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Unlocking opportunitiesPerspectives on Strategic and Emerging Issues in Africa West Coast banking

www.pwc.com/za

February 2011

2 Perspectives on Strategic and Emerging Issues in Africa West Coast banking

Table of contents

Foreword 3

About the author 4

Introduction 5

Angola 17

Côte d’Ivoire 43

Democratic Republic of Congo 77

Ghana 115

Nigeria 147

Appendices 177

Contacts 189

PwC 3

I would like to thank:

• the Chief Executive Officers and Senior Executives who participated in this survey for their time, commitment and support in making this publication possible;

• the partners and staff in our offices on the West Coast of Africa and our Johannesburg office who have assisted in producing this report; and

• in particular, Dr Brian Metcalfe for his work in producing this report.

We trust that you will find the results and analysis insightful and we welcome any feedback you may have on the report so that we can incorporate it into future PwC surveys.

Tom Winterboer

Financial Services Leader: Southern Africa and Africa

February 2011

Foreword

We are pleased to launch this PwC survey of mainly the banking industry on the West Coast of Africa with references to the insurance markets in certain countries. The survey attempts to gather and compare diverse views from senior banking executives from banking institutions in Angola, Democratic Republic of Congo (DRC), Cote d’Ivoire, Ghana and Nigeria, whilst at the same time protecting confidentiality of the participants. As in our South African Banking and Insurance surveys, this survey offers perspectives on the strategic and emerging issues in these territories.

This survey has been developed by PwC and Dr Brian Metcalfe and the key objectives are to:

• offer perspectives on certain strategic and emerging issues in Africa West Coast Banking;

• establish data on certain industry trends;

• encourage timely discussion and debate on the best options for capitalising on trends to enhance and improve performance of the various banks; and

• provide perspectives on how Africa West Coast Banking could evolve over the next three years.


About the author

Dr Brian Metcalfe is an Associate Professor in the Business School at Brock University, Ontario, Canada. He has a doctorate in financial services marketing and has researched and produced over 40 reports, such as this one, on behalf of PwC firms in 11 different countries including Australia, Canada, China, India, a number of African countries(2007) and South Africa.

Previous reports in South Africa have examined strategic and emerging issues in banking, short and long-term insurance, insurance broking and wealth management.

He has consulted for a wide range of organisations, including Royal Bank of Canada, Bank of Nova Scotia, Barclays Bank, Sun Life Insurance Company, Equitable Life of Canada, and several major consulting firms.

He has also taught an executive management course entitled ‘Financial Services Marketing’ at the Graduate School of Business, University of Cape Town.

This report was researched and written by Dr Brian Metcalfe, Ph.D. Information presented herein, while obtained from sources believed reliable, is not guaranteed as to accuracy or completeness. This report has been commissioned by and distributed through PwC, Johannesburg.

Additional copies of this report can be obtained from Tom Winterboer, Financial Services Leader: Southern Africa and Africa – PwC, 2 Eglin Road, Sunninghill, 2157.

Telephone: +27 11 797 5407 Fax: +27 11 209 5407 E-mail: [email protected]

© 2011 PricewaterhouseCoopers (“PwC”), a South African firm, PwC is part of the PricewaterhouseCoopers International Limited (“PwCIL”) network that consists of separate and independent legal entities that do not act as agents of PwCIL or any other member firm, nor is PwCIL or the separate firms responsible or liable for the acts or omissions of each other in any way. No portion of this document may be reproduced by any process without the written permission of PwC.

PwC 5

Introduction

Introduction


Introduction

“Scepticism about Africa is waning, says African Development Bank (ADB) president Donald Kaberuka.

He points to the high growth figures predicted for the continent - 5% this year and up to 6% next year - as proof that real change is happening.

This growth is not only about resources, he maintains. “Something has happened since 2000 that is not simply explained by the price of raw materials. That is maybe 30% of the momentum - the rest is accounted for by fundamental reforms taking place at the macroeconomic level.”Source: Business Day November 2010

PwC 7

Introduction

The following findings are based on interviews with a sample of banks in five financial markets in West and Central Africa.

The report examines the five markets in separate sections. In this introductory section, some of the common themes and major differences are highlighted. This sets the scene for the more detailed analysis that follows.

To place the five different markets in a broader African context, the four segment economic model devised by McKinsey has been used.

This model classified countries according to their level of diversification and exports per capita. Examination of past economic development has found that as countries develop they migrate along both of these axiis. Africa has 53 different countries and the growth prospects will vary for individual countries. The evolution of the financial sector in these countries will mirror their respective stages of economic development. The five banking markets documented in this report fall into different development segments.

Pre-transition segment

The Democratic Republic of Congo (DRC) can be positioned in the pre-transition stage. The pre-transition economies are very poor. Although some markets such as DRC which stagnated in the 1990s, have since grown very rapidly. In the pre-transition stage international development agencies often play an important role in trying to put in place economic fundamentals.

The DRC’s banking industry is therefore at a very early stage of development.

Oil exporter segment

The oil exporter segment is characterised by strong exports per capita but weak levels of diversification. This segment contains two of the report’s participants, Angola and Nigeria.

Both markets have benefited from oil but also suffered from the global financial crisis and the subsequent drop in commodity prices. Oil revenues have had far reaching influences on these countries’ banking structures. For example, in Angola Sonangol, the state owned oil company, has shareholdings in six banks. Sonangol is the largest shareholder in Banco Africano de Investimentos the country’s largest bank.

In Nigeria the drop in oil revenues and the lack of loan diversification opportunities in the broader economy have been cited as a major cause of the recent banking crisis.

The Nigerian economy was unable to absorb the excess liquidity that flowed into the capital markets. As a result, the market capitalisation of the NSE increased 5.3 times between 2004 and 2007, while bank stocks increased 9 times. These dramatic increases set the stage for the resultant market crash.

The five banking markets and their level of economic development


Introduction

Transition segment

The third segment includes economies in transition and are characterised by rapidly growing economies. Ghana fits into this group and is also well endowed with natural resources. Gold and cocoa are traditional exports and as of December 2010 oil will support export earnings. It is expected that oil will contribute an annual average of US$1.2 billion to state revenues over the next twenty years. The banking sector which is already relatively advanced can be expected to benefit as the economy diversifies and develops.

Diversified segment

Only one country reviewed in this report can be placed in the diversified group. Cote d’Ivoire is positioned on the periphery of this segment and the on-going political instability there will affect its economic progress.

However, it is important to recognise that Cote d’Ivoire has a relatively sophisticated infrastructure and is not only a significant exporter of coffee and palm oil but is also the world’s largest producer of cocoa beans.

Exhibit 3

Zambia

Uganda

Tunisia

Tanzania

Sudan

South Africa

Sierra Leone

Senegal

Rwanda

Namibia

Mozambique

Morocco

Mauritius

Mali

90

Libya

Kenya

Gabon

Ethiopia

EquatorialGuinea

EgyptCongo, Rep.

Chad

Exports per capita, 2008, $

10000

1000

100

10

Economic diversificationManufacturing and service sector share of GDP, 2008, %

8070605040

Madagascar

3020 100

Cameroon

BotswanaAlgeria

DiversifiedOil exporters

Transition

Pre-transition

Size of bubble proportional to GDP $500–1,000

$1,000–2,000

$2,000–5,000

>$5,000

<$500

GDP per capita

DRC

Nigeria

Angola

Cote d’Ivoire

Ghana

22 countries that account for less than 3% of African GDP in 2008 are not shown in this figure.

Source: McKinsey Global Institute using OECD and World Bank Development Indicators

PwC 9

Introduction

Participating banks (28 banks)

Angola

• Banco Africano de Investimentos(BAI)

• Banco Caixa Geral Totta Angola1

• Banco Comercial do Huambo

• Banco de Fomento Angola2

• Banco Millenium Angola3

• Standard Bank Angola4

Cote d’Ivoire

• Société Générale de Banques enCôte d’Ivoire (SGBCI)5

• Banque Atlantique Côte d’Ivoire(BACI) 6

• Société Ivoirienne de Banque(SIB)7

• Ecobank Côte d’Ivoire 6

• Banque Nationale d’Investissement(BNI)

• Diamond Bank**

Democratic Republic of Congo

• Advans Banque

• Banque Commerciale du Congo(BCDC)

• Citigroup

• ProCrédit Bank Congo

• Rawbank

• Stanbic Bank Congo 4

Ghana

• Barclays Bank of Ghana

• Ecobank Ghana 6

• Ghana Commercial Bank

• HFC Bank

• Stanbic Bank Ghana 4

Nigeria

• Citibank Nigeria

• Standard Chartered Bank Nigeria

• Standard Bank IBTC 4

• Ecobank 6

• HSBC

1 51% owned by Santander Totta and Geral de Depositos 2 Major shareholder Portuguese Bank BPI 3 Major shareholder Portuguese Bank BCP 4 Standard Bank of South Africa 5 Société Générale France 6 HQ in Togo 7 Part of Attijariwafa Bank based in Morocco 8 Diamond Bank based in Nigeria


Introduction

Summary of the major drivers of change by market

It is readily acknowledged that all five markets examined are embracing massive changes in their financial sectors.

Two important themes were found across the markets, the ongoing performance of the domestic economy and the application of regulation and reporting in the respective countries.

The most important drivers of change in each market is recorded below:

• Angola - liquidity

• Cote d’Ivoire - demographics

• DRC - new foreign entrants

• Ghana - regulation and reporting

• Nigeria - mergers andconsolidation

Angola Cote d’Ivoire

DRC Ghana Nigeria

Capital markets 2

Demographics 1

Fiscal pressures 3

Foreign entrants 1 2

Foreign exchange control 2 3

Funding constraints 3

Governance 2

Liquidity 1

Mergers/Consolidation 1

Money laundering 2

Performance of domestic economy 1 3 2

Recession 3

Regulation and reporting 1 3

Technology 3 2

PwC 11

Introduction

Summary of the most pressing issues/major concernes by market

Angola • Availability of key skills

• Credit risk management

• Risk management

Cote d’Ivoire

• Risk management


• Retaining existing customers

• Banking the previously unbanked

• Improving revenue growth

DRC • Availability of key skills

• Banking the previously unbanked

• Business continuity

• Currency fluctuations


• Litigation risk

• Tax legislation

Ghana • Brand awareness


• Margins

• Risk management

• Service quality


Nigeria • The true health of banks’ loan portfolios

• Central bank resources

• Ability to sell all failed banks

• The stability of the Nigerian stock market

Individual factors that are mentioned more than three times are shown in bold

The following table provides a summary of the issues that are at the forefront of the minds of the bankers interviewed in this survey.

Three issues are repeated on at least three occasions. They are credit risk management, risk management and improving revenue growth.

In Angola, Cote d’Ivoire and Ghana risk management is a critical issue.

In DRC, it is subservient to other issues such as a skill shortages, business continuity, banking the unbanked, currency fluctuations and improving revenue growth.


Introduction

Summary of major skill shortages by market

There is a widespread shortage of skills in the banking industry in the markets surveyed.

Two skill deficits received particular attention, capital management and risk management.

Other skill shortages have more specific relevance in individual markets.

For example, all types of risk in the DRC, compliance in Ghana and Nigeria, executive directors in Cote d’Ivoire and Ghana and non-executive directors in DRC.


DRC Ghana Nigeria

Administration 5 6 4 7 4

Audit committee 4 3 4 6 4

Capital management 1 5 5 2 2

Compliance 3 3 4 3 2

Credit risk 1

Executive directors 2 2 3 3 3

Financial reporting 1 5 5 5 3

Information technology (IT) 2 3 6 5 3

Internal audit 4 5 4 7 4

Liquidity / ALM 1

Market risk 1

Non-executive directors 6 4 1 4 5

Operational risk 1

Regulatory risk (e.g. Basel) 1

Risk management 1 1 2 1 1

PwC 13

Introduction

Summary of major changes by market

Angola • Impact of the global economic crisis and the drop in oil prices

• Increasing competition

• Improvements in bank supervision

• Movement away from a dollarised economy to local currency

• Anti-money laundering legislation

• Creation of a credit bureau

Cote d’Ivoire

• Increasing competition

• Hiring pressures, skill shortages

• Development of the credit card market

• The “National Crisis”

• Regulation and an increase in bank capital requirements

• Technology electronic payments, ATMs and mobile banking

DRC • New bank entrants

• Growing confidence in the banking sector

• Introduction of new technology

• Growth in number of SMEs

Ghana • Creation of a credit bureau

• Creation of a collateral registry

• Increase in bank capital requirements

• Increased threat of competition from the telecom sector

• Pressure to reduce high levels of interest rates

Nigeria • New banking guidelines set out by the Central Bank

• Recapitalisation of the banks

• Creation of AMCON (Asset Management Agency)

• The dismissal by the Central Bank of the CEOs of one third of the country’s

24 banks

The table below summarises the major changes highlighted by the participants. They display some common themes such as: increasing levels of competition (Angola and Cote d’Ivoire), new technologies (Cote d’Ivoire, DRC and Ghana), new bank capital requirements (Cote d’Ivoire, Ghana and Nigeria) and credit bureau formations (Angola and Ghana).

In addition there are some changes that are more specific to particular markets such as oil and Angola, bank market restructuring and Nigeria, new bank entrants and DRC and the political environment and Cote d’Ivoire.


Introduction


DRC Ghana Nigeria

Retail banking

asset based financing a a

asset management a

cards a

consumer loans a a

credit cards a a

debit cards a a

electronic payments (both debit

and credit)a

internet banking a

leasing a

mobile banking a a a

mortgages a a a

pre-paid cards a

residential mortgages a

savings products a a

Corporate banking

asset management a

capital markets a a

cash management a a

corporate bond offerings a

debt markets a

derivatives a

financial advisory services a

fixed income products at the

government levela

foreign exchange a

infrastructure financing a

investment banking a

leasing a

project finance a

trade finance a a a a

treasury products a

Summary of products that will become more important over the next three years in each market

The participants shared their views on both retail and corporate products that they believe will increase in importance over the next three years.On the retail side, mobile banking featured strongly. Debit cards are important and there will be an increase in the issuance of credit cards. As the middle class grows in the markets examined, mortgages and asset based financing will expand.

On the corporate side, cash management as well as trade finance will grow rapidly and capital markets will play a more important role. Capital markets are expected to develop in Cote d’Ivoire and Angola and increase in their scope and sophistication in the most advanced market examined in the report - Nigeria. Project financing received a mention in Ghana and infrastructure financing was thought to be of critical importance in Nigeria.

PwC 15

Introduction

The Banker Tier 1 Capital

World Rank

Date Tier 1 Capital US$m

Assets US$m

a. Nigeria First Bank of Nigeria 285 3/09 2,277 13,658

Zenith Bank 287 12/09 2,270 11,202

Guaranty Trust Bank 429 12/09 1,298 7,198

Access Bank 438 3/09 1,247 4,827

United Bank for Africa 482 12/09 1,115 10,450

Date Capital US$m

Assets US$m

b. Angola Banco Africano de Investimentos na 12/09 637 8,288

Banco Espírito Santo Angola. na 12/09 400 6,494

Banco de Fomento Angola na 12/09 556 5,930

Banco de Poupança e Crédito na 12/09 526 5,200

Banco BIC na 12/09 461 4,329

c. Cote d’Ivoire Societe Generale de Banques na 12/09 32 1347

Ecobank na 12/09 28 698

Banque Internationale pour

l’Afrique Occidentale

na 12/09 41 661

Banque Internationale pour Ie

Commerce et l’lndustrie

na 12/09 34 661

Banque Nationale

d’investissement

na 12/09 42 502

d. DRC Rawbank na 12/09 32 308

Banque Commerciale du Congo na 12/09 30 300

Banque Congolaise na 12/09 40 263

Banque Internationale pour

l’Afrique au Congo

na 12/09 14 223

Trust Merchant Bank na 12/09 35 185

e. Ghana Ghana Commercial Bank na 12/09 49.6 1,242

Barclays Bank of Ghana na 12/09 79.3 904

Standard Chartered Bank Ghana na 12/09 42 899

Ecobank Ghana na 12/09 69 870

Stanbic Bank Ghana na 12/09 43 473

a: The Banker July 2010 b: fxtop.com c: Refer to page 55 d: Refer to page 82 e: Refer to page 120

Comparison of banking statistics


Introduction

The Banker Tier 1 Capital World Rank

Date Tier 1 Capital US$m

Assets US$m

France BNP Paribas 8 12/09 90,648 2,964,983

Credit Agricole Group 13 12/09 75,504 2,440,634

Group BPCE 18 12/09 54,141 1,482,424

Societe Generale 19 12/09 49,990 1,475,073

Credit Mutuel 29 12/09 39,595 834,349

Portugal Millenium bcp 112 12/09 8,793 137,681

Caixa Geral de Depositos 113 12/09 8,699 174,330

Banco Espirito Santo Group 123 12/09 7,794 118,584

Banco Santander Totta F 12/09 4,174 70,014

Banco BPI 211 12/09 3,235 68,371

South Africa Standard Bank Group 106 12/09 9,562 182,260

ABSA Group F 12/09 6,636 97,255

FirstRand Bank 158 6/09 5,285 82,550

Nedbank Group 181 12/09 4,253 77,331

Investec 212 3/09 3,207 48,263

UK Royal Bank of Scotland 4 12/09 123,859 2,749,572

HSBC 5 12/09 122,157 2,364,452

Barclays 10 12/09 80,449 2,234,893

Lloyds Banking Group 12 12/09 77,034 1,664,919

Standard Chartered 42 12/09 24,582 436,653

US Bank of America 1 12/09 160,388 2,223,299

JPMorgan Chase 2 12/09 132,971 2,031,989

Citigroup 3 12/09 127,034 1,856,646

Wells Fargo 6 12/09 93,795 1,243,646

Goldman Sachs 16 12/09 64,642 848,942

Source: The Banker July 2010

Comparison of banking statistics (continued)

PwC 17

Angola

Banks interviewed:


• Banco Caixa Totta Angola

• Banco Comercial do Huambo

• Banco de Fomento Angola (BFA)

• Banco Millennium Angola

• Standard Bank

Angola


The economy in general

Angola became independent from Portugal in 1975. From the founding of the state Angola was engulfed in a civil war between three factions, the Popular Movement for the Liberation of Angola (MPLA), the National Front for the Liberation of Angola (FNLA) and the National Union for Total Independence of Angola (UNITA).

In 1991 the Bicessa Accord led to a ceasefire between MPLA and UNITA and a national election. Although the MPLA won a plurality of the vote UNITA rejected the result and civil war returned. In 1994, the Lusaka Protocol led to a new ceasefire but fighting between various factions continued until 2002. It has been estimated that 1.5 million people died in the civil wars and 4 million people were displaced. President Jose Eduardo dos Santos has been in power for 19 years and elections are scheduled for 2012.

Angola is estimated by the World Bank to have a population of 18.5 million. In 2009 its life expectancy was 38.48 years. In 2009 it had an estimated GDP per capita of US$8,300.

Oil accounts for over 90% of Angola’s exports. Angola is China’s most important supplier of oil. According to the Economist oil production stands at 1.9 million barrels making Angola sub-Saharan Africa’s second largest producer after Nigeria. Oil accounts for more than half of Angola’s GDP, 80% of government revenues and 90% of export earnings. Sonangol, the state oil company, has an equity stake in a number of banks (see table).

The second largest export is diamonds. Endiama is the state-owned diamond company.

Angola’s GDP growth between 2004 and 2008 averaged above 10% per annum with a record high of 20% in 2005. However, the global financial crisis and the drop in the price of oil at the time caused the economy to stall and record 0.7% growth in 2009 and approximately 5% in 2010.

Financial institutions

A modernisation project (1992-2003) helped Angola move away from the state-controlled financial system. The banking and insurance sectors were liberalised and new regulatory and supervisory systems were introduced. Prior to liberalisation, Angola had two state-owned banks, Banco Nacional de Angola which is now the Central Bank and Banco de Poupança e Crédito (BPC).

Insurance

The insurance sector has begun to open up with the assistance of the World Bank. In 2003, the state-owned insurance company ENSA was restructured into three companies, a holding company, an insurance company (SARL) and a reinsurance company Ango-Re.

Stock market (BVDA)

Although a financial markets law was passed and it was hoped that a stock market would open in 2006, this date continues to slip. In March 2010, the former Finance Minister suggested it would be launched in 2010 but this failed to take place. The chairman of the Capital Market Installing Commission, said in 2010 that arrangements to set up the Bolsa de Valores e derivativos de Angola (BVDA) are far advanced.

General background on Angola

Angola

PwC 19

However in January 2011 Angop, the state news agency, announced that because of “the commercial, business and legal situation,” the Angola exchange would not open in 2011.

The brokerage firm IMARA Angola has predicted that the Angola exchange will become the third largest in sub-Saharan Africa after South Africa and Nigeria. IMARA estimates there could be 14 IPO candidates when the market opens. This number might include up to 10 banks. One bank that has stated publicly that it would list on the BVDA is Banco Espirito Santo de Angola (BESA). Banco Espirito Santo of Portugal is the largest shareholder of BESA with a 52% holding. This is unusual relative to the other Portuguese banks in Angola which now are either owned by Angolan shareholders or the state-owned oil company Sonangol.

Infrastructure rebuild

The government has begun reconstruction of much of the infrastructure that was destroyed during the civil war. Financial support for new infrastructure has been provided in most instances by China through the Chinese Exim Bank and the China International Fund.

Before the civil war, agriculture was the mainstay of the economy. The country was largely self-sufficient and exported coffee, sugar cane, bananas and cotton. Today Angola is a major food importer.

The government has a strategy to lift agriculture production. One example of this is the U$1 billion Capanda Agro-Industrial Pole (Malanga Province) where a consortium of Angolan and Brazilian companies plan to produce sugar and electricity.

