity from the central bank at a fixed rate of 2.5%. 


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