GEOGRAPHICAL SITUATION OF THE West Africa Monetary Union (WAMU) ECONOMIC ENVIRONMENT AND INSTITUTIONAL FRAMEWORK

Transcription

1 GEOGRAPHICAL SITUATION OF THE West Africa Monetary Union (WAMU) The WAMU is a monetary union that encompasses 8 countries from France s former colonies in West Africa. The current member states are: Benin, Burkina Faso, Côte d Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo. 1 ECONOMIC ENVIRONMENT AND INSTITUTIONAL FRAMEWORK I. Economic environment GDP Growth (2008) Weight Population (2008) Weight Côte d'ivoire 2,30% 6,71% % Senegal 2,50% 7,29% % Burkina Faso 5% 14,58% % Mali 5,10% 14,87% % Benin 5% 14,58% % Togo 1,60% 4,66% % Niger 9,50% 27,70% % Guinea Bissau 3,30% 9,62% % TOTAL 3,8% 100,00% ,00% GROWTH ,80% 3% 2

2 ECONOMIC ENVIRONMENT AND INSTITUTIONAL FRAMEWORK II. The institutional framework The current member states share the same: Currency: the CFA Franc Institutional framework. The main features are as follows: Guaranteed convertibility. A fixed exchange rate. Free transferability. Harmonization of rules governing currency exchange. Uniform financial system. Lending Institution the BCEAO, the WAMU central bank. Regulatory authority for the banking sector the Banking Commission, responsible for regulating all banks in the monetary union. Stock market the BRVM The financial market regulatory authority the CREPMF, responsible for regulating all actors intervening in the WAMU financial market. 3 THE WEST AFRICA MONETARY UNION (WAMU) FINANCIAL SYSTEM 4

3 THE WAMU FINANCIAL SYSTEM I. Financing of economic activity The financing of economic activity in the WAMU zone is mainly done through bank loans. Bank assets represented nearly 88% of the total financial sector in 2008 compared to 75% for Ghana, 96% for Nigeria and 37% for South Africa. The financial liberalization that began in the early 1990s has prompted an increased mobilization of savings with a 10% increase on average in fixed term deposits since However, the level of financial development of the Union remains low. The ratio of bank deposits to GDP increased from 16% in 1995 to 22% in The ratio of loans for the economy to the GDP was 19% for the WAMU in December III. Remarks THE WAMU FINANCIAL SYSTEM The regional banking system is relatively small. As of the end of 2008, banking assets were about 50 percent of GDP in the WAMU. In contrast, this ratio reaches 77 percent in the E.U. new member states (E.U. NMS) and 280 percent in the E.U. 15. Reflecting their share in the regional economy, banks in Senegal and Côte d Ivoire dominate the WAMU s banking sector. The small deposit base in the region is being intermediated. The average loan to deposit ratio is higher than in the E.U. new member states (NMS) and stands at about 80 percent in the WAMU. The loan to deposit ratio is still lower, however, than in more advanced economies, such as the E.U. 15, where it reaches 123 percent. 6

4 EVOLUTION OF THE BANKING ENVIRONMENT WITHIN THE WAMU 7 EVOLUTION OF THE BANKING ENVIRONMENT I. Size and concentration The number of licensed establishments decreased from 121 (97 banks and 24 financial institutions) in 2007 to 116 (96 banks and 20 financial institutions) in 2008, due to some M&A in CI, SN, ML, BF and TG. Total Banks Asset Number of Banks (in Euros) Côte d'ivoire Senegal Burkina Faso Mali Benin Togo Niger Guinee Bissau TOTAL