African Economic Outlook has summarised its assessment of Angola as follows:

“Angola’s main challenges are to manage its non-renewable national wealth more efficiently, and create jobs. Better management will require strengthening institutions and relaxing the tight grip of power, both political and economic, by the country’s leadership. Angola’s economy remains largely driven by public investment, which is marred by political patronage and corruption. Over the medium term, Angola’s economy will need to rely less on public investment and more on private sector activity.”

Source: www.AfricanEconomicOutlook.org

Angola


The Angolan banking system is dominated by five banks, which together control about 80% of deposits and lending. These banks are:


• Banco Espirito Santo Angola(BESA)

• Banco de Fomento Angola (BFA)

• Banco de Poupanca e Credito(BPC)

• Banco BIC.

Between December 2008 and 2009, domestic deposits rose by 23.6% and credit by 35.2%. This contrasted dramatically with the 2008 increases of 92% in deposits and 140% in credit.

Three Angolan banks have subsidiaries in Portugal – BAI, BIC and Banco Privado Atlântico.

BAI offers customers Platinum, Gold and Classic credit cards. According to its 2009 Annual Report, 3,583 cards were issued..

In 2010 Novo Banco was renamed BAI Micro Financas (BMF). BAI is the main shareholder holding 92.93% while Chevron Sustainable Development owns 7.07%. BMF has eight branches and offers Western Union services.

31 December 2009 US$m* Equity mAOA

%

**Banco Millenium BCP 5,534 512,308 9,96%

Banco Caixa Geral Totta Angola 244 22,630 24,00%

Banco Millenium Angola 193 17,838 29,90%

Banco Privado Atlantico 41 3,816 9,50%

**Banco Privâdo Atlantico - Europa 19 1,796 20,00%

Bolsa de Valores e Derivados de Angola (BVDA) 13 1,221 29,71%

Shareholdings of Sonangol (the national oil company) in Associated Banks and Financial Companies

Source: SONANGOL Annual Report 2009

The Top FiveMarket share by assets 2009

Others

BIC

BPC

BFA

BESA

BAI

21.9%

17.2%

15.7%13.8%

19.9%

11.5%

* 1US$ = 92.5757 AOA 31/12/2010 exchangerate.com ** Portuguese banks

December 2009 September 2010 Increase

Total deposits 2,603,550 2,815,124 8.1%

(% in local currency) (49%) (50%)

Total credit 2,241,166 2,420,366 8%

(% short term) (62%) (63%)

Banking system (Volume of Deposits and Credit) mAOA

Angola

PwC 21

Bank Date Formed

Total Assets 31 Dec 2009 mAOA

Total Assets 31 Dec 2009 US$ m*

Banco Africano de Investimentos 1996 739,063 7,983

Banco Espírito Santo Angola 2002 579,059 6,255

Banco de Fomento Angola 1993 528,802 5,712

Banco de Poupança e Crédito 1976 463,665 5,008

Banco BIC 2005 386,013 4,170

Banco Privado Atlântico 2006 136,885 1,479

Banco de Negócios Internacional 2006 106,788 1,154

Banco Sol 2001 103,650 1,120

Banco Millennium Angola 1993 95,725 1,034

Banco de Comércio e Indústria 1991 77,581 838

Banco Caixa Geral Totta Angola 1993 68,673 742

Banco Regional do Keve 2003 37,442 404

Banco Comercial Angolano 1999 21,924 237

Finibanco Angola 2008 8,881 96

Banco Angolano de Negócios e Comércio 2007 8,795 95

Banco BAI Micro Finanças 2004 4,693 51

VTB Angola 2007 ** **

Banco Quantum Angola 2008 ** **

Banco Comercial do Huambo 2010 ** **

Standard Bank Angola 2010 ** **

** Data not yet available

Banks in Angola ranked by total assets

Extract from two speeches made by BNA Governor Jose Lima Massano at the end of 2010 and displayed on the BNA website

* 1US$ = 92.5757 AOA 31/12/2010 exchangerate.com

The percentage of the population served by the banks remains low and is estimated at 11%. The level of financial education also needs to increase. We seek to develop a banking system that is financially sound and socially responsible. By the end of 2012 we would like to see banking initiatives in all the cities and the number of branches close to one thousand. (There are currently 875 branches). By 2013 we would like to see the banks serving 20% of the population.

Extract from a speech made by BNA Governor Jose Lima Massano at the ABANC forum to 24 November, 2010 displayed on the BNA website

In the field of banking supervision the Governor noted the continued modernisation of inspection services and the implementation of standards of good governance.

A Financial Intelligence Unit has been created by the BNA to analyse, prevent and detect attempts to use the financial system for money laundering and terrorist financing. It is expected to begin operations in the first quarter of 2011

The soundness of the financial system will also benefit from the Banking Consolidation Programme which will strengthen the capital structure of banks and adopt

prudential standards in line with international best practices for the financial industry.

Consumer financial services also will be strengthened in 2011 with the introduction of a unit dedicated to the recording and tracking of consumer complaints.

Extract from a speech made by BNA Governor Jose Lima Massano at the end of year 2010 displayed on the BNA website

Angola


Bank Initials

Banco Africano de Investimentos BAI Founded in 1996, it's the largest bank in Angola (considering total assets, credit,

deposits and capital). BAI is also present in Portugal, through BAI Europa, in Cape Verde,

through BAI Capo Verde and in Sao Tomé e Príncipe.

Banco Espírito Santo Angola BESA Founded in 2002, the major shareholder is the Portuguese bank, BES (Banco Espírito

Santo). It's currently present in 10 provinces in Angola.

Banco de Fomento Angola BFA Founded in 1993, it's the second-largest Angolan private bank (deposits and capital).

The major shareholder is the Portuguese bank BPI (Banco Português de Investimento).

Banco de Poupança e Crédito BPC Government-owned bank (99% by the Angolan state). It has one of the largest number of

clients and is the second-largest bank in Angola based on credit.

Banco BIC BIC Founded in 2005, major shareholders include Portuguese Amorim Holding Financeira

SGPS. It's the fourth largest bank in Angolan (both credit and deposits).

Banco Privado Atlântico BPA Angolan shareholder structure. Founded in 2006. Provides investment banking services.

Ranked third in 2009 regarding ROAE (48%).

Banco de Negócios Internacional BNI Private Angolan shareholder structure, founded in 2006. Provides personal credit and

investment banking services.

Banco Sol Sol Founded in 2001 to provide micro-finance.

Banco Millennium Angola. BMA Founded in 1993. The major shareholder is the Portuguese bank Banco Millennium BCP.

It has experienced solid growth from 2006.

Banco de Comércio e Indústria BCI Founded in 1991. Recently privatised.

Banco Caixa Geral Totta Angola BCGTA Major shareholders are the Portuguese bank Caixa Geral de Depósitos, and Santander

Totta. Has the best cost to income ratio in the sector in 2009.

Banco Regional do Keve Keve The bank is a private capital institution founded in 2003. It also provides insurance

services through the Global – Companhia de Seguros, of whom the bank is the largest

shareholder.

Banco Comercial Angolano BCA Founded in 1999. BCA is a privately owned bank based in Luanda whose shareholding

structure is held locally; ABSA no longer has a 50% shareholding. Offers retail banking

with limited corporate banking.

Finibanco Angola FNB Founded in 2008. The major shareholder is the Portuguese bank Montepio Geral.

Banco Angolano de Negócios e

Comércio

BANC Founded in 2007. Small bank.

Banco BAI Micro Finanças BAI BMF Founded in 2004. Major shareholder is Banco Africano de Investimentos. Devoted

exclusively to the small business sector.

VTB Angola VTB Founded in 2007. The bank is focused on providing corporate banking services to

Russian and Western companies active in Angola.

Standard Bank Founded in 2010. 20% of South Africa’s Standard Bank is held by China’s ICBC.

Banco Quantum Founded in 2008. Angolan shareholders. Corporate and investment bank.

Banco Comercial do Huambo BCH Founded in 2010. Angolan shareholders. Regional bank.

Background on banks in Angola (Ranking information relates to December 2009)

Angola

PwC 23

Maturity Values in thousands AOA

63 days 91 days 182 days 364 days TotalTotal US$ thousands*

Banco BIC - 44,485 14,032,950 13,747,534 27,824,969 300,565

Banco Africano de Investimento - 3,602,450 1,470,370 13,680,640 18,753,460 202,574

Banco Fomento de Angola - 909,320 4,054,294 10,082,310 15,045,924 162,526

Banco de Negócios Internacional - - 9,182,770 705,340 9,888,110 106,811

Banco Regional do Keve - - 103,560 661,690 765,250 8,266

Banco de Poupança e Crédito - 1,165,580 18,935,121 2,937,307 23,038,008 248,856

Banco Sol - - 8,790,560 240 8,790,800 94,958

Banco Comercial Angolano - - 1,404,540 1,183,460 2,588,000 27,956

Banco Totta de Angola 200,000 10,520 18,480 17,760 246,760 2,665

Banco Desenvolvimento de Angola - 2,000,000 - - 2,000,000 21,604

Banco Angolano de Negócios e

Comércio- - 1,188,371 - 1,188,371 12,837

Banco Espírito Santo de Angola - 1,030 101,250 31,250 133,530 1,442

Banco Privado Atlântico - - 10,349,990 4,467,750 14,817,740 160,061

Banco de Comércio e Indústria - 21,413 5,000,671 3,450,476 8,472,560 91,520

Finibanco Angola - - 1,850,000 - 1,850,000 19,984

Banco Millennium de Angola - 2,350 2,609,878 2,001,720 4,613,948 49,840

Bai Micro Finanças - - 63,852 1,452,530 1,516,382 16,380

Banco Nacional de Angola - - 3,077,477 1,086,290 4,163,767 44,977

Banco Quantum - - - - - -

Banco Comercial do Huambo - 120,000 - - 120,000 1,296

Total 200,000 7,877,148 82,234,134 55,506,297 145,817,579 1,575,117

Source: BNA financial statements

Securities of Central Bank at 31 December 2009

* 1US$ = 92.5757 AOA 31/12/2010 exchangerate.com

Angola


Moderate

Intense

None

Light

Nochange

Minorchange

Significantoperationaland or -ganisationalchange

Fundamentalchange instrategyandpositioning

Note: Based on responses from 3 banks

Response

16.7%

50%

16.7%

16.7%

Com

pet

ition

Moderate

Intense

None

Light

Nochange

Minorchange




Response

50%

25%

Com

pet

ition 25%

Moderate

Intense

None

Light

Nochange

Minorchange




Response

16.7%

33.3%

16.7%

33.3%

Com

pet

ition

Retail banking

Corporate banking

Investment banking

Retail banking

Although retail banking is in a developmental stage it was considered intensely competitive by four participants.

The majority of participants have made significant or fundamental changes over the last year.

Corporate banking

The majority of participants view corporate banking as intensely competitive. They also claim to have made significant or fundamental changes to strategy.

Investment banking

Perhaps reflecting the nature of the economy and the lack of opportunities, investment banking was assessed to have only light or moderate competition.

Q In your view, what is the level of intensity of competition in the following markets, and how will this affect your competitive response?

The following charts illustrate how the banks perceive the level of competition in three different markets; retail banking, corporate banking and investment banking.

Angola

PwC 25

Moderate

Intense

None

Light

Nochange

Minorchange




Response

40% 20%

40%

Com

pet

ition

Micro-financeMicro-finance

Micro-finance was not considered to be a competitive market at present. As the economy grows, this can be expected to change.

The competitive assessment of the market by participants suggests that demand for micro-finance exceeds the appetite of the current micro-finance providers.

Angola


0

100

200

300

400

500

600

700

800

900

1000

200920082007200620052004

Number of ATMs

0

1000

2000

3000

4000

5000

6000

7000

8000

200920082007200620052004

Number of POS

terminals

0

5

10

15

20

25

30

35

40

45

50

200920082007200620052004

Number of ATM

Transactions(million)

0

0.5

1.0

1.5

2.0

2.5

3.0

200920082007200620052004

Number of POS

transactions(million)

0

500

1000

1500

2000

2500

20092008200720062005

ATMWithdrawalsUS$ millions

0

50

100

150

200

250

300

350

20092008200720062005

POSSpend

US$ millions

Source: www.emis.co.ao

Angola’s electronic payment system is managed by Empresa Interbancária de Serviços (EMIS), which is owned by the National Bank of Angola, with a 51% share, and retail banks operating in the market, with the remaining 49%.

Data from Empresa Interbancária de Serviços (EMIS) Angola shows that the number of ATMs grew from below 100 in 2004 to 1,000 by 2009.

The number of POS terminals increased dramatically between 2008 and 2009 from 2,660 to 7,587.

Both the number of POS transactions and spend has also grown dramatically as a result of the POS terminal expansion.

In an EMIS consumer survey in December 2010, 86% of multicaixa e-card holders said that the most important reason for using a bank card was to avoid bank queues.

Electronic banking in Angola

Growth in ATMs Growth in ATM transactions Growth in ATM withdrawals

Growth in POS terminals Growth in POS transactions Growth in POS spending

Angola

PwC 27

• The impact of the global economiccrisis and the drop in the price ofoil caused a major reduction inAngola’s revenues.

• Many banks had relationships withlocal companies that had dollar-denominated debt but limited orno dollar revenue.

• Fierce levels of competition. Itis expected that this will lead tofuture consolidation.

• Improvements in bank supervision.

• Improvements in infrastructure.

• Banks need to internationalise asmuch of the development has beenat a domestic level.

• Development of a credit bureau.Although data was collected a fewyears ago it was not maintained.As a result the initiative has beenrestarted and was anticipated tobegin in early 2011.

• The transition from a dollarisedeconomy to the local Kwanzacurrency will take a long time.Much of the economic activity iscentred on dollars.

• Once the stock market opens manybanks will seek listings.

• Anti-money laudering legislation.The banks are preparing for closeAML monitoring. (The Governorof the Central Bank, José LimaMassano, announced in early 2011that the bank will create a unitdesigned to prevent and detectacts that use the Angolan financialsystem to finance terrorism andmoney laundering. Massanoanticipates that the unit willbecome operational during the firstquarter of 2011.)

Q What are the most important changes taking place in your financial services market?

Angola


Participants highlighted the following:

Strengths

• The financial system is one ofthe more developed parts of theeconomy.

• Implementation of technology, forexample the interbank ATM system,electronic payment of salaries, etc.

• The banks are well capitalised.

• Rapid development of branchnetworks.

• Presence of international investorsin the banking system with goodknowledge.

• Strong competition.

Weaknesses

• Need to improve corporategovernance.

• No credit database being sharedbetween banks.

• Some banks have been tooaggressive in their networkexpansion.

• Strong Portuguese rather thanmultinational influence.

• Quality and training of staff is weak.Some banks have set up their owntraining institutes.

• Improvements needed insupervision and regulation.

• With the proliferation of bankssome may develop capital problems.

• Rules of the financial system yet tobe provided in terms of consistencyand transparency.

Q What are the strengths and weaknesses of the financial services sector?

Angola

PwC 29

A number of banks expressed concern over liquidity.

There was a general concern about the industry’s exposure to the real estate sector. One bank predicted an imminent correction in the real estate market.

Concern was also expressed about the continued independence of the Central Bank in determining monetary policy.

Further concerns were also expressed over the raising of deposit reserves to 30%, the high level of the discount rate at 30% and the future of the local currency.

One bank predicted a shakeout in the industry. They suggested the current number of around 20 banks today will be reduced to 10 banks in five years’ time.

Concerns around the reliability of customers’ financial information provided for credit analysis.

Q Do you have any major concerns about the financial sector in Angola?

Q Can you rate from 1 to 10 the level of development of the financial services sector in Angola relative to other markets in West Africa? (10 = maximum development.)

The banks awarded a score of 6 out of 10 in assessing the level of development in Angola relative to other West African markets.

One bank commented that the industry had developed very rapidly after the war.

Another bank believed that the Portuguese banks had injected very high levels of competition.

A Portuguese banker placed Angola and Mozambique at the same stage of development - 6 out of 10.

Angola


One participant suggested that credit needed to be disseminated more widely in the country and not just to a “select few”.

The exchange rate mechanism needs to be more consistent and transparent. One banker said that market rules need to apply to the buying and selling of currency. Three currency auctions are held each week. At the end of 2009 following the drop in oil prices, the Kwanza was unofficially devalued by around 25% and there was a surge in demand for dollars. In November 2009 the IMF agreed to provide a US$1.4 billion standby credit.

There is a need for improvement in supervision. One bank indicated that supervisors are not well trained and that regulation is often unclear. Risk management policies have not been sufficiently developed.

The bureaucracy often slows down simple transactions such as overseas funds transfers.

The limited development of the legal environment means that some products such as leasing or factoring are yet to be made available.

Q What developments are needed to move the financial services market forward?

Although there are no recognised statistics it is generally believed that only 11% of the population has bank accounts.

The use of internet banking is very limited but is expected to grow.

Mobile banking will increase in importance.

The number of cards in use remains small but is expanding. The 2009 Banco BAI annual report stated that it had issued just 3,583 cards. As the country’s largest bank it is clear that the number of credit cards in circulation remains very limited.

Q How will consumer needs in 2013 differ from those of today?

Angola

PwC 31

0 5 10 12

Foreign entrants

Fiscal pressures

Money laundering

Mergers/Consolidation

Capital markets

Demographics

Corporate social responsibility

Compensation of professionals

Funding constraints

Regulation and reporting

Technology

Foreign exchange control

Performance of domestic economy

Liquidity

Based on responses from 5 banks

Score

Q What are the major drivers of change in the financial services industry today? Please rank the “top 5” in order of importance.

The top three drivers of change in the Angolan financial market were identified as liquidity, the local economy and foreign exchange controls. (Angola has a complex foreign exchange and control system administered by the National Bank of Angola).

These drivers were closely followed by the use of technology and the regulatory environment.

In August 2010 the Angola Government acknowledged that some banks were struggling with liquidity issues. Local media has reported that this has caused some banks to limit lending and prevent some withdrawals.

In its 2010 budget, the government indicated that it would allow banks to access government loans if they met collateral requirements and followed a restructuring and recapitalisation programme.

Angola


Q What are the most pressing issues facing your organisation?

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Complex instrumentsLow-cost alternatives/competitorsIFRS reporting and IFRS amendmentsValuation and pricing of financial instrumentsTransparency of fees and commissionsTax legislationMarginsLitigation risk Internet and data securityDeregulation of commissionCost reductionBusiness continuationBanking for the previously un-bankedRetail sales practicesCapital management

Volatility interest ratesProfit performancePayment systems

Impact of the latest phase of the financial crisisData security and privacy

CorruptionOvercapacity

Building a customer baseBrand awareness

Back office/operational/system qualityImproving revenue growth

Retaining existing customersMarket volatility

Level of crimeAddressing compliance and regulation

Appropriate staff incentive schemesService quality

Customer acquisition/growth Currency fluctuations

Commodity pricesRisk management

Credit risk managementAvailability of key skills


More pressing issues

2.0 1.5

The top three pressing issues identified by participants were the availability of key skills in the banking industry followed by credit risk management and risk management in general.

The significance of oil resources was reflected in the next two most important pressing issues, being commodity prices and currency fluctuations.

Angola

PwC 33

None of the banks interviewed were involved in a merger or acquisition during the last year.

Q Have you completed a merger or an acquisition in the last year and are any planned for next year?

Q Will there be an entrance of new financial services players into Angola in the next 3 years?

The participants unanimously agreed that there would be more financial institutions entering the market over the next three years.

Although Citibank left Angola in 2003 and ABSA (Barclays Bank) sold its 50% shareholding in Banco Comercial Angolano to six existing shareholders in 2009, a number of new foreign banks are expected to enter over the next three years.

Banks from other parts of Africa are expected to enter the market. Ecobank was mentioned as a possible new entrant along with several South African banks. In announcing its departure, ABSA stated in media reports that it would consider a re-entry if the conditions were right.

One participant said that the oil companies were pressuring the foreign banks to enter the market.

Q What is your institution’s primary method of growth in Angola ?

The participants agreed unanimously that organic growth was the primary method of growth in Angola.

Q Do you anticipate further demands on the need for increased transparency on pricing and product comparisons?

Four of the five banks that answered this question believe there will be demands for increased transparency on pricing and product comparisons in Angola as they move forward.

Angola


The participants agreed unanimously that regulations would increase substantially over the next three years. Two areas which were mentioned specifically were capital adequacy and operational risk.

All the participants agreed that they would increase compliance spending over the next three years. Three participants specifically expect to increase their spending by 100%.

All the participants agreed that financial institutions’ risk management systems were not sufficiently robust at this time.

Several areas could benefit from improvements in risk management, including:

• operational risk.

• credit risk.

• policies and procedures for specificsectors such as real estate, liquiditypolicies etc.

• fraud and corruption.

One bank suggested that once the credit bureau gets up and running, market knowledge will improve and this will assist more effective risk management.

Q Do you see the intensity of regulation of the financial services industry increasing or decreasing over the next three years?

Q Do you plan increased compliance spending over the next three years?

Q Do you believe financial services organisations’ risk management systems are sufficiently robust?

Q In which area could there be improvements in your organisation’s risk management systems?

Q Do you support the concept of deposit insurance?

While four banks support deposit insurance, two banks remain opposed.

Of the four banks in support of deposit, two banks think it is at least 10 years in the future.

No

Yes

Support for Deposit Insurance

Angola

PwC 35

Q In which areas are you currently experiencing the greatest shortage of skills? 1 is low, 5 is high

0 5 10 15 20 25

Non-executive directors

Administration

Internal audit

Audit committee

Compliance

Information technology (IT)

Executive directors

Risk management

Financial reporting

Capital management

Score

The availability of key skills was identified earlier in this section as the most pressing issue in Angolan banking.