5 EVOLUTION OF THE BANKING ENVIRONMENT II. Size and concentration (2) Credit establishments within the Union are divided into three categories depending on the size of their balance sheets: Large total balance sheet higher than CFA 100 billion Francs (about 152 million Euros); Medium those with a total balance sheet ranging between 50 and CFA 100 billion Francs (between million Euros); Small those totalling less than CFA 50 billion Francs (less than 76 million Euros). 9 WAMU BANKING SECTOR ASSESSMENT II. Size and concentration (3) As of 31 st December 2008, the banking sector was composed of 33 large banks, 22 medium sized banks, and 61 small scale establishments, among them 41 banks. The large banks condense 74.5% of the Unions assets and cover 64.6% of the network of agencies, 69.7% of the bank accounts and 63.6% of the workforce. At the end of the 2008 financial year, the Union s credit establishments had a total balance sheet of CFA billion Francs (about Euros 15,5 Billion), with an annual increase of 13.4%. 10

6 WAMU BANKING SECTOR ASSESSMENT III. Type of ownership Net Equity capital of all banks reached CFA 550 billion Francs (about 838,4 million Euros) at the end of 2008, up 24.1%, with : 30.2% held by non nationals 69.8% held by nationals The amount held by States was merged to 95.4% attaining CFA 125 billion Francs. Holdings of nationals and non nationals were up 122.4% and down 36.9%, respectively. 11 WAMU BANKING SECTOR ASSESSMENT Type of ownership Number of Banks Total Equity Capital (in Euros) State owners Weight Foreign owners Weight Growth Weight Côte d'ivoire % 6,71% 35,30% 21,77% 51,28% 18,85% Senegal % 7,29% 4,47% 2,76% 79,42% 29,19% Burkina F % 14,58% 16,30% 10,05% 5,03% 1,85% Mali % 14,87% 27,51% 16,96% 0,00% 0,00% Benin % 14,58% 6,80% 4,19% 49,55% 18,21% Togo % 4,66% 27,74% 17,11% 35,64% 13,10% Niger % 27,70% 44,07% 27,17% 11,24% 4,13% Guinea B % 9,62% 0,00% 0,00% 91,22% 33,52% TOTAL % 13% 20% 100% 40% 100% 12

7 WAMU BANKING SECTOR ASSESSMENT IV. Banking density and marketing strategies The banking networks increased by 31% to stand at units. Corporate and private accounts rose respectfully by 42.3% and 36.0%. The number of customer accounts improved by 36.6% to reach 4.1 million. Individual accounts increased by 36,0%. Corporations accounts was up by 42,3%. 13 WAMU BANKING SECTOR ASSESSMENT IV. Banking density and marketing strategies (2) Number of Branchs Weight Number of customers account Weight Cote d'ivoire ,37% ,26% Senegal ,10% ,68% Burkina F ,22% ,13% Mali ,28% ,39% Benin 120 9,55% ,52% Togo ,67% ,84% Niger 63 5,02% ,30% Guinea B 10 0,80% ,88% TOTAL % % 14

8 WAMU BANKING SECTOR ASSESSMENT IV. Banking density and marketing strategies (3) At the end of 2008, the Union s banking sector is marked by the presence of seven (7) principal groups, against six (6) a year before : Ecobank (ETI), Société Générale, Bank Of Africa Group (BOA Group), BNP Paribas, Attijariwafa Bank, Atlantic Financial Group (AFG) IUB Holding (Groupe Crédit Agricole). Their influence extends to almost all the WAMU countries and concerns 37 credit establishments out of the 116 in activity. They concentrate 62,5% of the total balance sheets, 56,8% cash counters, employ 54,2% agents and hold 49,8% 15 client accounts. WAMU BANKING SECTOR ASSESSMENT IV. Banking density and marketing strategies (4) Number of Branches Number of customers account Number of Banks Market Share Ecobank (ETI), 8 13,20% Société Générale, 4 12,80% Bank Of Africa Group (BOA Group), 8 10,80% BNP Paribas, 5 9,40% Attijariwafa Bank, 2 8,00% Atlantic Financial Group (AFG) 8 5,10% IUB Holding (Groupe Crédit Agricole). 2 3,30% Number of Employees TOTAL 37 62,50%