The three key areas of skills shortage are:

• capital management;

• financial reporting; and

• risk management.

These shortages are closely followed by the limited availability of skilled executive directors and IT specialists.

Angola


Q Has your organisation adopted IFRS (International Financial Reporting Standards)? What do you see as the key benefits of adopting IFRS?

Four of the five participants indicated that they have adopted IFRS for group purposes.

The most important benefits of IFRS were identified as more transparent disclosures and increased reliability in financial reporting.

Q Do you think that the adoption of IFRS will enhance market reporting? How confident are you that you have a full understanding of the impact of IFRS on your organisation?

The participants agreed unanimously that IFRS will enhance market reporting.

The majority of participants believe that they fully understand the impact of IFRS on their bank.

Somewhat confident

Very confident

Full understanding of the impact of IFRS

Q Do you currently use a CRM (Client Relationship Management) system?

No

Yes

Currently have a CRM systemThe banks have not yet installed comprehensive CRM systems. At this stage only one foreign-based bank claimed to have an effective CRM system. (It scored 3 on a scale of 1 to 5 on effectiveness).

Angola

PwC 37

Q Do you agree or disagree with the following statements?

Our organisation will undergo a significant business disposal over the next three years

Our organisation will undergo significant M&A over the next three years

Our organisation will seek a strategic foreign investor or a partner in a significant new venture in the next three years

Our organisation will seek a strategic domestic investor or a partner in a significant new venture in the next three years

Joint ventures and partnerships will be key to our expansion plans

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

AgreeDisagree

Our organisation is already structured in the way we want

Neither

Agree

Disagree

Only one bank plans to be involved in M&A over the next three years.

Two banks agreed that joint ventures and partnerships will be an integral part of future expansion.

The banks, reflecting on their foreign shareholders, do not envisage any future foreign investor partnerships.

The banks are in growth mode and do not plan any business disposals.

Only one bank indicated that it might seek a strategic domestic investor.

Considerable change can be anticipated in the banks’ business models. Two banks agreed that their current structure matched their future business expansion.

Angola


The respondents unanimously indicated that they planned significant investments in risk management and compliance processes over the next 12 months.

There is a major branch expansion programme underway in Angola. One bank suggested that new branches could be staffed by up to 15 employees. Another bank suggested eight to ten employees while, and yet another, just five employees.

One bank suggested that it would expand on two fronts with large full service branches in conjunction with smaller, satellite branches.

Q Are significant investment and business process changes envisaged for risk management and compliance purposes over the next 12 months?

Q What will the role of branches be in 2013?

Q Which product areas will become increasingly important over the next three years?

Retail products

• Mortgages

• Leasing (legislation not yet in place)

• Savings products

• Cards

Wholesale products

• Capital markets (in May 2010Angola received credit ratingsfrom S & P, (B+), Moody’s (B1)and Fitch (B+) paving the way forinternational bond issues.

• Investment banking

• Asset management including a realestate investment fund

• Debt markets

• Leasing

Angola

PwC 39

Q Which foreign financial institution do you believe may choose to move into Angola over the next three years?

Banks from South Africa, Brazil, China and the rest of Africa are expected to move into Angola over the next few years.

Some of the banks mentioned by participants included ABSA, Bank of Brazil, Citibank, HSBC, Ecobank, Société Générale and BNP Paribas.

Q What are the top three offshore markets you believe your organisation should focus on going forward?

The Angolan banks are interested in expanding their activities in SADC (Southern African Development Community).

SADC (founded in 1980) includes 15 member states: Angola, Botswana, DRC, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. The SADC area has a combined population of 258 million.

Countries that were singled out for special attention included South Africa, Mozambique, Brazil and China. One bank that mentioned an interest in Asia noted their involvement in China and East Timor.

As noted elsewhere in this report there has been growing usage of both ATMs and POS terminals.

Further investment in broadband will stimulate the adoption of internet banking.

Both mobile banking and internet banking are expected to become more widely used.

A government statement in May 2010 put mobile phone ownership at 8 million.

Q How will the financial services markets needs of the consumers of 2013 differ from those of today?

Foreign banks and Angolan oilBP’s Angolan unit launched a syndication arranged by BNP Paribas SA and Standard Chartered Bank to obtain a $3 billion term loan facility backed by crude oil sales from its Angolan production.

The facility for BP Angola is a five year amortizing term loan maturing June 30, 2015, the banks said in a joint statement.

Source: BNP Paribas SA , Standard Chartered Bank Statement, 2 September, 2010

Angola


Q What is your estimate of annual growth in revenue for 2010 and over the next three years?

0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100

Expected annual growth rate in 2013

Exp

ecte

d a

nnua

l gro

wth

rat

e in

201

0

Two participants expected minimal growth in 2010 but all expect to be growing by 15% or more by 2013.

Two banks anticipate annual growth of 30% in 2013 while one bank forecast they could be expanding by 50% in 2013.

Angola

PwC 41

Angola Peer Review

1 2 3

Corporate banking BAI/BFA BIC

Retail banking BFA BAI BPC

Credit cards BFA BNI/BIC

Trade Finance BFA/BIC BAI/ Millennium

Micro-finance Banco Sol BAIMF BPC

Peer Review

A simple scoring method awarded 3 points to first place, 2 points to second and 1 point to third place. This allowed the banks to be ranked based on a total score.

Banks were asked not to record an opinion unless they were active in that segment and were comfortable in providing an accurate ranking in terms of success (performance, presence and momentum) as opposed to mere size.

They were not permitted to rank their own institution. Often banks chose just to indicate first and/or second place.

The Peer Review highlights a number of banks. BFA was awarded two first place positions in retail banking and credit cards, BAI was the most recognised for corporate banking while BIC was in first position for trade finance and Banco Sol for micro-finance.

Q Can you name the top three banks in terms of success (performance, presence, momentum, etc.) across a variety of different markets?

PwC 43

Côte d’Ivoire

Banks interviewed:

• Société Générale de Banques enCôte d’Ivoire (SGBCI)

• Banque Atlantique Côte d’Ivoire(BACI)

• Société Ivoirienne de Banque (SIB)*

• Ecobank Côte d’Ivoire

• Banque Nationale d’Investissement(BNI)

• Diamond Bank**

* Part of Attijariwafa Bank based in Morocco

** Part of Diamond Bank based in Nigeria

Côte d’Ivoire



Côte d’Ivoire has a population of approximately 21 million. It is estimated that it had GDP growth of 2.3% in 2008 and 3.2% in 2009. GDP per capita is estimated to be US$1,700.

The Côte d’Ivoire economy has historically been highly dependent on the production and export of tropical products. It is the world’s largest producer of cocoa beans and a significant exporter of coffee and palm oil. Since 2007 oil and gas production have grown in relative importance. Dependence on agricultural exports has exposed the economy to swings in commodity prices.

In comparison to other developing countries, Côte d’Ivoire has a sophisticated infrastructure. Abidjan is the most modern port in West Africa. In the past it has been viewed as the economic engine of Francophone West Africa.

The political and social crisis that began in 2002 has had a major impact on economic development. The U.S. State Department has noted that “Economic growth has been negative or low each year since the outbreak of the armed rebellion in late 2002, with a cut-off of most external assistance, (except humanitarian aid) mounting domestic and foreign arrears and a drastic slowdown in foreign and domestic investment.”

In March 2009, Côte d’Ivoire received debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The IMF approved a US$565.7 million Poverty Reduction and Growth Facility. The IMF Board noted Côte d’Ivoire’s performance under its two Emergency Post-Conflict Assistance programmes and called for continued reforms toward HIPC completion point. (Source: U.S. State Department).

Recent elections

Côte d’Ivoire’s elections were held in November 2010 having been delayed six times.

Although conflict ended in 2007 political tensions remain high and future stability remains uncertain. During the civil war the country was divided between the pro-government South and the anti-government forces in the North.

At the time of publication of this report the political crisis that resulted from the disputed winner in the November 2010 presidential election, remains.

The incumbent President Laurent Gbago disputes the result with the rival candidate Mr Alassane Ouattara and a political stalemate exists.

The African Union is trying to negotiate an end to the crisis.

General background on Côte d’Ivoire

Côte d’Ivoire

PwC 45

Current employment in the six banks interviewed is 2,753 and this is expected to increase by 14% to 3,150 employees by 2013.

The six banks have 199 branches in 2010 and they expect these to more than triple by 2013 to 335 branches.

The banks expect to almost double the number of ATMs from 296 to 520 by 2013.

Four banks provided data on debit cards. These are anticipated to grow from 280,000 in 2010 to 460,000 in 2013.

Only three banks supplied credit card estimates. In 2010 they estimated 35,000 credit cards expanding to 160,000 by 2013.

Background on participants The number of retail bank accounts at the six banks in 2010 was estimated to be 820,000 rising to 980,000 over three years.

On the corporate side, fee income as a percentage of total income was estimated to exceed 40% for three banks in 2010 and by 2013 this will rise to 60% for two of these banks.

The banks indicated that they had 38 corporate clients with loan facilities exceeding US$25 million and by 2013 this would grow to 53 corporate clients.

Estimates of middle market customers were distorted by one bank’s figures and as a result have not been included.

Côte d’Ivoire


IMF Statement on Côte d’Ivoire issued in September 2010

“Economic activity has held up well in 2010. Economic growth appears on track to reach the program target of 3% for the year despite sporadic power outages, difficulties in the oil and refinery sectors, and some civil unrest during the first half of 2010.

Continued strong world cocoa prices, in particular, have helped support economic activity and construction is having a significantly better year. Inflation has remained in the range of 2%. The external current account continues to show a sizeable surplus as both exports and imports are growing robustly.

With respect to the economic program in 2010, the budget outcome at the end of June was generally in line with program commitments. Revenue performance accounted for much of a better-than-programmed overall budget deficit (0.5 percent of GDP), but this is not expected to affect the outlook for the year as a whole.

Public expenditure remained within the planned envelope, with foreign-funded investment being executed especially well, though the target for pro-poor spending was missed by a narrow margin.

Structural reform implementation was slow and appears to have stalled in critical areas: reducing the large financial imbalances in the electricity sector, establishing medium-term sustainability of the government wage bill and reforming the civil service and judicial reforms needed to improve the poor business environment.

These delays impose costs on the budget. Also, the implementation of cocoa and coffee sector reforms is important for the floating completion point under the HIPC Initiative.

The mission welcomed the authorities’ reaffirmation of their main economic policy objectives: facilitating higher economic growth and reducing the widespread poverty in Côte d’Ivoire.

In line with the country’s poverty reduction strategy, budget expenditure will continue to shift towards pro-poor spending, including basic health care and education.

But with an investment rate of less than 10% of GDP, the country urgently needs substantial new investment in the coming years, especially in power and transport infrastructure.

Thus it will be important that the authorities develop a comprehensive borrowing strategy, one that takes into account debt sustainability issues and the long-run fiscal path in setting borrowing objectives.”

Côte d’Ivoire

PwC 47

Morocco

Algeria Libya

MauritaniaMali

Senegal

Guinea

Gha

na

NigerChad

Nigeria

BurkinaFaso

Togo

Ben

in

CôteSierra Leone

Guinea Bissau

Cameroon

Gabon Congo

Liberia

Equatorial Guinea

Gambia

Cape Verde

unisiaT

d’Ivoire

Western Sahara

The Central Bank of West African States (BCEAO) oversees banks and financial institutions conducting activities in the member states of the West African Economic and Monetary Union (WAEMU). These relations mainly fall within the scope of the functions performed by BCEAO as far as the surpervision of the banking sector and the control and distribution of credit are concerned.

Composition of WAEMU

Seven groups dominate the WAEMU banking system through 39 establishments with relatively wide national networks.

Banking Law

The Banking Law provides a definition of banks and financial institutions, and of the credit and investment activities they offer. It specifies the conditions of entry and determines the obligations which must be met by banks and financial institutions in the execution of their operations. The Banking Law defines the scope of the control exerted by the Central Bank and the Banking Commission, and spells out the rules governing the Monetary Union and the sanctions applicable in case these rules are not respected.

Banks and financial institutions must be authorised and registered on the list of banks and financial institutions to be able to operate. This authorisation is granted by the Minister of Finance after BCEAO has examined the application and the WAEMU Banking Commission has certified its conformity with applicable laws.

The conditions of approval are mainly based on :

• the name

• the legal status of theestablishment

• at the end of 2010 the minimumcapital which currently stands atCFA 1 billion (US$ 2 million)* forbanks throughout the States willbe raised to CFA 10 billion (US$20.4 million)*, and that of financialinstitutions will be raised from CFA300 million (US$ 0.6 million)* toCFA 3 billion (US$ 6 million)*.

• the adequacy between theresources and objectives of theestablishment to be created

• the quality of shareholders

• the worthiness and experience ofmanagers, and

• an activity programme showing theviability of the operation.

In order to enable all banks and financial institutions of the Union to have access to the banking market of each member state, in optimal competition conditions, the Council of Ministers of the Union decided, at its meeting held on 3 July 1997, to adopt the principle of unique approval. Thus, as from 1 January 1999, any bank or financial institution duly authorised by a state of the Union, may carry out a banking or financial activity in the other states of the Union, and provide services of the same nature in any other area in the Union, without having to request new authorisations.

Source: BCEAO and WAEMU

Banking in Francophone West Africa

Bénin, Burkina Faso, Côte-d’Ivoire, Guinée Bissau, Mali, Niger, Sénégal and Togo.

* 1US$ = CFA BCEAO 489.87 31/12/2010 Exchange-rates.org

Côte d’Ivoire


Bank groups in Francophone West Africa (UEMOA)

In 2009, the number of financial institutions expanded from 116 to 118. This total included 99 banks of which 20 were located in Côte d’Ivoire.

As the adjacent table indicates, 39 of these banks are associated with seven banking groups who in turn, account for 65% of assets.

The bank groups are Ecobank, Société Générale, Bank of Africa, Attijariwafa Bank, BNP Paribas, Banque Atlantique Group and UBA.

The largest group is Ecobank with 14.8% of assets and a presence in all member states. Société Générale is in second place with 12.9% of assets and Bank of Africa with 10.7%.

Collectively the banks employed 8,987 people in 2009 in the region.

Bank Group Number Institutions

Market share

Teller windows

Number of customer accounts

Staff

Ecobank (ETI) 8 14,8% 216 825,632 2,537

Société Générale 4 12,9% 119 466,689 1,976

BOA GROUP 8 10,7% 103 361,074 1,240

(of which two are

financial companies)

2 0,3% 2 0 18

Attijariwafa Bank 4 10,3% 141 646,725 1,373

BNP Paribas 5 8,5% 95 288,752 1,473

AFG 7 5,5% 145 223,429 1,228

United Bank for Africa

(UBA)

3 2,6% 51 175,923 770

Total 39 65,3% 870 2,988,224 10,597

Côte d’Ivoire

PwC 49

Banks Fin.instit

Total

Bénin 12 1 13

Burkina 11 5 16

Côte d’Ivoire 20 3 23

Guinée-Bissau 4 - 4

Mali 13 4 17

Niger 10 1 11

Sénégal 18 3 21

Togo 11 2 13

Total 99 19 118

Source: Rapport Annuel de la Commision Bancaire de l’UMOA - 2009 Au 31 décembre 2009 trois (3) établissements de crédit agréés n’avaient pas démarré leurs activités.

Q Number of financial institutions in each UEMOA country

Activitès principales

Bénin Burkina Côte d'Ivoire

Guinée- Bissau

Mali Niger Senegal Togo UEMOA Market share

Teller windows

Number of bank accounts

Effective

Banks 12 11 18 4 13 10 16 11 95 98,9% 1.335 4.474.801 16.940

- general 10 9 15 3 9 8 12 10 76 90,5% 1.202 3.931.533 15.109

- specialist 2 2 3 1 4 2 4 1 19 8,4% 133 543.268 1.831

. agriculture - - 1 - 1 - 1 - 3 3,1% 58 235.68 587

. morgage 1 1 1 - 1 1 1 - 6 3,2% 30 241.168 526

. micro-finance 1 1 1 1 2 1 2 1 10 2,1% 45 66.332 718

Financial

etablishments

1 5 2 - 3 1 3 2 17 1,1% 50 5.747 263

Credit sales - 1 - - - - 1 - 2 0,0% 30 5.623 82

Credit sales

and/or leasing

1 4 2 - 2 - 2 - 11 0,8% 17 124 157

Venture capital

and guarantee

funds

- - - - 1 1 - 2 4 0,3% 3 0 24

The adjacent table shows that Côte d’Ivoire has 20 banks within the UEMOA total of 99 banks, based on the Central Bank’s statistics for December 2009.

Senegal has the second largest representation with 18 banks.

The structure of the financial sector within the Francophone region is shown in the table below. The broad-based banks account for 91% market share in UEMOA.

Bank Group Number Institutions

Market share

Teller windows

Number of customer accounts

Staff

Ecobank (ETI) 8 14,8% 216 825,632 2,537

Société Générale 4 12,9% 119 466,689 1,976

BOA GROUP 8 10,7% 103 361,074 1,240

(of which two are

financial companies)

2 0,3% 2 0 18

Attijariwafa Bank 4 10,3% 141 646,725 1,373

BNP Paribas 5 8,5% 95 288,752 1,473

AFG 7 5,5% 145 223,429 1,228

United Bank for Africa

(UBA)

3 2,6% 51 175,923 770

Total 39 65,3% 870 2,988,224 10,597

Côte d’Ivoire


Regional Economic Integration in Francophone West Africa

The West African Economic and Monetary Union (WAEMU) or Union économique et monétaire ouest-africaine (UEMOA) is an organisation of eight states of West Africa established to promote economic integration among countries that share a common currency, the CFA franc.

UEMOA was created by a Treaty signed in Dakar, Senegal, on 10 January 1994, by the Heads of State and Government of Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal, and Togo. In 1997, Guinea-Bissau became its eighth member state.

UEMOA is a customs and monetary union between some of the members of Economic Community of West African States (ECOWAS). Its objectives are:

• greater economic competitiveness,through open and competitivemarkets, along with therationalisation and harmonisationof the legal environment;

• the convergence of macroeconomicpolicies and indicators;

• the creation of a common market;

• the coordination of sectoralpolicies; and

• the harmonisation of fiscal policies.

In terms of its achievements, UEMOA members have implemented macroeconomic convergence criteria and an effective surveillance mechanism; have adopted a customs

union and common external tariffs (early 2000); have harmonised indirect taxation regulations; and have initiated regional structural and sectoral policies. A September 2002 IMF survey cited the UEMOA as “the furthest along the path toward integration” of all the regional groupings in Africa.

UEMOA institutions include:

• a common central bank – BanqueCentrale des Etats de l’Afrique del’Ouest (BCEAO);

• a Regional Banking Commission,and regional Stock Exchange since1998, and a partially functioningSecurities Exchange Commission;

• BOAD (Banque Ouest Africainede Développement) which isconsidered an independent,specialised institution under theUEMOA treaty; and

• Institutions also include a Courtof Justice, a General AccountingOffice, regional Chamber ofCommerce, and, eventually, aParliament, none of which is fullyfunctioning.

UFMOA

Morocco

Algeria EgyptLibya

MauritaniaMali

Senegal

Guinea

Gha

na

SudanNigerChad

Nigeria

BurkinaFaso

Togo

Ben

in

CÙteSierra Leone

Guinea Bissau

Cameroon

Ethiopia

Somalia

CentralAfrican Republic

Gabon Congo

DemocraticRepublicof Congo

Uganda

Kenya

AngolaZambia

Malawi

Moz

ambi

que

ZimbabweNamibia

Botswana

SouthAfrica

Lesotho

Swaziland

Liberia

Mauritius

Eritrea

Djibouti

Equatorial Guinea

Gambia

Cape Verde

ComoresMayotte

Mad

agas

car

WAMZ

unisiaT

ECOWAS only

Rwanda

Burundi

anzaniaT

d’Ivoire

Western Sahara

Côte d’Ivoire

PwC 51

Q What are the most important changes/developments taking place in your financial services market?

• Increased levels of competitionbetween banks. New banks thathave entered the market includeUBA and Diamond Bank fromNigeria and BGIF from Gabon.

• Increase in the number of branchesand ATMs.

• Hiring pressures. New entrantsare hiring staff away from existingbanks, as a result there is upwardpressure on remuneration levels.

• New technologies such aselectronic payments and mobilebanking.

• Evolving financial needs for bothconsumers and SMEs.

• The economy has suffered as aresult of the “National Crisis” butafter the elections the economy isexpected to improve.

• Development of the credit cardmarket.

• New capital requirements. Aminimum capital requirementhas been set at CFA 10 billion(US$ 20.4 million)* for the endof 2010. It has been said thatsuch a requirement will not beparticularly onerous for theregional banking groups but itrepresents a real challenge for thesmaller independent banks.


Côte d’Ivoire


Weaknesses

• Limited branch network

• Unstable political environment

• Lack of market sophistication

• Concentrating of banking inAbidjan

• Corruption and fraud

• High proportion of SMEs are highrisk

Q Do you have any major concerns about the financial sector in Côte d’Ivoire?

• Changes in capital requirementsmeans that some degree ofconsolidation is on the horizon.

• Small size of the banking market.Less than 1 million bank accountsin a country of 21 million people.More than 5 million people havemobile phones.

• Rural population remainsuntouched by the banking sector.

• Economic dependence on theagricultural sector – particularlycocoa.

• Excess of competition.

Q What are the strengths and weaknesses of the financial services industry?

Q Score of the level of development.

Strengths

• Operating in a regional market

• Adoption of new technology

• An under-banked market

• Single currency

• Some of the new entrants have theability to leverage their expertiseand capacity

• Expanding economy

• Banking sector is well regulated

Based on the responses of six banks the average score was 6.5/10.

Within UEMOA (the West African Monetary Union) several banks noted that Côte d’Ivoire was the most advanced banking market.It was however, considered less sophisticated than Nigeria.

Côte d’Ivoire

PwC 53


• Greater support for SMEs, mosthave limited or no access to banks.

• Increased electronic banking andavailability of credit cards. (Seebelow)

• Retailers are currently hoardingcash rather than depositing it inbanks.

• Better governance especially onFiduciary Bonds.

• More accurate national economicand financial data. Limitedinformation available at companylevel.

• Awaiting a credit bureau. TheCentral Bank does aggregate dataon bank loans but it is not fullycomprehensive and effective. TheIMF has been providing assistanceto help set up a credit bureau.

• Need to improve service quality.

• Absence of medium and long-termfunding.

• Need to capitalise banks at theregional level rather than at anational level.

In January 2005, the UEMOA/WAEMU interbank card processing centre (CTMI-UEMOA) was created as a public limited company. It provides interbank services and various proxy services on behalf of banking, financial and postal institutions in West African Economic and Monetary Union (WAEMU).

The technical processing of card-based operations (authorisation, routing, management of payment stoppage, etc) is centralised on the CTMI-UEMOA platform and connected via VSAT network.

Since the launching of the system in June 2007, twenty banks operating in at least seven WAEMU member states are connected to the system.

This permits clients to have a card bearing the GIM-UEMOA logo, with the following features:

• a chip-card technology usingEuropay Mastercard Visa (EMV)standards;

• acceptance by ATMs of all GIM-UEMOA members whatever thecountry; and

• acceptance by trading companiesaffiliated to a GIM-UEMOA memberbank.

Q Card services within Francophone West Africa UEMOA/WAEMU

Côte d’Ivoire


Progress on the West African Monetary Zone

The West African Monetary Zone is a group of five countries in ECOWAS (Economic Community of West African States) that plan to introduce a common currency, the Eco, by the year 2015.

The five member states are the Gambia, Ghana, Guinea, Nigeria and Sierra Leone. Liberia (also a member of ECOWAS) has expressed an interest in joining.

The WAMZ is dominated by Nigeria, Africa’s largest oil producer and most populous country, with an estimated 152 million people. All members of the group are English-speaking countries, apart from Guinea, which is Francophone. Mauritania and Guinea opted out of the CFA currency shared by all other former French colonies in West and Central Africa.

The WAMZ was formed in 2000 to try and establish a strong stable currency to rival the CFA franc, whose exchange rate is tied to that of the euro and is guaranteed by the French Treasury. The eventual goal is for the CFA franc and Eco to merge, giving all of West and Central Africa a single stable currency.

The launch of the new currency is being prepared by the West African Monetary Institute based in Accra, Ghana. This is intended to be the forerunner of a common central bank. However, several of the WAMZ’ countries suffer from weak currencies and chronic budget deficits.

Q West African Monetary Zone (WAMZ) within ECOWAS

Regional Economic Integration in the rest of West Africa

Côte d’Ivoire

PwC 55

31/1

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Côte d’Ivoire


Moderate

Intense

None

Light

Nochange

Minorchange

Significantoperationaland or-ganisationalchange



Response

16.7% 50%

16.7%

16.7%

Com

pet

ition

Response

25%

25%

Com

pet

ition

25%

25%Moderate

Intense

None

Light

Nochange

Minorchange




Response

Moderate

Intense

None

Light

Nochange

Minorchange




16.7% 33.3%

16.7%

33.3%

Com

pet

ition

Retail banking

Corporate banking

Investment banking

Retail banking

Five of the six respondents consider retail banking to be intensely competitive in Côte d’ Ivoire.

Furthermore half the group have made fundamental changes to their retail offering. One bank said it will open up to ten new branches in 2010.

Corporate banking

Five banks considered competition to be intense. Two banks also indicated they had made fundamental changes.

Spreads are narrowing and banks are trying to improve service quality.

Investment banking

Only four banks claimed to be involved in merchant and investment banking. Two viewed this segment as moderately competitive and two as intensely competitive

One bank suggested that it serviced this segment directly from Paris. Another believed there was potential for a number of deals. They cited companies such as PERTROCI (national oil company), SIFCA (palm oil, sugar cane and national rubber), OFCI (tuna exports) as companies of interest in this segment. Several players such as African Capital and African Merchant Bank (a former subsidiary of Belgolaise Fortis) left the market.


The following charts illustrate how the banks perceive the level of competition in three different markets; retail banking, corporate banking and investment banking.

Côte d’Ivoire

PwC 57

No

Yes


Two thirds said Yes

Q Do you believe that the financial services market is overcrowded?

Q Which category of institutions will present the most significant competitive threat to your organisation over the next three years?

The participants identified established broad based financial institutions already in the market as their major competitors. One domestic participant suggested that start-up institutions with local knowledge and ownership represented the greatest threat.

The expansion of the regional banking groups suggested that the market is evolving. As noted earlier these seven groups account for 65% of market share within Francophone West Africa.

Q In the financial services market, how will consumer needs in 2013 differ from those of today?

Côte d’Ivoire’s financial consumers needs are evolving and there are increasing demands for faster, less expensive and better quality banking services.

Increasing demands are expected for car financing services (considered to be in the embryonic stage at present) and mobile banking.

With over 20 banks in the market and more foreign banks about to enter, the respondents concluded that the market was overcrowded. (In 2004 there were 16 banks in Côte d’Ivoire.)

Two banks, one foreign and one domestic, contended it was not overcrowded.

Côte d’Ivoire


0 5 10 15

Fiscal pressures

Technology

Solvency



Money laundering

Liquidity

Government intervention

Global economic downturn

Foreign entrants

Consumerism


Governance

Disintermediation

Politics

Funding constraints

Capital markets

Demographics


Score


Demographics were considered the most important driver of change. Not only is the overall marketing effort expanding, but as noted elsewhere in the report, there is a major shift towards electronic service delivery.

In second place is capital markets followed by funding constraints. One bank noted the expansion of commercial paper and other capital market instruments.

The importance of a satisfactory outcome to the elections was recognised with the fourth place position of politics.

Disintermediation, governance and the performance of the domestic economy were also considered to be important drivers.

Côte d’Ivoire

PwC 59


1.0 0.5 0.0 0.5 1.0 1.5 2.0

Complex instrumentsDeregulation of commissionIFRS reporting Impact of the latest phase of the financial crisisCurrency fluctuationsValuation and pricing of financial instrumentsMarket volatilityVolatility interest ratesLow-cost alternatives/competitorsOvercapacityCommodity pricesAppropriate staff incentive schemesTransparency of fees and commissionsCustomer acquisition/growth Capital managementBrand awarenessTax legislationLevel of crimeBusiness continuation

Payment systemsData security and privacy

Cost reductionAddressing compliance and regulation

Retail sales practicesInternet and data security

CorruptionBack office/operational/system quality

MarginsLitigation risk

Service qualityAvailability of key skills

Profit performanceBuilding a customer base

Improving revenue growthBanking for the previously un-banked

Retaining existing customersCredit risk management

Risk management


More pressing issues2.0 1.5

The most pressing issue was identified by participants as risk management, followed by credit risk management, retaining customers, banking the previously unbanked and improving revenue growth.

Although recognised as an issue in other parts of the report, capital management fell on the left side of the chart, suggesting it was not considered to be an immediately pressing issue.

Côte d’Ivoire


New financial services entrants

100%believe there will

be more new entrants

Based on responses from six banks

Q Will there be an entrance of the new financial services players into Côte d’Ivoire in the next three years?

Q What is your institution’s primary method of growth?


No

Yes


Start up

Organic growth

Primary method of growth

The respondents unanimously agreed that Côte d’Ivoire would continue to see new financial services players enter the market.

Several Nigerian banks are expected to join UBA and enter the market. Suggestions by the participants of possible entrants included GT Bank, Sterling Bank and Skye Bank.

The entry of an Islamic Development bank from Saudi Arabia is expected and a participant suggested that a Lebanese bank may enter the market. BGFI of Gabon is also expected to set up an operation.

Four banks supported deposit insurance and two banks held the opposite view. One of the opponents argued that good banks would be required to support bad banks. A supporter commented that the market was still unsophisticated and it was unclear what benefits deposit insurance would provide.

Four banks suggested it could happen in the next five years. One supporting bank contended that the current control exercised by the Central Bank meant that deposits were, in effect, already “insured”.

The primary method of growth for the banks is organic growth. One of the participants had just entered the market and it selected the start up/greenfield option.

At this stage there is no indication that the market will experience mergers and acquisitions although several participants indicated that consolidation would occur in the future.

Côte d’Ivoire

PwC 61

Increase slightly

Increase substantially

Intensity of Regulation Q Do you see the intensity of regulation of the financial services industry increasing or decreasing over the next three years?


No

Yes

Plan to increase compliance spending

The majority of banks believe that the regulatory environment will get tougher in the future and regulations will increase substantially.

One participant said there would be pressure to keep up with new regulations emerging in the international markets. Another commented on increased pressure on capital adequacy.

Compliance spending will increase in five of the six banks interviewed. Two banks provided estimates above 20%. An international bank indicated that it already had significant expenditure on compliance.

Côte d’Ivoire



No

Yes

Risk management systems robust


Only one local bank expressed confidence in the robustness of the financial community’s risk management systems. One foreign bank voiced the opinion that currently there was very poor risk management in the market.

A domestic bank indicated that it has plans to improve their risk management practices. They suggested that risk management currently only covered credit assessments.

Several participants highlighted the need to have an accurate financial database. A credit bureau has just been launched by the Central Bank across the region. Assessing and monitoring risk was considered very difficult. However, the introduction of “know your customer” (KYC) rules are beginning to improve assessments.

A domestic bank emphasised that the local preference for cash transactions facilitated opportunities for money laundering.

Côte d’Ivoire

PwC 63

No

Yes

Changes envisaged for risk management and compliance

Q Are significant investment and business process changes envisaged for risk management and compliance purposee over the next 12 months?

Q Has your organisation ever performed liquidity stress testing simulations?

No

Yes

Performed liquidity stress testing simulations

Most participants expect that business process changes will be introduced in the next year to help improve risk management.

One suggested it would make improvements to prevent money laundering while another expected changes in relation to retail banking.

Only two of the six participants said that they had performed liquidity stress tests.

Côte d’Ivoire


Q How would you rate your organisation’s level of preparedness for changes resulting from Basel II?

Strategic issues

Credit risk management

Operational risk management

Regulatory review

Market discipline

Very

unpreparedR R RR R R

Unprepared RNeutral RR R R RR RPrepared R RR RVery prepared R R R

It is clear from the table below that the banks in Côte d’Ivoire remain neutral or unprepared across a number of key areas associated with the introduction of Basel II.

At present there is no timetable for the implementation of Basel II. Discussions continue between the Central Bank and the banks.

Côte d’Ivoire

PwC 65

Q In which areas are you currently experiencing the greatest shortage of skills? (1 is low, 5 is high)

0 5 10 15 20 25

Administration

Internal audit

Financial reporting

Capital management


Information technology

Compliance

Audit committee

Executive directors

Risk management

The greatest area of skills shortage in Côte d’Ivoire at present is risk management.

Two banks allocated the maximum score of 5 out of 5. When the area of risk management was examined specifically the highest scores were attributed to market risk and liquidity/ALM risk, closely followed by credit risk.

The shortage of executive directors, audit committee members, compliance and IT skills were all assigned high scores.

Côte d’Ivoire


Q Has your organisation adopted IFRS (International Financial Reporting Standards)?

Q Do you think that the adoption of IFRS will enhance market reporting?

Q How confident are you that you have a full understanding of the impact of IFRS on your organisation?

No confidence

Somewhat confident

Very confident

Confident in adopting IFRS

The Central Bank has not yet required member countries to adopt IFRS, and participants were undecided on the future timing of IFRS application.

However, in the case of the foreign banks interviewed, they use IFRS for head-office reporting.

The participants unanimously agreed that IFRS would improve market reporting if and when it is introduced.

In terms of future adoption of IFRS the majority of participants are confident that they understand the impact of IFRS on their organisation but one bank is somewhat confident while another has no confidence.

Côte d’Ivoire

PwC 67

Q Do you envisage any IT platform changes in the short term (administration platforms, general ledgers, business process management, human resource systems or business intelligence)?

No

Yes

Envisage IT platform changes


No

Yes

Currently have a CRM system

Q Identify major technology weaknesses in the financial services industry?

Five of the six participants anticipate IT platform changes in the short term.

The majority of banks do not have customer relationship management systems. Alongside the absence of a credit bureau it is clear that the banks need to make advancements in this area.

One bank said a CRM system would be introduced in 2011 and three banks anticipated this would be accomplished in 2012.

The following weaknesses in technology were identified:

• telecommunications – low speeds and interruptions;

• fraud – quite a high incidence of fraud and as a result, high insurance costs;

• the ability to understand and leverage new IT systems;

• data losses and systems frequently out of order (domestic bank); and

• limited use of credit cards.

In 2002 UEMOA initiated the transition to a common electronic payments system. The project is called Gim-UEMOA.

In 2009 GIM had 51 banks connected to the system with an estimated 800,000 to 1 million users.

Source: Gim-UEMOA

Côte d’Ivoire


Q Does your organisation have a documented IT governance framework approved by the audit committee?

No

Yes

Documented IT governance framework

Q Have you implemented a programme to ensure compliance with internationally recognised privacy principles and/or legislation that deals with the protection of personal information?

No

Yes

Privacy principles planprotection of personal information

Q What do you believe will be the top three areas of technology application in financial services by 2013?

Areas of future technology application were identified as follows:

• Mobile banking. Both Société Générale and BICICI (BNP Paribas)have mobile banking.

• Credit bureau (better industry-wide data needed, in process of being created).

• Wider and more effective use of electronic payments.

Four banks indicated they had a documented IT governance framework approved by their audit committees. Two banks said such a framework was still to be implemented.

Five banks said they complied with international privacy principles while one bank said it planned to do this.

Côte d’Ivoire

PwC 69

No

Yes

Payment Card Industry Data Security Standard Plan

Q Have you implemented a programme to ensure ongoing compliance with Payment Card Industry (PCI) Data Security Standard (DSS) requirements?

Four banks have implemented a programme to comply with card data security standards (DSS).

Two banks said they planned to do this.

Côte d’Ivoire


Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree








The majority of respondents do not expect to be actively involved in M & A over the next three years.

Only one bank expects to be involved in joint ventures.

Two banks may become involved with a strategic foreign investor.

The majority of participants have no plans for disinvestments.

Half the group are satisfied with their current structures.

Two banks may seek a strategic domestic partner over the next three years.

Côte d’Ivoire

PwC 71

0

5

10

15

Cost r

educ

tion

and re

focu

sing

Acquis

ition

and re

tent

ion o

f key

staff

Inves

tmen

t per

form

ance

Entry

into

new

mar

kets

Reten

tion

of cl

ients

Proce

ss re

-eng

ineer

ing

Impro

ving

profit

abilit

y

Man

aging

risk

Acquis

ition

of n

ew cl

ients


Score

Q On which strategic areas does your organisation spend more time? Please rank the top three in order of most time spent.

Q What is the level of attractiveness for a foreign financial institution to move into CDI (on a scale of 1 to 5 where 5 is the maximum attractiveness)

Strategically the areas on which the participating banks spend the most time are:

• acquiring new clients;

• managing risk; and

• improving profitability.

The participants clearly believe Côte d’Ivoire represents an attractive market for foreign financial institutions. Two banks assigned the maximum score of 5 out of 5 while the remaining four banks awarded scores of 4 out of 5.

One bank said that Côte d’Ivoire was the best location to serve the Francophone West Africa region.

Another bank said the financial sector was under-serviced and possessed many opportunities. They considered Côte d’Ivoire to have good governance and to be well regulated.

Côte d’Ivoire


Q What is the level of commitment of your parent institution in Côte d’Ivoire when compared to similar operations in other parts of Africa (on a scale of 1 to 10 where 10 = max commitment)

0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100


Exp

ecte

d a

nnua

l gro

wth

rat

e in

201

0

Q What is your estimate of annual growth in revenue for your business for 2010 and over the next three years?

Q Can you suggest three product areas which will become increasingly important over the next three years?

Retail banking

• Mobile banking

• Pre-paid cards

• Credit cards (currently debit cards)

• Consumer loans

• Residential mortgages (presently totally under-developed)

Corporate banking

• Cash management

• Trade finance

• Capital markets (share and bond markets very undeveloped)

The participants expect the pace of revenue growth to increase by 2013.

In 2010 two banks expected 20% growth while four banks anticipated below 15%.

By 2013 the lowest level of growth was 10% while three banks expect 15% or greater.

Only one bank projected slightly lower growth in 2013 versus 2010.

The four foreign banks in the group assigned an average attractiveness score of 9 out of 10. Two banks awarded the maximum score of 10 out of 10.

Côte d’Ivoire

PwC 73

0

5

10

15

Loca

l acq

uisitio

ns an

d mer

gers

Fore

ign ac

quisitio

ns an

d mer

gers

Fore

ign P

artn

ersh

ips

New ch

anne

ls

Client

segm

enta

tion

Organ

ic gr

owth

Laun

ching

of n

ew

produc

ts an

d serv

ices


Score

Q Joint ventures and partnerships will be key to our expansion plans

The three most important means of achieving growth over the next three years were identified as:

• launching new products and services;

• organic growth; and

• client segmentation.

As noted earlier, acquisitions and mergers will be of very minor importance.

Côte d’Ivoire


Q Over the last year can you classify your organisation’s profits in terms of capital allocated in each of the following categories?

Loss <0%

Marginally profitable

0 -10%

Profitable 10 – 20%

Very profitable 20 – 30%

30% or more

Retail banking RRR RRHome loans RR R RVehicle financing RRCorporate banking RR RR RMerchant & investment

bankingR R

TreasuryR RR

Internet banking R RCommercial Property R

The table below provides some insight into the relative profitability of the different market sectors.

Retail banking was deemed to be profitable or very profitable. Although home loans displayed mixed returns it should be emphasised that this market remains undeveloped.

Corporate banking showed different levels of profitability while two banks viewed treasury as profitable and one bank believed it was only marginally profitable.

Côte d’Ivoire

PwC 75

Q Is your organisation’s operating model clearly documented and defined?

No

Yes

Operating model clearly documented and defined

Q What will the role of branches/outlets be in 2013?

Bank branches varied according to each bank. One participant suggested that it had three types of branches ranging from three person limited service branches to 10 or more people in a multi-function branch.

Most participants said they have four to six people in each branch.

Branches have a strong retail focus and while some banks make corporate loans at the branch level, others centralise corporate lending at head office.

All but one bank claimed to have a clearly documented and defined operating model.

Côte d’Ivoire


Côte d’Ivoire Peer Review

1 2 3

Corporate banking Société Générale BICICI BIAO and Ecobank

Retail banking Société Générale BICICI Banque Atlantique and Ecobank

Bank cards Société Générale Ecobank Banque Atlantique

Mobile banking Société Générale and BICICI

Trade finance Société Générale BICICI and Citibank Ecobank and Standard Chartered

Peer Review

It is clear from the Peer Review that the two French owned banks, Société Générale and BICICI (BNPParibas) gained strong peer recognition.

Ecobank and Banque Atlantique were also mentioned across several product areas.

Citibank and Standard Chartered Bank were recognised in the area of trade finance.





PwC 77

Banks interviewed:

• Advans Banque

• Banque Commerciale du Congo(BCDC)

• Citigroup

• ProCrédit Bank Congo

• Rawbank

• Stanbic Bank Congo

The six banks interviewed represented 59% of the total banking assets in 2009.

Insurance companies interviewed:

• SONAS (State monopoly)

• IMMOAF (Insurance Broker)





The Democratic Republic of Congo is located in the heart of Africa and shares a 9,000 km border with nine countries. It is a country the size of Western Europe and contains a third of the world’s cobalt and 4% of its copper reserves. It has a population of around 71 million (US Census Bureau estimate for 2010). Kinshasa has a population of between 8 to 10 million.

The DRC held its first democratic elections in 40 years in 2006, a major step forward after civil wars between 1996 and 2003 killed more than an estimated 4 million people. The government has begun to introduce reforms to stimulate investment. However, progress is slow and the financial sector is chronically underdeveloped.

The DRC has for the past two years remained at the bottom of the 182-nation index of countries in the World Bank’s Doing Business Report. In 2009 it set up a Doing Business Steering Committee with technical help and funding from the IMF to improve its ranking.

The African Development Bank (ADB)in its African Economic Outlook 2010 made the following assessment:

“The financial system was hit by the world economic crisis and is still fragile. Slow growth in 2009 reduced bank deposits by firms and banks giving credit to export and import firms were faced with an increase in bad loans because of less trade.

Foreign currency deposits and loans were between 90% and 95% of all deposits and loans in 2008. They declined from January 2009 because of fewer exports. Money transfer companies also suffered a big drop in business.”

The ADB estimates growth will rebound to 6.5% in 2010 and 8.8% in 2011.

The ADB believes that the political and security situation improved in 2009 but remains fragile. Local elections set for 2008 were still not held then or by 2009. A general election is now scheduled for 2011 and local elections for 2012.

The economy became more dollarised in 2009 owing to inflation and exchange rate instability. The Congolese Franc (CDF) lost 45.2% of its value against the US dollar and inflation averaged 44% in 2009.

Economic growth slowed to 2.5% in 2009 (from 6.2% in 2008) as a result of a drop in export prices.

There are no stock or corporate bond markets in the DRC.

A 2004 International Finance Corporation (IFC) report suggested formal employment in the DRC was just 2.7%.

The banking system

There was a general feeling by survey participants that the banking system remains very vulnerable and to reduce risks the Central Bank of Congo (BCC) has tightened conditions for setting up new banks.