9 WAMU BANKING SECTOR ASSESSMENT V. Credit policy The structure of the regional economy is characterized by a small number of large borrowers. Access to and cost of finance remain major obstacles for small and medium sized enterprises (SMEs). Barriers to finance for SMEs include the unavailability or unreliability of financial statements and uncertainties and delays in judicial procedures for recovering claims and realizing collateral. 17 WAMU BANKING SECTOR ASSESSMENT VI. Credit concentration Loans to customers rose from 15.0% to CFA 6,1 billion Francs. The short term loans increased by 12.6%, against 8.0% in The outstanding short term loans benefit mainly the following industries: Trade, restaurants and hotels 37.6% Manufacturing 20.1% Services provided to the community 12.7%. 18

10 WAMU BANKING SECTOR ASSESSMENT VII. Credit concentration Medium term loans Long term loans Leasing Major banks and 24.4% 75.8% (+3%) 46.1% institutions Medium banks 10.9% 18.1% (+4%) 50.3% Small banks 85.10% 6.20% ( 1%) 0.6% Total 1872 billion, an increase of 19.1% against 26.4% a year earlier billion, registering a growth of 23.9% against 10.1% a year earlier Used - Services provided to the community 27.2% - Shops, restaurants and hotels 20.4% - Transport, storage and communications 19.0% 2008 The medium and long term loans remain allocated mainly in Côte d'ivoire, up 67.8% of the total, against 64.3% in Investment securities increased by 11.7% to 997 billion, against 42.8% in They are held up by 83.2% by the large institutions of the Union. Financial assets rose 20.2% to 253 billion. These assets are held by banks in Côte d'ivoire to the tune of 36.3%. 19 WAMU BANKING SECTOR ASSESSMENT VIII. Degree of competition Indicators Evolution (07 08) Global resources CFA billion francs, with an increase of 10% Deposits and loans CFA 7,345 billion francs, after a yearly progression of 8.9%. The cash flow in surplus of CFA 729 billion francs Cash holdings 40.6% of the total surplus. The net external position Dropped from CFA 253 to CFA 201 billion francs. Net banking income increased by 21.5% against 13.4% in 2007, to CFA 741 billion francs. Treasury operations reflected a loss of CFA 10 billion francs. Net proceeds from customer including leasing, grew by 17.3% to CFA 557 billion francs, transactions representing 75.2% of net banking income against 77.9% in Margin on transactions with remained virtually unchanged at 10.6% customers Off balance sheet operations showed a net profit of CFA 36 billion francs. The total bank operating an increase of 19.0% up to CFA 771 billion francs. revenue Operating profit 162 billion against CFA 88 billion francs in 2007, an increase of 84%. The net banking income declined by 19 points to 39.9%. The net operating ratio also decreased by 4 points, from 72.1% to 68% in The net profit ratio improved by 14.9% against 6.6% in The coefficient of return on also rose to 11.0%, or 6 points higher than in equity 20

11 WAMU BANKING SECTOR ASSESSMENT IX. Significant reforms made The major financial sector reform policies since 1994, are : Strengthening the regulatory and supervisory institutions and upward review of capital adequacy standards. Implementing the fight against money laundering and funding terrorism: Adoption by parliaments of the Uniform Law approved by the Council of Ministers of the Union on 20 March 2003, to organise the legal framework for combating money laundering, is underway at the level of member States. Modernising the systems and modes of payment: Efforts at modernising the systems of payment within the Union undertaken since 1999 are still underway. Also, efforts are still being made to implement the electronic banking system. 21 WAMU BANKING SECTOR X. Perspectives Strengthening the regulatory and supervisory institutions and upward review of capital adequacy standards. On September, 17 th 2007, a decision was taken by the banking sector authority, to raise up the capital of banks and financial institutions respectively to CFA 10 billion and CFA 3 billion franc. The first stage is to reach, between January 2008 and December 2010 the objective of 5 billion and 1 billion respectively for banks and financial institutions. The estimates recapitalization requirement is about at CFA billion francs for all eight (08) countries of the Union : Senegal (CFA 30.4 billion francs), Togo (CFA 29.5 billion francs), Niger (CFA 27.7 billion francs ) Burkina Faso (CFA 24 3 billion francs) Mali (CFA 22.1 billion francs). 22