However one banker pointed out that the country has perhaps the world’s lowest capital requirement to set up a new bank – US$10 million and several new banks were established in 2010.

Rawbank created by the Rawji family in 2001 is now the largest bank by assets size in the DRC.

General background on the Democratic Republic of Congo


PwC 79

The Financial Standards Forum, a US not-for-profit foundation, made the following assessment on the DRC’s economic outlook in a report dated November 2009:

“The DRC is potentially a very wealthy country given its vast mineral resources. Its potential though has been squandered by economic mismanagement, bloody chaotic internal conflicts, a staggeringly high level of corruption and dilapidated infrastructure.

The government is hoping that the massive infusion of assistance from China will be the spark that will propel economic growth, spur exports and generate physical and social infrastructure.

The problems facing the country are so massive though that even under the best of circumstances, it will take many years to recoup the losses the economy has recently suffered. When measured in nominal dollar terms for instance, the economy in 2009 was 39.5% below its level of 1980 and the per capita income during this period dropped by 65.5%.

Unfortunately, given the high level of corruption and mismanagement, the lack of political accountability and a consistent record of poor governance, it seems unlikely the DRC will seize the opportunity presented by the massive trade agreement with China and enact measures that will appreciably improve the living standard of its largely destitute population.”

The Financial Standards Forum’s assessment of the DRC’s economic outlook



There are currently around 20 banks in the DRC. Most of these are foreign owned. However, unlike other markets where foreign ownership is associated with global banks, the DRC’s banking industry is characterised by a number of smaller foreign banks.

Both Citibank and Standard Bank have a presence but over the years a number of foreign banks have downsized or withdrawn. For example, Barclays Bank closed its branches in the DRC in 1992 while more recently BNP Paribas Fortis (formerly Fortis Bank) sold its 25.6% stake in Banque Commerciale du Congo (BCDC) to DRC entrepreneur George Forrest.

The DRC has in the last few years experienced an influx of foreign banks from countries such as Lebanon, Cameroon, Nigeria, Gambia, Togo and Uganda and also foreign government supported micro-finance entities such as ProCrédit and Advans Bank.

To provide insight into the unique composition of the DRC banking market an annotated summary of the participants is set out below.

Overview of banks in the DRC

Banque Commerciale du Congo (BCDC)

BNP Fortis continue to provide a management contract for the bank in which the Forrest family has a controlling interest.

Banque Congolaise (BC) Taken over by the Central Bank of Congo in October 2010.

Banque Internationale pour l’Afrique du Congo (BIAC)

A locally owned bank owned by a third generation Jewish family.

Banque Internationale de Crédit (BIC)

Originally established in 1994 by Kinshasa based entrepreneur Pascal Kinduelo. In 2008 it was brought by Thorens Ltd, a company controlled by Israeli mining investor Dan Gertler.

Citigroup Established in the DRC in 1971, the first international bank in the country.

Standard Bank Congo Originally established in 1973 as Grindlays Bank (Zaire) it was acquired by Standard Bank in 1992. Services the upper end of the commercial market.

Rawbank Rawbank was created in 2001 and is owned by the Rawji family.

Ecobank Part of the Pan African bank group based in Togo.

Trust Merchant Bank Established in 2004 by a local Lubumbashi family. The Levi family operated a hardware, stationery and foreign exchange bureau in Lubumbashi.

ProCrédit Part of the ProCrédit group of 21 banks. Operates as a full service bank with 11 branches. Shareholders include IFC, BIO (Belgian Investment Company for Developing Countries), KFW (German Federal Government) and Strichting Doen (Dutch Postcode Lottery)

Afriland First Bank A Cameroon-based bank.

Access Bank A Nigeria-based bank

Solidaire Banque Created by a local Lebanese family, sold in April 2010 to Byblos Bank. Byblos Bank is listed on the Beirut and London Stock Exchanges and has a presence in 11 countries.


PwC 81

Overview of banks in the DRC (continued)

Mining Bank of Congo Part of the Metropol Group – a Russian holding company. Involvement in the mining sector.

First International Bank Fibank: A Nigerian bank headquartered in Gambia.

Sofibanque Associated with Soficom and involved in money transfer services such as Western Union or MoneyGram. Very active before the emergence of more retail banking operations.

La Cruche Banque Created by a family in the Eastern part of the country during the conflict between government soldiers and rebel forces.

Advans Banque Congo Opened its first branch in Kinshasa in 2009. Investors include Advans SA, IFC, KFW and the African Development Bank. Advans SA was created by Horus development Finance and the following development institutions: AFD, EIB, FMO, IFC, CDC and KFW

Bank of Africa Opened in 2010. Ownership includes Bank of Africa. The Bank of Africa was founded in Mali in 1982 and has a presence in 12 countries. BIO and Proparco (subsidiary of the French Development Agency AFD).

Crane Bank Congo A Ugandan bank.

The six banks interviewed have around 1,000 employees in total and this is expected to grow by 30% over the next three years. Collectively, they have over 30 branches at present. This number is expected to increase significantly for a number of banks in the next three years as they roll out services across the country. One participant commented that 65 new branches opened in 2009.

The six banks have less than 100,000 debit cards in 2010 but this number is expected to double by 2013. Credit cards are very restricted at present and will experience very minor expansion by 2013.

One banker suggested that there were now 20 banks marketing to around 200 corporate customers.

He indicated that there might be around 25 borrowers of $10 million or more in the DRC and that by 2013 this might increase to over 100 borrowers.

Background on participants



In US dollars At 31 December, 2009

Total assets

Credit Deposits Total income

Total expenses

Net profits

Equity Loan/deposit ratio

Deposit Growth

Rawbank 308 99 238 27 24 3.14 32 42% 46%

Banque Commerciale du Congo

300 107 222 56 52 4.22 30 48% 8%

Banque Congolaise 263 146 98 46 78 -32.02 40 148% -44%

Banque Internationale pour l’Afrique au Congo

223 102 195 29 29 0.65 14 52% 51%

Trust Merchant Bank 185 83 134 22 22 0.11 35 62% 20%

Banque Internationale de Crédit

144 62 110 28 22 5.89 20 56% 16%

ProCrédit Bank 120 33 106 14 16 -1.64 11 31% 15%

Stanbic Bank 97 24 70 12 11 0.55 10 34% 0%

Citigroup 80 34 52 11 11 0.27 21 65% -8%

Ecobank Congo 49 12 25 4.33 12 -7.34 10 48% 101%

Afriland First Bank 53 37 13 7.02 5,3 1.67 11 277% -16%

Acces Bank Congo 20 7 8 7.71 8,6 -0.84 10 86% 1.38%

Advans Bank 13 1 1 1.2 2,9 -1.73 11 123%

Fibank 12 4 7 1.22 3,6 -2.4 5 53%

Solidaire Bank 9.25 3.31 3.31 2.58 3.16 0 4.53 100% -67,.5%

Mining Bank Congo 5 0,03 0,02 0.27 0,3 -0.05 5 155%

Total 1881 754 1282 269 280 -30 270

Source: Individual banks’ annual reports

Bank performance and indicators at 31 December 2009

Assets, loans, deposits and performance of DRC banks

On the following three pages tables record the performance and asset growth of banks in the DRC and details of loans and deposits, branches and ATMs.

In a country of 71 million people, it is interesting to note that there are only 117 bank branches and the banks’ total assets at the end of 2009 were just over $2 billion.


PwC 83

Ass

ets

Loan

s &

ad

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('000

) 20

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2008

20

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74,3

04,5

85

141

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9

1,62

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Name of Bank No. Branches

Banque Commerciale du Congo B.C.D.C. 15

Banque Congolaise (BC) * 22

Banque Internationale pour l’Afrique au Congo (BIAC) 13

Banque Internationale du Crédit (B.I.C.) 21

Citigroup 1

Stanbic Bank Congo 2

Rawbank 14

Ecobank 2

Trust Merchant Bank (TMB) 10

ProCrédit 6

Afriland First Bank 1

Access Bank RDC 1

Solidaire Banque 1

Mining Bank of Congo 1

First International Bank 1

Invest Bank Congo 1

Sofibanque 1

La Cruche Banque 2

Advans Banque Congo 2

Bank Of Africa 1

Crane Bank Congo 1

Source: Banque Centrale du Congo

Bank branches in the DRC

Name of Bank No. of ATMs

Rawbank 30

Banque Internationale du Crédit (B.I.C.) 26

Banque Internationale pour l’Afrique au Congo (BIAC) 20

ProCrédit 17

Ecobank 14

Source: Estimates provided by one of the participants

Estimate of ATMs in the DRC


PwC 85

Moderate

Intense

None

Light

Nochange

Minorchange




Response

Com

pet

ition

50% 16.7%

16.7% 16.7%C

omp

etiti

on

Response

Moderate

Intense

None

Light

Nochange

Minorchange




75%

25%

Com

pet

ition

Com

pet

ition

Moderate

Intense

None

Light

Nochange

Minorchange




Response

16.7%

33.3%

16.7%

33.3%

Com

pet

ition

Retail banking

Corporate banking

Micro-finance

Retail banking

Although the retail banking market is considered to be very undeveloped, participants believed it to be moderately competitive, perhaps suggesting that the banks are chasing a small emerging target

Corporate banking

Corporate banking was considered to be intensely competitive. None of the participants rated the level of corporate competition below moderate. Two banks have made significant strategic changes.

Micro-finance

Micro-finance was considered to be moderately competitive. In the last year, banks interviewed have made only minor changes to their strategy.


The following charts illustrate how the banks perceive the level of competition in three different markets; retail banking, corporate banking and micro-finance.



Q What are the major drivers of change in the financial services industry today?

The top three drivers of change in the DRC were identified as foreign entrants, money laundering and fiscal pressures. These were followed by capital markets, government intervention and regulation and reporting.

The overall scores are based on responses from six banks and were inflated by one bank that rated a number of drivers in joint first place.

0 5 10 15

Governance


Liquidity

Politics

Funding constraints

Demographics

Corporate social responsibility


Technology



Capital markets

Fiscal pressures

Money laundering

Foreign entrants

Based on responses from 6 banksScore

20


PwC 87


The most pressing issues in the DRC, all of which share joint first position, were identified as, availability of key skills, addressing the needs of the previously unbanked, business continuity, currency fluctuations, improving revenue growth, risk of litigation and tax legislation.

Six issues were considered neutral, while a further 12 issues were assessed as non-pressing.

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Valuation and pricing of financial instrumentsComplex instrumentsVolatility interest ratesPayment systemsOvercapacityMarket volatilityIFRS reporting and IFRS amendmentsTransparency of fees and commissionsLow-cost alternatives/competitorsCapital managementBrand awarenessAddressing compliance and regulationMarginsInternet and data securityImpact of the latest phase of the financial crisisData security and privacyCost reductionAppropriate staff incentive schemes

Retaining customers, managing expectationsRetail sales practices

Profit performanceLevel of crime

Customer acquisition/growth Commodity prices

Back office/operational/system qualityService quality

Risk managementCredit risk management

CorruptionBuilding a customer base

Tax legislationLitigation risk

Improving revenue growthCurrency fluctuations

Business continuationBanking for the previously un-banked

Availability of key skills

increasing importance -1.5




The most important changes in DRC were recorded as follows:

• many new banks entering the market for the first time. Over a dozen new entrants in the last few years;

• growing trust in the bank sector by the public. In the past they lost assets through looting and bank collapses;

• significant increase in the number of bank accounts from a very small base. Increasing from just 0.01% of the population to 1%. Participants estimates of the number of bank accounts ranged from 250,000 up to 500,000;

• introduction of new technology;

• growth of SMEs; and

• increase in the capital requirements for banks operating in DRC.


PwC 89

The participants’ concerns were recorded as follows:

• Inadequacy of management in the Central Bank. Participants noted that there are many older people working in the Central Bank who have not been trained in modern techniques. They also commented that the banks are requested to file numerous paper reports.

• There is a major fiscal problem within the country (see box).

• Most of the banks have 95% to 97% of deposits in US dollars but the Central Bank requires that reserves be placed in local currency.

• Lack of law enforcement. One participant said that a competitor advised him that he had 40 cases currently pending in court and he had never won a case.

• Low level of bank representation across the country.

• Cash ratio of 7% with Central Bank. The Central Bank holds this sum interest-free.

Q Present concerns with the financial sector?

Q Steps needed to advance the financial sector?

Steps needed to advance the financial sector:

• Reform the tax situation.

• Establish a credit bureau.

• Implementation of OHADA (explained on the following page).

• Roll out banking services to all the major centres.

The government collected less revenue in 2009 because of the world recession, with income from tax bodies and mining and oil revenue down 24.4% from 2008. Coverage of public spending fell to 62% in 2009 (from 81.4% in 2008). The budget deficit persisted throughout 2009 but narrowed to 1.6% of GDP owing to government efforts to cut spending and collect more revenue, along with the world economic recovery and more external funding.

Source: AfricanEconomicOutlook AfricanEconomicOutlook.org combines the expertise of the African Development Bank, the OECD Development Centre, the United Nations Economic Commission for Africa and a network of African think tanks and research centres.



OHADA, established in 1993, is the French acronym for ‘Organisation pour l’Harmonisation en Afrique du Droit des Affaires’, which translates into English as ‘Organisation for the Harmonisation of Business Law in Africa’.

OHADA provides a legal framework and covers eight areas of regulation (on corporate law, commercial law, security, enforcement measures and arbitration) given effect by uniform acts directly applicable in the sixteen member states. Harmonisation of general contract law, the law of evidence, telecommunications law and employment law are expected.

According to the US State Department in December 2009, the Congolese parliament approved a law authorising the DRC’s admission to the Organisation for the Harmonisation of Business Law in Africa (OHADA), and President Kabila promulgated this law in February 2010. The Government of the DRC officially launched the National OHADA Commission in April 2010. The DRC expected to sign and deposit the instrument of OHADA accession by November 2010.

The 16 member states of OHADA are as follows:

Benin, Burkina Faso, Cameroon, Central African Republic, Comoros, Congo-Brazzaville, Cote d’Ivoire, Gabon, Guinea-Bissau, Guinea, Equatorial Guinea, Mali, Niger, Senegal, Chad and Togo.

Membership of other non-French-speaking countries such as Ghana, Nigeria and Liberia is under discussion.

The OHADA treaty was expected to take effect in the DRC on January 1, 2011. Other measures undertaken by the Government of the DRC to improve the business and investment climate include President Kabila’s promulgation of a new customs code and a new law related to value-added tax (VAT) in August 2010. The new customs code is scheduled to come into effect in February 2011.

OHADA Organisation pour l’Harmonisation en Afrique du Droit des Affaires

Morocco

Algeria EgyptLibya

MauritaniaMali

Senegal

Guinea

Gha

na

SudanNigerChad

Nigeria

BurkinaFaso

Togo

Ben

in

CôteSierra Leone

Guinea Bissau

Cameroon

Ethiopia

Somalia


Gabon Congo


Uganda

Kenya

AngolaZambia

Malawi

Moz

ambi

que

ZimbabweNamibia

Botswana

SouthAfrica

Lesotho

Swaziland

Liberia

Mauritius

Eritrea

Djibouti

Equatorial Guinea

Gambia

Cape Verde

ComoresMayotte

Mad

agas

car

unisiaT

Rwanda

Burundi

anzaniaT

d’Ivoire

Western Sahara

DRC plans to join OHADA


PwC 91

The six participant banks rated the level of financial sector development in DRC at 4/10 in comparison to other West African countries.

This average included two major foreign banks that gave a rating of just 2 out of 10.

One participant compared DRC negatively in relation to Zimbabwe which he noted had a much more developed financial sector and benefited from its close proximity to South Africa.

Q Rate of the level of development?



Strengths

• Very open market with enormous upside potential;

• The Central Bank requires local banks to move towards international standards;

• People are beginning to build trust in banks. In the period 1987 to the 1990s, there was a total loss in confidence in the banking system;

• Increasing number of choices for customers; and

• If OHADA takes place it will be the biggest change in 30 years.

Q What are the strengths and weaknesses of the financial services industry?

Weaknesses

• A very small proportion of the population has access to banking services;

• All the banks are working with the same approximately 100 major customers;

• The total capital in the industry at the end of 2008 was just US$150 million;

• To open a bank requires a Presidential Decree. The process requires consent of the Central Bank, the Minister of Finance, the Council of Ministers and then the President;

• The small number of banking accounts (various participants recorded different estimates: 350,000, 400,000 and 500,000);

• No credit bureau, although discussions are taking place on this;

• If not properly regulated, serious risks of money laundering;

• No stock exchange; and

• Registration of land is problematic. There are no ID cards in the DRC and if a birth certificate is lost it can not be replaced. These limitations make it difficult to accurately and easily identify their customers.


PwC 93

DRC Progress Reported on the IMF Matrix of Economic and Financial Policy Measures, 2009 to 2011 (Amended)

Progress made on the IMF policy directives

Sector Measures Timetable

C. Banking supervision; banking system

Objective: Strengthen banking supervision capacity and improve the health of the banking system.

(i) Banking supervision

1. Implement a new matrix of sanctions for non-compliance with the banking supervision regulations.

End-June 2010

(ii) Banking system 2. Perform audits to assess the quality of the loan portfolio of all remaining banks, and establish a plan to restructure or recapitalise them.

End-May 2010

3. Adopt a strategy to improve the health of commercial banks based on the results of the March 2009 assessment undertaken with technical assistance from IMF and World Bank experts.

Done

4. Restructure a major commercial bank. Initial steps taken by end-May 2010

End-May 2010

D. Accounting and transparency

Objective: Improve accounting and transparency

(i) Accounting and audit operations

1. Approval by the Central Bank’s board of directors for an action plan to adopt and implement International Financial Reporting Standards (IFRS).

End-December 2010

(ii) Transparency and communications

1. Not later than six months after the end of the financial year, publish the central bank’s financial statements and audit reports, including the auditor’s opinion.

Continuous

Extract from the staff report for the First Review Under the Three-Year Arrangement Under the Extended Credit Facility and Financing Assurances Review, prepared by a staff team of the IMF, following discussions that ended on June 30, 2010, with the officials of the Democratic Republic of the Congo on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 16, 2010.

The IMF prepared an update on the progress made by the DRC in June 2010 regarding the Extended Credit Facility and Financing Assurance Review.

An edited summary of progress made in relation to the banking sector is shown in the table below.

The table indicates that the Central Bank must audit banks’ loans and if necessary, require a recapitalisation

plan. The plan specifically mentions the requirement to restructure one major commercial bank. The IMF also requires the Central Bank to formulate an action plan to implement International Financial Reporting Standards (IFRS).

In terms of greater transparency and timeliness, the Central Bank is also required to publish its financial statements and audit report within six months of the financial year end.



Q Can you prioritise your strategies for achieving growth over the next three years.

0

5

10

15

Client

segm

enta

tion

Loca

l acq

uisitio

ns an

d mer

gers

New ch

anne

ls

Laun

ching

of n

ew p

roduc

ts

Organ

ic gr

owth


Score

0

1

2

3

4

5

6

7

8

9

10

Cost r

educ

tion

& bus

iness

refo

cusin

g

Proce

ss re

-eng

ineer

ing

Impro

ving

profit

abilit

y

Entry

into

new

mar

kets

Man

aging

risk

Acquis

ition

& rete

ntion

of k

ey st

aff

Acquis

ition

of n

ew cl

ients


Score

Q On which strategic areas does your organisation spend the most time?

The banks interviewed are still very small and they propose to roll out new products and grow organically.

Although new players are entering the market and consolidation is expected in the future, it is early days for mergers and acquisitions.

As the existing players attempt to gain market traction, the primary focus of senior management is the acquisition of new customers and at the same time, the retention of key personnel.

Managing risk is also a key strategic activity.


PwC 95

Notovercrowded

Yes


80% said the market was

not overcrowded


In keeping with the earlier comments and statistics on the rudimentary development of the financial market, participants do not believe the market to be overcrowded.

One participant did however criticise the undercapitalisation of the existing banks. He noted that most had just the minimum required levels of capital and were not securely capitalised for future growth.

Three banks indicated that the greatest competitive threat originated with broad based financial institutions already competing in their market, but one selected niche players while another said start-up institutions.

In addition, one participant felt that money changers also represented a significant threat because they operated in remote areas of the country not served by the banks.

Q What type of instititions represent the greatest competitive threat to your bank?

The banks predicted that there would be growing demand for a range of new products including mobile banking and credit cards.

Two banks acknowledged that there was still little bank interest in addressing the needs of the SME sector.

Q How will the needs of DRC financial consumers change over the next three years?



Q What is your institution’s primary method of growth in the DRC?

The primary method of growth for the banks interviewed is organic growth.

The low level of market evolution means that mergers or acquisitions are not yet a meaningful option.


100% chose organic growth


Support for deposit insurance

100% support deposit insurance

beyond 10 years

next 10 years

next 5 years

Timeframe for deposit insurance Q Deposit insurance timeframe? In this survey only two of the six banks anticipated deposit insurance being introduced in the next five years, most banks thought it could be 10 years ahead.

However they acknowledged that it would help build confidence in the banking sector.

They also believed it should be seen alongside reforms in the broader insurance sector and the removal of the state monopoly of insurance.

The DRC does not have a deposit insurance system at present but participants voiced unanimous support for a future scheme.

CGAP* has commented that before a deposit insurance scheme could be introduced for micro-finance institutions, (MFIs) and small co-operatives (COOPECS) the loan portfolios of these institutions and the banks would need to be cleaned up.

*CGAP is an independent policy and research center dedicated to advancing financial access for the world’s poor.