12 WAMU BANKING SECTOR X. Perspectives (2) Strengthening the regulatory and supervisory institutions and upward review of capital adequacy standards. Options: 1 Incorporation of reserves 2 Shareholders equity 3 Mobilization of resources on the regional financial market. Several banks are listed on the WAMU Financial market: ECOBANK Transnational Incorporated (ETI) Group; Bank of Africa Benin ; Bank of Africa Niger ; International Bank for Commerce and Industrie in Côte d'ivoire; African Society for Automobile Credit, Côte d'ivoire and ; General Society of Banks in Côte d'ivoire. 23 WAMU REGIONAL CAPITAL MARKET 24

13 WAMU REGIONAL CAPITAL MARKET I. Rapidly growing Local Currency Debt Market The elimination of central bank financing of government has been the main catalyst of the growth of the local debt market. Starting in 2003 the central bank financing to national treasuries was gradually phased out. Statutory advances to governments were consolidated with repayment to the central bank. As a result, national treasuries have resorted to market financing of their public deficits as the regional central bank (BCEAO) stopped its statutory advances to governments. The development of the Treasury bills (T Bills) market also helped reduce the relatively high level of excess liquidity in the system, as commercial banks found a more profitable use for their excess reserves. 25 WAMU REGIONAL CAPITAL MARKETS II. Issuance of T Bills T Bills account for most of the issuance of securities. Issuance of T Bills has grown from zero in 2000 to about CFA 900 billion francs in Maturities typically range from 3 months to one year but the most popular instruments are the 3 and 6 month bills. At the same time issuance of government bonds has increased from CFA 5 billion francs in 2000 to about CFA 700 billion Francs in 2009 and CFA 476 billion francs as of May Bond tenors typically range from 3 to 5 years. Governments and a few regional development banks are the largest issuers of local currency debt securities in the WAEMU. All member countries have issued government securities and, not surprisingly, the largest economies account for most of the total issuance. As of end 2009, three countries Côte d Ivoire, Senegal, and Burkina Faso accounted for about two thirds of the WAMU GDP and 60 percent of total gross 26 issuance.

14 WAMU REGIONAL CAPITAL MARKETS 27 Source: CREPMF WAMU REGIONAL CAPITAL MARKETS 28 Source: CREPMF

15 WAMU REGIONAL CAPITAL MARKETS III. Issuance of T Bonds The number of issuers is small and trading is limited. Bonds are listed in the regional bond segment of the common securities market, the BRVM (Bourse Régionale des Valeurs Mobilières). A new segment for non WAMU resident issuers, the Kola Bond Market started in 2007 with the listing of a bond issued by the IFC. The IFC issued by end 2006, a CFA 22 billion francs ($44.6 million equivalent) five year bond, AAA rated. The bond carries a 4.75 percent coupon rate and was issued at 100 percent of face value. The IFC bond was placed with institutional investors in the eight WAMU countries. The issue was broadly distributed throughout the CFA zone and more than 30 percent was raised from non WAMU investors. The proceeds will be used to support long term local currency financing for local companies. 29 Source: CREPMF WAMU CAPITAL MARKETS Public and Private Placement by Country Country Public Placement Number of Issus Private Placement Number of Issus General total Total Issus BENIN BURKINA FASO CI EUROPE MALI NIGER SENEGAL TOGO UEMOA General Total Source: CREPMF 30

16 WAMU CAPITAL MARKETS Issuers in WAMU Local Currency Debt Market 31 Source: CREPMF WAMU CAPITAL MARKETS Issuers in WAMU Local Currency Debt Market 32 Source: CREPMF

17 WAMU CAPITAL MARKETS Public and Private Placement by Country Source: CREPMF WAMU CAPITAL MARKETS Public and Private Placement by Country Source: CREPMF

18 WAMU CAPITAL MARKETS IV. The Regional Stock Exchange A regional capital market, the BRVM (Bourse Régionale des Valeurs Mobilières) has been created but it remains small. Market capitalization of the regional capital market was about 11 percent of GDP in For instance, Kenya, Mauritius, Nigeria, and Tunisia have GDPs comparable to that of WAEMU and have market capitalization greater than 10 percent. Activity at the BRVM is concentrated in the bond market while the stock market has not fully recovered since Activity in the stock market has declined substantially because of the crisis in Côte d Ivoire, since 36 of the 39 firms listed are Ivorian. A project to promote a regional capital market is underway with donor support from structures such as the ACDI and the World Bank. 35 WAMU REGIONAL CAPITAL MARKET IV. The Regional Stock Exchange (2) 36

19 WAMU REGIONAL CAPITAL MARKET V. Significant reforms (2) The WAEMU Council of Ministers introduced the system of issuance of T Bills through auctions at the BCEAO in 2001 to promote a regional government securities market harmonization. The key reform in the WAMU region is aimed at encouraging bond issuance through an enhanced credit rating system. The initiative would facilitate the implementation of a better system to assess the solvency and profitability of the issuers so as to better adapt the required guarantees to the quality of their signature and thereby the minimize the cost of transactions. Other reforms in the WAMU region include the reduction of costs and easing of the prerequisites to access financial markets and the launching of a mortgage market and securitization. 37 WAMU REGIONAL CAPITAL MARKET VI. Perspectives The WAMU authorities received financial and technical assistance from the international community (IDA, MIGA, AfD) whom in 2002, began to develop the regional financial market. Key elements of the project include : (i) increasing the role of the BOAD as a benchmark issuer in the regional market, (ii)raise medium to long term funding for public infrastructure projects; (iii)develop risk mitigation instruments to raise private funding for infrastructure projects; (iv)technical assistance to regional bodies in the areas of regulation, training and public education, and tax 38

20 WAMU REGIONAL CAPITAL MARKET VI. Perspectives (2) Bond markets at a national and regional level remain largely underdeveloped, several initiatives are underway by governments, private sectors and donors, however, with limited effectiveness. More inclusive partnership on the ongoing and planned initiatives is needed so as to leverage synergies and maximize the effectiveness of the initiatives aiming at: addressing deficiencies in the legal system, enhancing bond issuance, broadening and diversifying the investor base, strengthening market infrastructure, developing supranational, subnational and corporate bond markets, and 39 the promotion of regional initiatives. WAMU REGIONAL CAPITAL MARKET VII. Opportunities Banks and institutional investors are the largest investors in the T Bills market. Interest earned on such instruments are tax exempted, carry a zero risk weight in the calculation of capital adequacy ratios, are tradable in the eight countries of the WAMU, and can be, in principle, refinanced at the central bank to obtain liquidity. Non resident investors within the WAMU account for most of the investors in countries such as Guinea Bissau and Niger, with shallower banking systems. Cross border investments (within the WAMU) are also frequent in the government bond market. There are no restrictions for foreign investment in government 40 securities.

21 WAMU REGIONAL CAPITAL MARKET VII. Opportunities (2) Several African countries have attracted the interest of international investors as a result of debt cancellation and improved fiscal discipline, in addition to very high returns and a sound macroeconomic framework. Multi lateral organizations and other donors could enhance the development of national and regional bond markets through a co operative approach in three broad areas: 1. enhancing the capacity of all market participants through technical assistance and other capacity building programs, 2. partnering with other donors, governments and private sector to finance viable initiatives, 3. being part of working groups composed of member countries to facilitate the transfer of lessons learnt and experiences in addressing the key constraints to Capital markets development.41 THANK YOU 42