PwC 97

Morocco

Algeria EgyptLibya

MauritaniaMali

Senegal

Guinea

Gha

na

SudanNigerChad

Nigeria

BurkinaFaso

Togo

Ben

in

CôteSierra Leone

Guinea Bissau

Cameroon

Ethiopia

Somalia


Gabon Congo


Uganda

Kenya

AngolaZambia

Malawi

Moz

ambi

que

ZimbabweNamibia

Botswana

SouthAfrica

Lesotho

Swaziland

Liberia

Mauritius

Total GDP of over US$ 360 Billion

Eritrea

Djibouti

Equatorial Guinea

Gambia

Cape Verde

ComoresSeychelles

Mad

agas

car

unisiaT

Rwanda

Burundi

anzaniaT

d’Ivoire

Western Sahara

Q Does your organisation comply with Basel II?

The participants had different responses regarding their receptiveness to Basel II.

Local banks replied either that they were preparing for Basel II or that Basel II did not apply to the DRC. It would appear that the DRC has still some way to go before Basel II will be implemented.

The African Development Bank in its 2010 report on Financial Sector Integration commented that COMESA (see adjacent) has adopted a variable speed approach to regional financial integration. It cautions that COMESA

should not be in a hurry to move to Basel II because there can be significant risks if the move is not well prepared.

The report included DRC within a group of six countries that it stated “are yet to meet the preconditions for entering into regional financial integration.”

What is COMESA?

COMESA, the common market for Eastern and Southern Africa has 19 member states and a population of 430 million.




No

Yes

Increase compliance spending



Increase slightly

Increase in regulationThe Central Bank has been slow to push through regulatory changes and as a result participants expect only slight increases in regulation over the next three years.

At the present time services such as mobile banking and debit cards remain outside the regulatory framework.

One banker predicted that with pressure from the IMF and others, there would be significant changes made to regulation.

Three banks expect to increase their compliance spending by more than 20% over the next three years.

A further bank indicated that it would increase its compliance budget, which was practically zero at present.


PwC 99


No

Yes

Risk management systems are sufficiently robust

The financial sector remains fragile. Commercial bank profits and return on equity fell sharply in 2009, a number of banks face difficulties in meeting prudential regulation requirements, and there was an increase in nonperforming loans. The Central Bank of the Congo (BCC) has increased its on-site inspection of commercial banks and is developing restructuring plans for the weakest ones. It also provided liquidity support for a financially distressed large commercial bank. Dollarisation remains high and dollar denominated deposits rose further in 2009, which constrains the BCC’s role as the lender of last resort in the event of a banking crisis given its low level of international reserves.

Source: IMF, African Department, First Review Under the Three-Year Arrangement Under the Extended Credit Facility and Financing Assurances Review, June 2010

The majority of participants contend that risk management systems are not sufficiently robust.

They emphasised the present reliance on manual systems and the need for technological improvement.

There are only a handful of international banks that operate risk management processes effectively.



The foreign banks interviewed said that they had adopted IFRS while the domestic banks have not yet adopted IFRS.

All the participants believed that adoption will enhance reporting, although one bank commented that IFRS is not really applicable to the DRC at this stage.


Somewhat confident

Very confident

80%

20%


0 20 40 60 80 100

Increased reliability of financial reporting

Easier access to international capital markets

More transparent disclosures

Better comparability of companies

Percentage in agreement

Q What do you see as the key benefits of adopting IFRS?

The participants support the adoption of IFRS. The two most important benefits identified unanimously by participants were increased reliability of financial reporting and increased transparency.

The participants are only somewhat confident that they fully understand the potential impact of IFRS on their organisation when it is eventually implemented.


PwC 101

CGAP is an independent policy and research center dedicated to advancing financial access for the world’s poor. It is supported by over 30 development agencies and private foundations who share a common mission to alleviate poverty. Housed at the World Bank, CGAP provides market intelligence, promotes standards, develops innovative solutions and offers advisory services to governments, microfinance providers, donors, and investors.

The Consultative Group to Assist the Poor (CGAP) contended in 2007 that there was a severe limitation of information available on financial performance. Commenting on micro-finance organisations and co-operatives (COOPECS) it stated that although these organisations are required to send financial and operational information to the Central Bank, less than half actually meet this requirement.

CGAP found that there are around 500 certified accountants and 200 auditors in the DRC. They maintained that IFRS standards are not yet fully accepted in the DRC and standards are often simplified.

It is against this background that admission to OHADA represents such an important move for the country. Once DRC becomes a member of OHADA it will be required to adhere to the Uniform Acts chart of accounts and accounting rules.



0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100

One participant expects 100% in 2010and 50% in 2013


Exp

ecte

d a

nnua

l gro

wth

rat

e in

201

0


Six banks provided projections on their expected annual growth in revenue. There was a major contrast between one bank that anticipated negligible growth in both 2010 and 2013, while another hopes to grow 100% in 2010 and 50% in 2013.

Most of the other participants expect annual growth around 30%.


PwC 103

0 5 10 15 20Information technology (IT)

Financial reporting

Capital management

Internal audit

Compliance

Audit committeeAdministration

Executive directorsRisk management

Regulatory risk (e.g. Basel)

Liquidity / ALMCredit risk

Operational risk

Market risk


Score


Q In which areas are you currently experiencing the greatest shortage of skills?

There is a chronic shortage of skills in the financial sector in the DRC. One local banker stated that in his view the education system had collapsed and many Congolese educated outside the country failed to return. As a result the talent pool is extremely limited and is made up of an ageing population.



Q Can you identify major technology weaknesses in the financial services industry?

The participants unanimously agreed that the most important technological weakness was communications. In 2008, the government announced its intention to implement market liberalisation and regulatory reforms to enable more effective satellite, wireless and fibre based telecommunications.

One participant noted it was a business continuity issue. Several participants said communications were substandard and very expensive. They use wireless with no fixed line systems. One foreign bank indicated that electricity supply was a major problem. Another said that a comprehensive GSM mobile payments system had to be set up.

One local bank highlighted the limitations of software programmes that are being used in the local banks. They cited the use by seven banks of a programme that had major limitations.

The top areas of technology application in financial services by 2013 were identified as follows :

• mobile banking

• internet banking

• shared ATMs

• a platform for settlement transactions, there is no local clearing at present

• for dollar transfers DRC banks currently need to use a correspondent bank, they anticipate improvements in this area in the future.



PwC 105

No

Yes

IT Platform changes

No

Yes

Client Relationship Management system

Q Do you currently use a Client Relationship Management (CRM) system?


Three out of five respondents do not currently use a CRM system.

One of these banks predicted that their CRM system would be active next year.

Two banks plan major IT platform changes in the short term.



Q Over the last year can you classify your organisation’s profits in terms of capital allocated in each of the following categories?

In terms of return on capital, participants performed best in treasury and micro-lending. Retail and corporate banking shared more mixed results. Although one participant stated that retail banking was extremely profitable, two banks suggested it was only marginally profitable.

One banker commented that his institution rejected about 40% of applications on loans of up to US$ 20,000.

Loss <0% Marginally profitable 0 -10%



30% or more

Retail banking RR R RHome loans R RCorporate banking RR R RMerchant & investment banking

Treasury RRMicro-lending R R R


PwC 107

The following product areas were judged to be of increasing importance:

• mobile banking

• mortgages

• debit cards and in future credit cards

• trade finance

• foreign exchange

• fixed income products at the governmental level.

Q Which product areas will become increasingly important over the next three years?

One example of mobile payments in the DRC is Celpay – owned by FirstRand Bank of South Africa.

Celpay provides Government to person (G2P), Business to business (B2B), Consumer to business (C2B) and Consumer to consumer (C2C) transfers. Celpay allows customers to transfer money or airtime and to charge pre-paid accounts. When a customer signs up with Celpay, they can open an account with a minimum US$500 deposit at one of three banks, BCDC, Banque Congolaise or Rawbank. Celpay customers can withdraw cash at GSM points throughout the country.

Mobile banking remains completely unregulated at present. Although Celpay operates in the DRC with the permission of the Central Bank, it is not backed by the law. As a result Celpay has commented publicly that the absence of formal law makes it difficult to invest with certainty.

Furthermore, electronic money is not legal tender in the DRC.

Loss <0% Marginally profitable 0 -10%



30% or more

Retail banking RR R RHome loans R RCorporate banking RR R RMerchant & investment banking

Treasury RRMicro-lending R R R



Q What will the role of branches be in 2013?

Q Which foreign financial institution do you believe might choose to move into the DRC over the next three years?

The banks expect more foreign banks to enter the DRC market. These could include BGFI Bank from Gabon which has already confirmed its plans.

In September 2010 BGFI Bank announced it would target VIP individuals, large companies, institutions and SMEs. It will begin with US$25m in capital.

A number of new micro-finance organisations are expected to enter the market.

Finally, participants predicted the entrance of both South African and Chinese banks into the market.

A number of participants have branch expansion plans planned.

A typical bank branch in the DRC is staffed by 10 to 20 people, and is highly transaction oriented.

Loan approvals will normally be processed at head office.


PwC 109

Q What is the level of commitment of your parent to your institution in the DRC when compared to similar operations in other parts of Africa?

Despite the many challenges associated with providing financial services in the DRC, four banks answered this question and recorded an average commitment score of 8.8 out of 10.

This suggests that once established the banks are determined to maintain their presence and hopefully benefit from emerging opportunities.

(CGF Millions, end of period) 2003 2004 2005 2006 2007 2008 est US$*

Assets of commercial banking system 67,188 108,043 109,291 163,730 217,167 305,611 334m

Loans of commercial banks 31,295 42,235 25,383 34,832 56,503 127,848 140m

Deposits of commercial banks 57,035 107,988 141,570 238,518 405,006 690,867 755m

Congo francs 8,927 16,198 19,172 29,867 68,488 89,303 98m

Foreign exchange 48,108 91,790 122,398 208,651 336,518 601,564 657m

(Percent of GDP)

Assets of commercial banking system 2.9 4.1 3.2 4 4.2 4.7

Loans of commercial banks 1.4 1.6 0.7 0.8 1.1 2

Deposits of commercial banks 2.5 4.1 4.1 5.8 7.9 10.6

DRC Developments in Commercial Banking System 2003 to 2008

Source: IMF and Congolese authorities

*1 US$ = 915 CGF 31/12/2010 treasury.un.org



DRC Peer Review

1 2 3

Micro lending ProCrédit FINCA* Ecobank, Advans and TMB

Foreign exchange Rawbank Ecobank BIAC

Corporate banking Citibank BCDC Standard Bank, Rawbank and BIAC

Retail banking ProCrédit Rawbank, TMB Ecobank, BIAC

Trade finance BCDC Rawbank Ecobank

*FINCA DRC offers two credit products, which include individual and village banking loan products for working capital and business improvement, and two savings products. It has 44,000 clients in DRC, average loan size is just US$337.

Peer Review



They were not permitted to rank their own institution.



PwC 111

The insurance sector in the DRC

Societe Nationale d’Assurance (SONAS) is state-owned and the only insurance company in the DRC.

It is expected that the market will be liberalised but the timing remains unpredictable.

Prior to nationalisation in 1967 there were several private companies.

Insurance is provided in local currency. It is estimated that 80% of SONAS’s portfolio is auto insurance.

Reinsurance providers such as Africa Re and Munich Re are active in the DRC.

The DRC is the only African country to have just one insurance company. There have been problems with non -payment of claims. A new draft insurance law has been prepared but it awaits the approval of Parliament and the President.

Insurance reform has been facilitated by COPIREP (Comite de pilotage de la reforme des enterprises du portfeuille de l’etat). COPIREP is involved in the reform of publicly owned businesses.

Admission by the DRC to CIMA would commence the transition to a more competitive and efficient insurance sector.

SONAS



CIMA Objectives

• create conditions conducive to the healthy and balanced development of insurance companies;

• foster investment in the economy of their country or the region, general technical and mathematical provisions, by means of insurance and reinsurance operations;

• foster the creation of a broader and more integrated market under the most favorable technical conditions for insurance; and

• train managers and technicians in the insurance field.

What is CIMA?

CIMA is the abbreviation for the Inter-African Conference on Insurance Markets in French West Africa. There are 14 member countries: Benin, Burkina Faso, Cameroon, Central African Republic, Comoros, Congo, Côte d’Ivoire, Gabon, Equatorial Guinea, Guinea Bissau, Mali, Niger, Senegal, Chad and Togo.

CIMA appoints the members of the Regional Commission for Insurance Supervision (Commission régionale de contrôle des assurances (CRCA)) and the managers of the General Secretariat.

CIMA interprets the Insurance Code and defines, modifies and augments the insurance code. (see below)

In addition to CRCA, each member state also has a National Insurance Directorate (Direction Nationale des Assurances, (DNA)).

CIMA also maintains a separate International Insurance Institute in Yaoundé, Cameroon, which is responsible for training.

Morocco

Algeria EgyptLibya

MauritaniaMali

Senegal

Guinea

Gha

na

SudanNigerChad

Nigeria

BurkinaFaso

Togo

Ben

in

CôteSierra Leone

Guinea Bissau

Cameroon

Ethiopia

Somalia


Gabon Congo


Uganda

Kenya

AngolaZambia

Malawi

Moz

ambi

que

ZimbabweNamibia

Botswana

SouthAfrica

Lesotho

Swaziland

Liberia

Mauritius

Eritrea

Djibouti

Equatorial Guinea

Gambia

Cape Verde

ComoresMayotte

Mad

agas

car

unisiaT

Rwanda

Burundi

anzaniaT

d’Ivoire

Western Sahara

Future changes in the insurance sector and the impact of CIMA


PwC 113

The CIMA Code

The CIMA Code is an attempt to adapt to socio-cultural constraints and to the requirements of international standards. The Code consists of six books:

Book 1, on policy contracts, regulates relations between the insurer and the insured, and generally protects the interests of the latter;

Book 2, on compulsory insurance, deals in particular with general-liability automobile insurance, for which it sets out rules. Its specificity is that it establishes a scale of compensation for physical injury, capping damage awards to victims and their assigns.

Book 3 deals with insurance companies;

Book 4 covers accounting rules applicable to insurance companies;

Book 5 covers general agents, brokers and other insurance and capitalisation intermediaries;

Book 6 deals with specific insurance agencies.

Source: World Bank

Oversight of insurance agencies prior to the creation of CIMA

Insurance business conducted in each country was subject to the oversight of the State in question.

Provisions for this oversight, which was entrusted to the Minister of Finance, were set out in a legal text dating, in most cases, from the early 1960s.

Indeed, in most countries, the insurance business was regulated in a rudimentary, incomplete and archaic manner. Contract law was based on the French law of July 13, 1930. Regulation of insurance intermediaries was practically non-existent. Solvency requirements, when they existed, were limited solely to investments. The notion of a solvency margin was unknown. Procedures for the safeguarding and rehabilitation of companies were seldom envisaged.

Finally, there were no defined accounting rules applicable to insurance companies.

From a structural standpoint, oversight of the insurance business, which was generally situated within a larger General Directorate e.g. of the Treasury, of Taxation or one including banking, was bereft of material and human resources.

Added to this was the erosion of the authority of national oversight mechanisms, due to all sorts of pressures, and particularly those exerted by companies in difficulty, which were hostile to rehabilitation measures.

PwC 115

Ghana

Banks interviewed:

• Barclays Bank of Ghana

• Ecobank Ghana

• Ghana Commercial Bank

• HFC Bank

• Stanbic Bank Ghana

Ghana



Ghana has a population of 24 million. GDP per capita in 2009 was estimated to be US$1,500. Its estimated GDP growth in 2009 was 4.1% compared to 7.3% in 2008 and 5.7% in 2007. Provisional figures at September 2010 indicated that GDP had increased by 5.9% (Budget Statement 2011).

Although Ghana is well endowed with natural resources it remains heavily dependent on international financial and technical assistance.

GDP growth in 2008 and 2009 was assisted by strong gold and cocoa prices and steady economic management.

The inflation rate in 2009 was estimated to be 19.3%. In 2009 Ghana recorded a budget deficit of 10%.

Ghana is Africa’s second largest gold producer on the continent after South Africa.

Oil was discovered off the Ghanaian coast in 2007 and it is expected to generate an annual average of US$1.2 billion in state revenue for two decades. (The Economist, December 2009). Commercial production is forecast to begin in December 2010.

General background on Ghana Banks interviewed

The five banks interviewed employ 4,974 people and together expected a modest increase to 5,090 by 2010. One bank expects to reduce its employment total while another expects it to remain the same.

The number of branches is expected to grow by 29% over the next three years to 937. ATMs are expected to expand by 51% with the addition of more than 200 new machines to grow to a total of 609 machines by 2013. The participants indicated that their current total of 429,000 debit cards are expected to grow to 1.4 million by 2013.

Three banks provided projections on credit cards which are expected to total around 50,000 by 2013. One bank noted that it was approaching the roll-out of credit cards with caution.

The five banks indicated that they had 2.45 million retail accounts in 2010, expected to grow by 64% to 4.025 million by 2013.

Four banks provided estimates on the number of large corporate accounts at their bank. Together they recorded 36 large accounts (borrowings greater than US$25 million) in 2010 and expect this to grow to 70 large accounts by 2013. (There will be double counting in some of these combined estimates.)

Even though real GDP growth slowed down to 4.1% in 2009, mainly on account of the impact of the world economic crisis, growth is expected to bounce back to about 5.9% in 2010 as the domestic and world economic environment improves. Real GDP growth is projected to reach about 12.3% in 2011, on account of strong performance in the manufacturing and services sectors and the coming on stream of oil production and exports.

Dr. Kwabena Duffuor

Minister of Finance and Economic Planning

18 November 2010

Ghana

PwC 117

The number of middle market customers (with borrowings between US$1.25 million and US$25 million) were estimated by four participants to be 2,760 in 2010 and 4,450 in 2013. One bank accounted for a large amount of this total.

Finally, regarding the percentage of fee income within total income, four respondents ranged from just 20% to 38% in 2010. By 2013, the estimates ranged from 30% to 60%.

Selected remarks from an address by K.B. Amissah-Arthur, Governor, Bank of Ghana, Chartered Institute of Bankers Annual Dinner, 27 November, 2010.

“Minimum capital requirements

In 2007 the Bank of Ghana took steps to increase the minimum capital requirements of banks. All the foreign controlled banks have complied with the new capital base of GH¢60 million (US$41 million)*, substantially improving their solvency. However, we observe that the longer dispensation granted to domestically controlled banks to comply with the minimum requirement has rather placed them at a competitive disadvantage.

Most domestic banks have achieved the first phase of attaining the GH¢25 million (US$17 million)*

before next month’s deadline; however, the transition from GH¢25 million (US$17 million)* to GH¢60 million (US$41 million)* in two years is expected to remain a major challenge. To achieve the next stage of capitalisation therefore, domestic banks have to seriously consider their options and consolidate

their positions through mergers or open up for acquisitions. These will be necessary to enhance their competitiveness and thereby improve their ability to participate in high value transactions.

ICT Platforms for the delivery of financial services

Following the global financial crisis, risk management has taken centre stage in bank regulation and supervision. Different kinds of risk have been identified; market, credit, and operational risks. Operational risk has assumed great significance, due largely to the reliance on Information and Communication Technology, or ICT, platforms for the delivery of financial services. The rapid pace of ICT usage in the banking sector requires continuous knowledge update by both operators and regulators. Indeed, regulators will have to acquire special expertise in IT auditing to ensure appropriate monitoring of ICT-related vulnerabilities in the banking sector. The Bank of Ghana will also insist that stakeholders in the industry improve corporate governance systems, especially the installation of an effective internal control system.

Broadening Financial Sector Regulation

One of the critical lessons that emerged from the global financial crisis is the need to tighten financial regulation. This was underscored by the inherent risks of diversifying into non-bank financial businesses. The argument for additional regulation has centred on the risk exposures and speculative activities as banks broadened their horizon to include

non-core banking activities such as insurance and capital market activities financed with depositors’ funds. In the global financial markets, these trends widened the boundaries of regulation beyond the banking sector and without effective oversight from other financial regulatory bodies, gave rise to what is now termed ‘shadow banking’. As part of restructuring the global architecture therefore, steps are being taken in a number of countries to limit banks from actively engaging in proprietary trading that was not instigated by clients, referred to as the Volcker Rule.

As the financial sector continues to grow in Ghana licensed universal banks have started to branch into areas such as providing bancassurance services or setting up subsidiaries to engage in capital market activities. There is need for effective collaboration between financial sector regulators; that is the Bank of Ghana, the National Insurance Commission and the Securities and Exchange Commission and the National Pensions Regulatory Commission. This approach of cross-sector supervision or consolidated supervision is necessary to ensure that emerging risks emanating from financial sector activities are identified and dealt with. Already, arrangements are underway to institutionalise collaboration between BOG, SEC, NPRC and NIC by ensuring regular interaction, information sharing and, where possible, carrying out joint examinations of common institutions.

* 1US$ = 1.465 GH¢ 31/12/2010 treasury.un.org

Ghana


With the growing number of regional banks in the domestic economy, cooperation with regional supervisors in the exchange of information on cross border financial activities will enhance oversight responsibilities and strengthen our banking systems. Bank of Ghana will pursue and formalise these arrangements and deepen and strengthen the work of the College of Supervisors in the sub-region to facilitate the process. Substantial progress has been made in this area.

Government dominance in the financial sector

In assessing the banking system, we have taken note of the dominance of Government and quasi-Government agencies in the ownership structure of a number of banks, but also as a major source of deposits, some of which are concentrated and contribute to weakening some of the banks.

To enhance competition and efficient operation of the banking sector therefore, we should encourage the broadening of the ownership of the banks by encouraging the offloading of shares on the stock market. However, the withdrawal of such large shareholders from the banking system has to be properly sequenced and managed. The control objective in the banking system must be balanced by objectives such as growth and stability to ensure that the emerging banking system meets the nation’s broad objectives of a stable, sound banking system. In the coming years, Central Bank policy will seek to consolidate the positive developments in the financial system. Tough decisions will be taken, particularly in addressing emerging challenges such as recapitalizing the banks. In exercising its regulatory and supervisory role, the Bank of Ghana will henceforth show least forbearance for non-compliant banks. This will ensure that confidence and trust in our financial system is not shaken.”

Ghana

PwC 119

Bank BackgroundAccess Bank Began operations in 2009. Part of Access Bank Nigeria which opened in Sierra Leone in 2008.

Agricultural Development Bank Government owned medium sized development and commercial bank. Primarily set up to

assist cocoa farmers.

Amalgamated Bank Granted a universal banking license in 2006 having originally been incorporated in 1997.

Bank of Baroda Received license in 2008. Part of Indian Bank group.

Barclays Bank of Ghana Most profitable bank in Ghana until 2007. Mostly corporate but has a strong retail franchise with

83 branches.

BSIC Bank Ghana Banque Sahelo-Saharienne pour l’investissment et le Commerce. Sahelo Saharan Bank. Part of

a regional 28 country bank including North Africa.

CAL Bank Primarily a corporate bank. Branch expansion programme underway. Innovative IT initiatives.

Ecobank Ghana Corporate bank with many cross-border trading clients. Listed on Ghana Stock Exchange.

Fidelity Bank Formerly Fidelity Discount House, became a bank in 2007. Shareholders include Africa Capital,

SSNIT, Agricultural Development Bank and a number of other parties.

First Atlantic Merchant Bank First Atlantic Merchant Bank gained a banking license in 1995.

Ghana Commercial Bank Largest bank in Ghana by assets. Majority owned by Government. Large branch network. Client

base includes many government institutions.

Guaranty Trust Bank Obtained its universal banking license in 2006. Subsidiary of GT Bank, Nigeria. Over 300 staff

and 20 branches. Rolling out e-banking products.

HFC Bank Formerly the Home Finance Company, became a universal bank in 2003. Large shareholders

include SSNIT, Union Bank of Nigeria, Ghana Union Insurance, Ghana Cocoa Board.

Intercontinental Bank Nigerian based bank, entered Ghana in 2006. Acquired Citi Savings and Loans - a microfinance

company.

International Commercial Bank Part of the ICB Financial Group which operates in 14 countries. Focus on SME sector.

Merchant Bank Ghana Operated for over 30 years. Universal bank with both investment and stock broking

subsidiaries. Major shareholder is SSNIT (Social Security and National Insurance Trust).

National Investment Bank Established in 1963 as the first development bank in Ghana. Operates as a universal bank

focussing on development and commercial banking activities.

Prudential Bank Plans to increase its branches from 24 to 30 in 2010.

SG-SSB Part of Société Générale Group. SG acquired control of SSB (Social Security Bank) in 2004.

SSNIT has a 22% shareholding. Listed on the Ghana Stock Exchange. Issues the SIKA credit

card.

Stanbic Bank Ghana South African bank. Fast growing bank that has in the past been linked in the media to a

number of acquisitions including Agricultural Development Bank.

Standard Chartered Bank Ghana Large corporate bank with relatively small retail network. Listed on the Ghana Stock Exchange.

Strong in trade finance.

Trust Bank Major shareholders include SSNIT (Social Security and National Insurance Trust) - Ghana’s

largest pension fund, and Ghana Reinsurance Corporation. Other shareholders include COFIPA.

Unibank Ghana Established in 2001 it has a focus on the SME sector.

United Bank for Africa UBA Ghana has 26 branches and 40 ATMs. Previously called Standard Trust Bank Ghana. UBA

is in 19 African countries.

UT Bank In 2008 UT Financial Services acquired BPI Bank and renamed it UT Bank. Initial focus of UT

Financial Services was the “unbanked” sector. Also now active in the SME sector.

Zenith Bank Nigerian bank active in the retail sector.

Background on banks in Ghana

Ghana


(Thousands of Ghana Cedis) 2009 US$m***

2009 2008 2007 Change As a %

Ghana Commercial Bank Limited* 1,242 1,819,507 1,578,491 1,093,864 241,016 15%

Barclays Bank of Ghana Limited 904 1,324,394 1,275,904 1,090,078 48,490 4%

Standard Chartered Bank Ghana Limited* 899 1,317,695 887,191 730,913 430,504 49%

Ecobank Ghana Limited* 870 1,275,266 793,793 604,862 481,473 61%

Stanbic Bank Ghana Limited 473 693,445 441,744 346,180 251,701 57%

Merchant Bank Ghana Limited 463 677,835 418,582 443,711 259,253 62%

Agricultural Development Bank Limited 434 635,761 529,342 394,208 106,419 20%

Zenith Bank (Ghana) Limited 365 535,130 368,296 140,045 166,834 45%

SG-SSB Bank Limited* 353 517,790 410,692 390,220 107,098 26%

CAL Bank Limited* 294 430,154 314,540 219,799 115,614 37%

Intercontinental Bank Ghana Limited 256 374,510 267,719 85,429 106,791 40%

Fidelity Bank Limited 241 352,631 213,417 142,826 139,215 65%

Amalgamated Bank Limited 221 323,999 261,868 140,467 62,131 24%

Prudential Bank Limited 215 315,394 260,768 229,023 54,626 21%

The Trust Bank Limited 206 301,315 243,601 205,504 57,714 24%

Guaranty Trust Bank (Ghana) Limited 180 263,633 159,820 34,393 103,813 65%

United Bank for Africa (Ghana) Limited 175 256,956 182,134 86,575 74,822 41%

HFC Bank Ghana Limited* 166 243,108 364,677 155,036 (121,569) -33%

First Atlantic Merchant Bank Limited 138 202,532 360,506 159,138 (157,973) -44%

UniBank (Ghana) Limited 128 187,188 90,822 56,915 96,366 106%

International Commercial Bank Limited 113 166,237 95,520 73,881 70,717 74%

UT Bank Limited 66 96,818 37,526 24,005 59,292 158%

Access Bank (Ghana) Limited 58 84,749 - - 84,749 n/a

BSIC (Ghana) Limited 12 17,057 12,231 - 4,826 39%

Bank of Baroda (Ghana) Limited 10 15,148 10,598 - 4,550 43%

National Investment Bank Limited** - - - - - n/a

Total 8,483 12,428,252 9,579,783 6,847,071

*These banks have their shares listed on the Ghana Stock Exchange (GSE) ** Not included in PwC Ghana Banking Survey 2010 Source: PwC Ghana Banking Survey 2010

Ghana has 26 banks at present with several new banks poised to enter the market. The top five banks by asset size are Ghana Commercial Bank, Barclays Bank, Standard Chartered

Bank, Ecobank and Stanbic Bank. With the exception of GCB which is majority government owned, the other four banks are foreign owned.

Banks ranked by asset size

*** 1US$ = 1.465 GH¢ 31/12/2010 treasury.un.org

Ghana

PwC 121

Incorp. Ownership BranchesGhana Commercial Bank Limited* 1953 Local 157

Barclays Bank of Ghana Limited 1917 Foreign 83

Agricultural Development Bank Limited 1965 Local 56

Ecobank Ghana Limited* 1990 Foreign 48

SG-SSB Bank Limited* 1975 Foreign 40

National Investment Bank Limited** 1963 Local 27

United Bank for Africa (Ghana) Limited 2004 Foreign 25

HFC Bank Ghana Limited* 1990 Local 23

Intercontinental Bank Ghana Limited 2006 Foreign 22

Merchant Bank Ghana Limited 1971 Local 22

Stanbic Bank Ghana Limited 1975 Foreign 22

Standard Chartered Bank Ghana Limited* 1896 Foreign 22

Prudential Bank Limited 1993 Local 21

The Trust Bank Limited 1996 Local 20

Amalgamated Bank Limited 1997 Foreign 19

Guaranty Trust Bank (Ghana) Limited 2004 Foreign 18

Fidelity Bank Limited 2006 Local 17

Zenith Bank (Ghana) Limited 2005 Foreign 16

CAL Bank Limited* 1990 Local 14

UniBank (Ghana) Limited 1997 Local 13

International Commercial Bank Limited 1996 Foreign 12

BSIC (Ghana) Limited 2008 Foreign 10

UT Bank Limited 1995 Local 10

First Atlantic Merchant Bank Limited 1994 Local 6

Access Bank (Ghana) Limited 2008 Foreign 2

Bank of Baroda (Ghana) Limited 2007 Foreign 1

Total 726

*These banks have their shares listed on the Ghana Stock Exchange (GSE) ** Not included in PwC Ghana Banking Survey 2010 Source: PwC , Ghana Association of Bankers

Banks ranked by number of branches

The top five banks by branch networks are Ghana Commercial Bank, Barclays Bank, Agricultural Development Bank, Ecobank and SG-SSB.

Within the group of 26 banks, 12 are locally owned and 14 are foreign-owned.

The top five banks account for over 50% of all bank branches while GCB operates just over 20% of all bank branches.

Bank dates of incorporation, ownership and branches

Ghana



Launch of a credit bureau

XDS Data Ghana was the first credit bureau to be launched in Ghana under the Credit Reporting Act 2007, which regulates credit bureaus. The Bank of Ghana is charged with enforcing the Act.

However, one banker pointed out that credit approval remains a challenge because of common names and the use of multiple forms of identification.

(XDS Ghana is a sister company of XDS Nigeria, the first company to receive the Central Bank of Nigeria’s approval to operate there).

Collateral registry established by the Central Bank

The new registry began operations in February 2010. It is being widely used by the universal banks and it is hoped that the registry will help facilitate affordable long term credit for SMEs.

Pressure on level of interest rates

In the second quarter of 2010 interest rates remained extremely high in Ghana. Analysts argued that although the Bank of Ghana cut its prime rate in February 2010 from 18 to 16%, banks in April 2010 were still charging rates of 33%. This had lead to pressure by the Finance Minister to press the banks to reduce interest rates. (See adjacent box).

Increase in minimum capital requirements for banks

In 2007 the Bank of Ghana announced recapitalisation of the banking system.

It required locally owned banks to have GH¢ 25 million (US$17 million)* by 2010 and GH¢ 60 million (US$41 million)* by 2012. Foreign banks were required to increase their capital to GH¢ 60 million (US$41 million)* by the end of 2009.

PwC in its Ghana Banking Survey 2010 reports that 10 of the 14 foreign banks met the requirement at the end of 2009 and that six local banks had already met the requirement in December 2009 ahead of the 2010 deadline.

Increased threat of competition from the telecom sector

Mobile operators such as Zain, MTN and Vodaphone represent a threat in servicing the unbanked market through mobile banking.

* 1US$ = 1.465 GH¢ 31/12/2010 treasury.un.org

Ghana

PwC 123

Ghana urges commercial banks to cut lending ratesGhana has stepped up pressure on commercial banks to lower interest rates, as part of renewed efforts to ease credit to small and medium businesses, Finance Minister Kwabena Duffuor said on Thursday.

Average bank lending rates in Ghana are around 28% per year. That compares with a Bank of Ghana key policy rate that has fallen to 13.5% thanks to a total 500 basis points of rate cuts over the past year.

Duffuor described the high lending rates as unacceptable, blaming high overhead costs incurred by the banks mainly through excessive staff remuneration as they compete with each other.

“It came out clearly that overheads of the banks are going up astronomically and it’s just not right. But they are doing it, hence the decision to sit down with them and look at the situation seriously,” Dufuor told industrialists in Accra.

“The way we have managed our industry for the past years has created a huge problem for us,” he added.

Ghana expects economic growth next year to double to 12.3% as its first oil arrives from the Jubilee offshore field. But the country is still reliant on aid and is trying to promote employment in its local economy. Duffuor said competition had intensified when in the space of just two years, Ghana registered seven banks to operate in the country, leading to the clamour for skilled workers.

He said that after poaching staff and offering them fat salaries, the banks became desperate to bolster their revenues by raising the cost of borrowing. They also pushed consumer loans on clients and saw many loans turn into bad debts.

Duffuor said his office would be holding discussions with the banks to ensure that lending rates go down in line with the government’s economy policy to ease credit for businesses.

Source: Thomson Reuters 26 November, 2010

Ghana


Moderate

Intense

None

Light

Nochange

Minorchange

Significantoperationaland or-gansiationalchange



Response

Com

pet

ition

33%

67%

Moderate

Intense

None

Light

Nochange

Minorchange




Response

40%

Com

pet

ition

20% 20%

20%

Retail banking

Corporate banking

Investment banking

Retail banking

Retail banking was found to be intensely competitive for three banks and moderately competitive for two banks. Four banks indicated that they have made significant core fundamental changes.

Corporate banking

Three banks considered corporate banking to be intensely competitive and two banks have made fundamental change to their strategy. One bank has made only minor changes.

Merchant and investment banking

Although the banks have limited involvement in merchant banking and most of the foreign banks benefit from head office support, two banks recorded intensely competitive while one bank said it was moderately competitive.

Moderate

Intense

None

Light

Nochange

Minorchange




Response

40%

Com

pet

ition

20% 20%

20%



Ghana

PwC 125

Response

Moderate

Intense

None

Light

Nochange

Minorchange




40%

Com

pet

ition

20%

20%

20%


The majority of banks view micro-finance as only moderately competitive and three banks made either minor or no change to strategy.

Strengths

• Strong brands of the foreign banks

• Extensive branch networks

• Strong deposit growth

• Top five banks, Ghana Commercial Bank, Barclays Bank, Standard Chartered Bank, Ecobank and Stanbic account for 50% of the profits.

Weaknesses

• High percentage remain unbanked

• Banks are perceived as expensive

• Shortage of specialised skills.


Ghana


Q Do you have any major concerns about the financial sector in Ghana?

The participants raised the following concerns:

• Too many banks, increased competition

• High level of interest rates and the threat of interest rate cuts

• Regulatory environment is tight

• Quality of local banks’ loan portfolios

• Mis-selling by sales agents

• Ghana should have developed a secondary market for financial instruments but this has not yet occurred

• Corporate governance

• Loan quality of the average borrower

The five participants assigned an average score of 7/10 for Ghana’s level of financial development in relation to other West African countries.

Two banks awarded a score of 8/10 but two banks assigned a score of just 6/10.

The presence of a collateral registry, a credit bureau and a stock market were

Q Can you rate on a scale of 1 to 10 the level of development of the financial services sector in Ghana relative to other markets in West Africa? (10 = maximum development).

The participants strongly believe that more effort is needed to develop the capital market. Bonds, forex and swaps all need to be developed.

One local bank said that the stock market commenced with 100 companies but at the date of this survey only 35 companies are listed.

Two participants stressed that more needed to be done to reduce the size of the unbanked market. One bank noted that only 10% of the market have bank accounts while another bank said there were only three million accounts.

Several participants said there should be more emphasis on electronic delivery of bank services.


Ghana

PwC 127


The participants believe the financial services market in Ghana to be overcrowded. There appears to be a continual flow of new foreign entrants from both the West Africa region and beyond.

The expectation is that development of oil and gas resources will attract more banks in the near term. Only one domestic bank believes the market is not overcrowded.

Yes


80% said Yes

No

Yes


The primary source of competition to participants was identified as the broad based financial institutions or universal banks already active in the market.

One of the domestic banks identified the second tier banks as its primary source of competition. This would include banks such as CAL Bank, IBG (Intercontinental Bank), Fidelity Bank, Agricultural Development Bank (ADB) and SG-SSB.

Q How will the financial services market’s needs of the consumers of 2013 differ from those of today?

The banks believe strongly that the Ghanaian financial consumer will be noticeably different in three years time.

They anticipate a more informed and sophisticated consumer. They expect technology to be more widely used with consumers demanding more efficient electronic delivery of services. Consumers’ demands

are also expected to drive further development of the ATM and branch networks. Internet and mobile banking usage will increase.

The economy is expected to grow as a result of oil and it is hoped that this will assist in the spread of wealth. Delivery of service to the previously unbanked market is expected to expand.

Ghana


0 5 10 15

Solvency

Governance


New domestic entrants



Globalisation

Demographics

Capital markets

Other factors

Liquidity

Fiscal pressures


Technology

Foreign entrants


Based on responses from 5 banksScore

Q What are the major drivers of change in the financial services industry today?

The top three drivers of change in Ghana banking were identified as regulation and reporting, followed by new foreign entrants and the application of new technology.

The impact of the performance of the economy was also considered critical to facilitating change in the banking sector.

Under the “other factors” category, respondents cited the entrance of new competitors and specifically the new capital requirements (which could have been included within regulation).

Ghana

PwC 129

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0

CorruptionComplex instruments Profit performanceTax legislationRetail sales practicesOvercapacity

Low-cost alternatives/competitors

Commodity pricesVolatility interest ratesTransparency of fees and commissionsMarket volatilityIFRS reporting and IFRS amendmentsCurrency fluctuationsCapital managementValuation and pricing of financial instrumentsPayment systemsLitigation risk Customer acquisition/growth Building a customer baseBack office/operational/system quality

Level of crimeImpact of the latest phase of the financial crisis

Cost reductionBusiness continuation

Appropriate staff incentive schemesRetaining existing customers

Data security and privacyAvailability of key skills

Banking for the previously un-bankedInternet and data security

Addressing compliance and regulationImproving revenue growth

Service qualityRisk management

MarginsCredit risk management

Brand awareness

More pressing issues

2.0 1.5


Six issues shared the top position for the most pressing issue in Ghanaian banking. Both credit risk management and risk management in general were included alongside margins and revenue growth, brand awareness and service quality.

The impact of the financial crisis was recorded as neutral while corruption was recorded at the bottom of the list.

Regulation, the unbanked market, internet security and availability of key skills were all considered to be pressing and fell to the right of the axis.

Ghana


Ghana to Allow Cedi Gain to Curb Prices, Standard Chartered Says

Ghana’s Central Bank will allow the country’s currency, the cedi, to strengthen in the next year in order to slow inflation, according to Standard Chartered Plc.

“Ghana will become increasingly reliant on a strong exchange rate to keep inflation under control,” Razia Khan, the London-based head of research for Africa at the lender, wrote in an e-mailed note to clients sent today. “We believe the authorities will accommodate moderate strengthening of the cedi.”

The West African nation’s inflation rate fell from a five-year high of 20.7 percent in June 2009 to 9.38% in October after the cedi, which weakened 15% against the U.S. currency in the first half of 2009, was little changed in the past 12 months.

The slowdown in price growth enabled the Central Bank to cut the benchmark interest rate by 5 percentage points from November 2009 to July. The rate was left at 13.5% at the Bank’s September meeting.

Source: Bloomberg, 1 December 2010

The Ghanaian Cedis

Ghana

PwC 131

Q Will there be an entrance of the new financial services players into Ghana in the next three years?

New financial services entrants

100%believe there will

be more new entrants

Based on responses from five banks

Q What is your institution’s primary method of growth in Ghana?

Organic growth

Acquisition


80% chose organic growth

The participants unanimously agree that more foreign banks will enter the market over the next three years.

Citibank is expected to open a retail banking franchise in the near term. Although the market was considered overbanked and overcrowded, the participants are expecting more new entrants. One of the incentives mentioned was the discovery of oil and gas and its possible impact on the economy. Banks mentioned as possible entrants by participants included South Africa’s First National Bank and Nedbank, Rabobank which showed interest in the Agricultural Development Bank in the past and HSBC. Media reports from September 2007 indicate that the Board and Management of the Agricultural Development Bank (ADB) rejected offers made by both Rabobank and Standard Bank. Bank of Ghana has a 48% holding in ADB.

Four banks indicated that they would expand through organic growth while one bank said that acquisition would be its chosen method.

Ghana


No

Yes



Increase slightly


Intensity of Regulation

No

Yes


100% plan an increase


The majority of participants support the concept of deposit insurance. Only one domestic bank dissented. Three participants believe it could happen in the next three years, while one believed it would take 10 years and another even longer. It was recognised that there was an on-going discussion on the merits of deposit insurance.

Both Nigeria and Kenya have deposit schemes. Debates on who would administer such a scheme (the Bank of Ghana or a new Insurance Corporation) whether it would cover principal and interest, foreign deposits alongside domestic deposits, and if it should be voluntary or mandatory are examples of issues that need to be resolved.


The participants anticipate a substantial increase in regulatory requirements going forward over the next three years. As noted earlier, regulation and reporting was seen as the most important driver of change in the industry.

As a result of the increasingly demanding regulatory environment, the participants unanimously agreed that they will need to increase their level of compliance spending.

Ghana

PwC 133


No

Yes

Risk management systems robust


Q Are significant investment and business process changes envisaged for risk management and compliance purpose over the next 12 months?


The majority of participants do not believe that financial service organisations have sufficiently robust risk management systems. Non-performing loans were considered to be high.

The PwC Ghana Banking Survey 2010 found that the quality of bank loans and advances deteriorated during 2009. The cumulative impairment allowance to gross loans fell to 8.2% in 2009. Some of the reasons cited for this decline included the increased cost of funds, currency depreciation and inflation. Some banks have loan loss ratios exceeding 10%.

The consensus view of participants was that there was significant room for improvement in risk management.

The international banks were generally considered to be more active in this area, and one foreign bank intimated that the regulator could do more on market risk and exchange risk.

The participants accepted that more work was needed on credit risk

All participants indicated that they planned significant business process changes for risk management and compliance over the next 12 months.

Four out of five banks have performed liquidity stress testing. The fifth bank said that the process was being formalised at the time of the interview.

Ghana


Q Does your organisation comply with Basel II?

Q How would you rate your organisation’s level of preparedness for changes resulting from Basel II?

The Bank of Ghana has indicated that it will meet the Basel II framework ahead of its 2012 deadline.

Four participants answered this question. Two said they were already compliant, one bank said it was in preparation while the remaining one said it was yet to meet the requirements.

The Head of Banking Supervision at the Bank of Ghana, Mr Oko-Sai said in June 2010 that the committee tasked to implement Basel II would soon finalise its decisions on the 2012 deadline.

Fourbanksansweredthisquestion. Two banks scored 3 out of 5 (neutral) and two banks scored 4 out of 5 (prepared) across the following criteria, strategic issues, credit risk management, operational risk management, regulatory review and marketdiscipline. Asaresulttheoverall average regarding the level of preparedness for Basel II was recorded as 3.5 out of 5.

Ghana

PwC 135

0 5 10 15 20 25

Internal audit

Administration

Audit committee

Information technology

Financial reporting


Executive directors

Compliance

Capital management

Risk management

Score

Q In which areas are you currently experiencing the greatest shortage of skills?

The greatest shortages of skills are associated with risk management.

This need is followed closely by capital management, compliance and executive directors.

Despite earlier comments regarding the shortage of IT skills, this factor was placed in seventh position.

Ghana


Q How confident are you that you have a full understanding of the impact of IFRS (International Financial Reporting Standards) on your organisation?

Somewhat confident

Very confident

Full understanding of the impact of IFRS

The banks are confident that they have a full understanding of the impact of IFRS. The Bank of Ghana directed all banks to adopt the IFRS framework in the preparation of their accounts for the year ended 31 December 2008.

All banks stated that they had prepared their statements in accordance with the framework. However, regulatory reporting to the Bank of Ghana continues to be prepared under Ghana GAAP and there is no fixed date by which reporting will be required to be in accordance with IFRS.

0 5 10 15 20 25

Liquidity/ALM

Regulatory risk

Credit risk

Operational risk

Market risk

Score

A more detailed question on risk management skills placed market risk at the top of the list.

In June 2010 the Governor of the Bank of Ghana Mr Kwesi Amissah-Arthur cautioned Ghanaian banks to increase their in-house capacity for risk analysis in the emerging oil and gas sectors.

Ghana

PwC 137

No

Yes

Envisage IT platform changes Q Do you envisage any IT platform changes in the short term?

The majority of banks envisage IT platform changes in the short term.

One area that continues to represent a challenge to the Ghanaian banks is the Interbank Payment and Settlement system (GhIPSS) and the electronic payments system known as e-zwich. Although introduced two years ago, the new technology has suffered implementation problems. There has been a slow adoption rate of e-zwich cards and merchants have been reluctant to install e-zwich point of sale terminals.


No

Yes

Currently have a CRM systemMost respondents are yet to set up a CRM system.

Two of the banks, one foreign and one domestic, said that a CRM system was one year away. Another bank indicated it would take two years.

A local bank said it had operated a CRM system for more than five years.

Ghana


Q Identify three major technology weaknesses in the financial services industry?


The following technology weaknesses were identified:

• Lack of IT skill sets in the industry, limited understanding of banking software, IT personnel always moving between banks, IT knowledge gap.

• Banks are buying ‘off the shelf’ banking software so everyone uses the same software.

• Weak networks, ATMs frequently crashing.

• Mobile banking is taking off in Kenya and East Africa but Ghana has been slow to adopt.

• Despite the introduction of e-zwich, the different banks’ systems are not communicating effectively with each other.

The majority of respondents indicated that they are complying with internationally recognised privacy standards. One bank said that this was underway.

The respondents also suggested that they adhered to PCI and DSS requirements although one bank acknowledged that it did not know if these were being met.

Q Have you implemented a programme to ensure ongoing compliance with Payment Card Industry (PCI) and Data Security Standard (DSS) requirements?

Ghana

PwC 139

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree

Neither

Agree

Disagree







Our organisation is already structured the way we want

Two respondents believe that they will be actively involved in M&A over the next three years.

Three banks expect to be involved in joint ventures.

One domestic bank thinks there may be a future interest in a strategic foreign investor.

There is no indication that banks will be interested in disinvestments.

Only one participant suggested it may seek a strategic domestic partner over the next three years.

Most participants are satisfied with their current structures.

Ghana


0

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Q Can you prioritise your strategies for achieving growth over the next three years? Please rank the top three.

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Score

Q On which strategic areas does your organisation spend more time? Please rank the top three in order of most time spent.

Three strategies stand out as a means of achieving future growth.

They are:

• client segmentation;

• new products and services; and

• new channels.

Organic growth and foreign partnership were assigned lower scores.

The most demanding strategic area for the banks was the acquisition and retention of key staff.

This was followed by three equally important areas;

• acquisition of new clients

• cost reduction and

• improving profitability.

Ghana

PwC 141

Q What is the level of attractiveness for a foreign financial institution to move into Ghana (on a scale of 1 to 5 where 5 is the maximum level of attractiveness)?

Q What is the level of commitment of your parent institution in Ghana when compared to similar operations in other parts of Africa (on a scale of 1 to 10 where 10 is the maximum commitment)?


0 10 20 30 40 50 60 70 80 90 1000

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0

Ghana is a very attractive location for foreign financial institutions. Participants scored it 4.4 out of 5.

Two banks awarded the maximum score of five.

The three foreign owned banks said that the commitment of their parent institution to the Ghanaian market was 10 out of 10.

Overall annual growth was projected to be higher in 2010 than in 2013. Four banks projected revenue growth in both 2010 and 2013 of 25% or above.

Two banks predicted lower growth in 2013 versus 2010, this included a reduction from 15% to 10% and from 40% to 20%.

Ghana


Q Over the last year has your organisation’s profits in terms of capital allocated in each area been?

Loss <0%Marginally profitable

0 -10%



30% or more

Retail banking RR R RR

Home loans R

Vehicle financing R

Corporate banking R RRR R

Merchant & investment banking

R

Treasury R RRRR

Internet banking R

Micro-lendingR R

Commercial property

R

Brokerage R

Trade finance RR R

Unit trusts R

The following chart provides a picture of the participants’ profitability in terms of capital allocated across a series of different business lines. It can be viewed in association with the table on the following page from PwC’s Ghana Banking 2010 report which records return on equity for individual banks over a three year period.

Retail banking, although very profitablefortwobankswitha20% -30% return on capital, also records a

loss for two banks.

Corporate banking is profitable for three banks and very profitable for one bank.

Treasury is very profitable for four banks.

Two banks considered trade finance profitable and one bank said it was very profitable.

Ghana

PwC 143

Rank 2009

Rank 2008

Rank 2007

Standard Chartered Bank Ghana Limited* 36.00% 1 37% 5 37% 4

The Trust Bank Limited 27.50% 2 33% 6 37% 5

Ecobank Ghana Limited* 26.40% 3 42% 3 38% 3

Amalgamated Bank Limited 24.10% 4 29% 8 11% 16

SG-SSB Bank Limited* 17.80% 5 223% 15 20% 8

HFC Bank Ghana Limited* 17.20% 6 21% 16 16% 11

Zenith Bank (Ghana) Limited 16.90% 7 25% 12 11% 15

CAL Bank Limited* 15.60% 8 23% 13 16% 12

Intercontinental Bank Ghana Limited 14.30% 9 46% 1 0% 22

Prudential Bank Limited 13.80% 10 28% 9 24% 7

Guaranty Trust Bank (Ghana) Limited 13.80% 11 38% 4 -26% 24

UniBank (Ghana) Limited 12.70% 12 8% 19 4% 18

Agricultural Development Bank Limited 10.40% 13 14% 18 12% 14

Bank of Baroda (Ghana) Limited 10.40% 14 5% 20 0% 20

Merchant Bank Ghana Limited 10.00% 15 43% 2 0% 19

Ghana Commercial Bank Limited* 9.10% 16 18.2% 17 19% 9

Fidelity Bank Limited 6.40% 17 25% 11 6% 17

Stanbic Bank Ghana Limited 1.20% 18 32% 7 42% 2

United Bank for Africa (Ghana) Limited 1.10% 19 -82% 24 -25% 23

International Commercial Bank Limited 0.70% 20 22% 14 13% 13

Access Bank (Ghana) Limited 0.60% 21 N/A N/A N/A N/A

First Atlantic Merchant Bank Limited -9.50% 22 27% 10 18% 10

Barclays Bank of Ghana Limited -11.20% 23 -6% 21 32% 6

UT Bank Limited -21.10% 24 -41% 23 79% 1

BSIC (Ghana) Limited -122.90% 25 -21% 22 0% 20

National Investment Bank Limited** N/A N/A N/A N/A N/A N/A

Industry 12% N/A 22% N/A 22% N/A

Industry Return on Equity reduced from 22% in 2008 to 12.1% in 2009

*These banks have their shares listed on the Ghana Stock Exchange (GSE) ** Not included in PwC Ghana Banking Survey 2010 Source: PwC Ghana Banking Survey 2010

Ghana


Q Is your organisation’s operating model clearly documented and defined?

Q What will the role of branches and outlets be in 2013?

Four of the participants noted that their operating model was clearly documented. Only one domestic bank held a different view and said its plan needed more work.

The typical Ghanaian bank branch has a staff of 12 people and offers a full service. One foreign-owned bank said all loans were approved at its head office location.

Ghana

PwC 145

Ghana Peer Review

1 2 3Corporate banking Standard Chartered Ecobank and Barclays

Retail banking Barclays Ghana Commercial Bank Ecobank

Trade finance Standard Chartered Barclays Ecobank

Micro-finance Ecobank Barclays, CAL Bank, UT

Bank and ProCrédit

Peer Review

It is clear from the Peer Review that several foreign owned banks feature strongly. They include Barclays Bank, Standard Chartered Bank and Ecobank.

Ghana Commercial Bank was placed in second position for retail banking while several second tier banks and institutions (CAL Bank, UT Bank and ProCrédit) are mentioned in the context of micro-finance.





Ghana


PwC 147

Banks interviewed:

• Citibank Nigeria*

• Standard Chartered Bank Nigeria*

• Standard Bank IBTC*

• Ecobank*

• HSBC (Representative office)

* These banks are listed on the local stock

market

The Nigerian Banking Review differs from the other countries included in this report. Nigeria’s analysis is based on the inputs of the five banks listed above all of which are foreign-owned. This approach was undertaken because of the dramatic change occuring amongst the local banks.

Nigeria

Nigeria



Nigeria has an estimated population of 152 million. The financial sector was badly affected by the global financial crisis and the drop in the price of oil at the time.

GDP growth was 6.45% in 2007, 6% in 2008, 6.7% in 2009. In the first quarter of 2010 it was recorded at 7.8%. The growth in 2010 was driven mainly by the non-oil sector, particularly agriculture, which constituted 35.9% of GDP and grew by 5.5 percentage points in the first quarter of 2010.

Inflation averaged 12.0 % between the first quarters of 2008 and 2010. The reason for this relatively high rate resulted from price increases in food, fuel and housing costs.

One of the major impediments to economic growth is the lack of infrastructure.

General background on Nigeria

“Looking at the reforms in the financial industry and the policy initiatives of the Federal Government, we are inclined to believe that the financial market and the economy will enter a phase of real growth in 2011”

FSDH Securities Limited

Public-private partnerships are considered as one possible mechanism to improve the road network and electricity supply.

Nigeria’s crude oil output declined in the first half of 2009, with an estimated average production of 1.76 million barrels per day (mbd), but increased to 1.94 and 1.99 mbd in the fourth quarter of 2009 and first quarter of 2010, respectively. The improved output was attributable to improvements in the Niger Delta Region, following the Federal Government’s amnesty programme.

Source: Central Bank of Nigeria (CBN).

Nigeria

PwC 149

Background on Nigerian financial sector

In March 2010, Nigeria had a formal financial sector composed of the following institutions:

• 24 deposit money banks;

• 5 discount houses;

• 941 microfinance banks;

• 107 finance companies;

• 101 primary mortgage institutions;

• 13 Pension Fund Administrators;

• 5 Pension Fund Custodians;

• 1,621 bureaux de change operators;

• 690 securities brokerage firms;

• 5 development finance institutions; and

• 73 insurance companies.

In addition an informal sector exists made up of a range of small institutions that frequently lack transparency, have a very low capital base and offer limited services.

The informal sector includes financial cooperatives, self-help groups, the Rotatory Savings and Credit Associations (ROSCAS), money lenders and credit unions.

Source: CBN

Recent history of the banking sector

In 2005, Nigeria successfully consolidated its banking sector. Eighty-nine banks were consolidated to 24 banks.

The banks then experienced rapid growth in a low interest rate environment and this resulted in a stock market bubble. The banks’ rapid expansion also lead to an explosion in non-performing loans and turned the spotlight towards weak corporate governance and risk management.

Former Central Bank Governor Charles Soludo, who had been complimented for the successful consolidation in the sector, was subsequently criticised for inadequate supervision and regulation of the industry. He was replaced by the former CEO of First Bank, Sanusi Lamido Sanusi.

Governor Sanusi’s appointment in 2009 coincided with the full negative impact of the global financial and economic crisis on Nigeria and its financial sector.

Governor Sanusi has highlighted poor governance and a lax risk management culture that permeated the sector and caused severe distress to a number of Nigerian banks.

The Governor has now made radical changes to the industry and these are outlined in the following pages.

On the next page are the reasons given by the Central Bank for the financial sector crisis in Nigeria.

Nigeria


Reasons for the financial sector crisis in Nigeria

Mr Sanusi took over as Governor of the Central Bank in June 2009. Following a period of rapid expansion many of the country’s banks were overwhelmed by bad debt and malpractice.

Central Bank audits identified a number of banks that were in precarious financial positions.

In published documents Governor Sanusi has identified nine internal factors that exacerbated the financial sector crisis in Nigeria post bank consolidation.

They are as follows:

1. Capital inflows and macro-economic instability

Banking system liquidity closely matched oil price volatility. Increases in bank deposits allowed lending to expand. In the period 2004 to 2009, banking assets grew on average by 76% per annum.

Because the economy could not absorb the excess liquidity from oil revenues, funds flowed into the capital markets. Market capitalisation of the NSE increased 5.3 times between 2004 and 2007. The value of bank stocks increased nine times in the same period.

2. Poor corporate governance

The Central Bank concluded that governance failed because boards ignored the unethical practices of executive management.

3. Lack of investor and consumer sophistication

Many people made investments with little understanding of the inherent risks. Consumers were subjected to bad advice, poor service and hidden fees.

4. Inadequate disclosure and lack of transparency

The Central Bank has stated that returns were often inaccurate, incomplete and late. There is also evidence that banks colluded with other banks to enhance financial positions.

5. Critical gaps in regulatory framework and regulations

The Financial Services Regulatory Co-ordinating Committee (FSRCC), the co-ordinating body for financial regulators, did not meet for two years. The excess capital in the banks allowed malpractice and regulatory arbitrage to go unchecked. There was no framework for consolidated bank examination.

6. Uneven supervision and enforcement

The Governor has stated that the Supervision Department at the Central Bank was not structured properly to supervise or enforce regulations.

There was no internal accountability for:

• risk management;

• corporate governance;

• fraud;

• money laundering;

• cross regulatory co-ordination;

• enforcement; or

• legal prosecution.

Banks frequently ignored the examiners’ recommendations.

7. Internal weaknesses at the Central Bank

The internal reporting systems at the Central Bank were inadequate and dysfunctional. Corporate governance was described as laissez-faire.

Nigeria

PwC 151

8. Weaknesses in the broader business environment

The primitive business infrastructure includes a long and expensive legal process, a lack of reliable credit agencies and an inability to conduct effective credit assessments.

To prevent a systemic bank crisis the Central Bank removed the CEOs of the unstable banks and injected Tier II capital of N620 billion (US$4 billion)into these banks.

9. Demise of the universal banking model

The Central Bank has terminated the universal banking model. It concluded that the excess of capital encouraged banks to develop financial supermarkets at the expense of core banking principles. The universal model had been used by the banks for speculative and proprietary trading.

The new model prevents investments in non-bank subsidiaries and banks are required to divest such investments to holding companies.

There are now three types of banks in Nigeria:

• Commercial banks (broken into three classes – regional, national and international);

• Merchant banks; and

• Specialised banks: Micro-finance, mortgage, non-interest (regional and national) and development finance institutions.

On the following page are the details of the initiatives carried out to date by the Central Bank alongside its on-going reform programme.

Nigeria


The Central Bank’s Reform Programme

The CBN has set out a four pillar reform programme for the banking sector. The pillars are as follows;

• enhancing the quality of the banks;

• establishing financial stability;

• enhancing a healthy financial sector evolution; and

• ensuring the financial sector contributes to the real economy.

Bank Quality

This programme includes implementation of risk based supervision, regulatory reform, consumer protection and transformation of the CBN itself.

Financial Stability

The reform plan recognises that the Nigerian economy has under performed. It cites two fundamental problems, volatility and instability due to an over reliance on oil and poor oil revenue management and secondly an inability in the non-oil economy to successfully absorb investment and debt. The Central Bank will therefore strengthen its Financial Stability Committee and create a new monetary and macro-prudential framework.

Associated with this motive is the need to develop Nigeria’s Capital Markets. The CBN notes that there is insufficient long term lending which reduces long term investment and growth.

A priority is therefore to improve capital market depth and accessibility. Initiatives include developing the corporate bond market, venture capital, micro-finance, and establishing a private equity environment with government seed capital.

Financial Sector architecture

The Central Bank seeks to foster a healthy financial sector by supporting a framework of credit bureaux, a registrar, AMCON (to handle the non-performing loan problem) and a greater diversity in the types of banks in the marketplace.

Financial Sector’s contribution to the economy

The Central Bank contends that the banks did not contribute adequately to the development and success of the broader economy. Proactive actions by government in the past to establish development finance institutions for housing, trade finance and urban development have failed to perform satisfactorily.

The Central Bank envisages the financial sector playing a complimentary role in development finance, foreign direct investment, venture capital and public private partnerships (PPP).

Initiatives by the Central Bank

• Establishment of the Asset Management Corporation of Nigeria (AMCON);

• Establishment of the Financial Stability Committee (FSC);

• Review of supervisory procedures/methodology;

• Adoption of a common year-end for banks;

• Restructuring of the Financial Sector Surveillance Directorate;

• Renewed collaboration with other regulators;

• Review of the Corporate Governance Code for Banks;

• Establishment of a N200 billion (US$1.32 billion)* Commercial Agriculture Credit Scheme (CACS) by the CBN, in collaboration with the Federal Ministry of Agriculture and Water Resources;

• Establishment of a N300 billion (US$1.97 billion)* Power Development Fund in support of Small and Medium Enterprises (SMEs);

• Establishment of a N200 billion (US$1.32 billion)* Small and Medium Enterprises Credit Guarantee Scheme; and

• Establishment of a N200 billion (US$1.32 billion)* refinancing scheme and restructuring of the manufacturing sector loan portfolio.

Source: Central Bank* 1US$ = N152.07 31/12/2010 Exchange-rates.org

Nigeria

PwC 153

“AMCON is going to assist the economy in several ways not just by the infusion of liquidity. It will reduce the risk in the industry by mopping up toxic assets. The lower the level of risk the higher the level of confidence the general public will have in the sector.

The second way is by taking away the toxic assets from the rescued banks, creating an opportunity for new investors.”

Phillip Oduoza CEO UBA 1 January 2011.

0

2,000

4,000

6,000

8,000(US$ 65.76 b)

10,000(US$ 65.76 b)

2010

Q1

2009

Q4

2009

Q3

2009

Q2

2009

Q1

2008

Q4

2008

Q3

2008

Q2

2008

Q1

2007

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2007

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2007

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Source: Central Bank of Nigeria

Non-Performing Loans

Performing Loans

The rise of non-performing loans and the creation of AMCON (Asset Management Corporation of Nigeria)

AMCON has been established by the Central Bank in conjunction with the Ministry of Finance. Its role is to liberate the banks from the overwhelming burden of their toxic assets.

As the chart below demonstrates non-performing loans have been growing rapidly since the end of 2008.

At the end of 2010 AMCON took over N2.43 trillion (US$15.98 billion)* of toxic assets. These assets have been exchanged for consideration bonds. The plan is that the AMCON-issued bonds will later be swapped for FGN (Federal Government) guaranteed bonds to be issued by AMCON.

In total, 21 banks have sold toxic assets to AMCON. This figure includes nine of the 10 rescued banks in 2008 and 12 other indigenous banks that were not subject to the Central Bank rescue plan.

It has been reported that the 12 non rescued indigenous banks have toxic assets of N581 billion (US$ 3.82 billion)*.

* 1US$ = N152.07 31/12/2010 Exchange-rates.org

AMCON had planned to replace N1.03 trillion (US$6.77 billion)* worth of consideration bonds issued to 21 lenders in December 2010 with fully tradeable bonds by 31 January 2011, but Chief Executive Mustapha Chike-Obi said the process was taking longer thanexpected. “Wehavehadtodelay the bond issue because there are a lot of procedural issues. We are seeking some waivers from the Ministry of Finance... so we have pushed it back to February 28,” he told Reuters in a telephone interview. ButhesaidAMCON’stimetable -- absorbing bad loans by the end of March 2011 and resolving the banking crisis by the end of June 2011 was still on track.

Nigeria


Name of bank Former names Incorp. date

1 Access Bank Nigeria Plc Access Bank, Capital Bank Int., Marina Bank, 01/17/1990

2 Afribank Nigeria Plc Afribank Nigeria Plc, AfriMerchant Bank 01/03/2006

3 Citibank Nigeria Limited Nigerian International Bank Ltd 10/08/2004

4 Diamond Bank Nigeria Plc Diamond Bank, Lion Bank 12/31/1990

5 Ecobank Nigeria Plc Ecobank Ltd 04/24/1989

6 Equitorial Trust Bank Plc Equitorial Trust Bank Ltd, Devcom Bank Ltd 01/02/2006

7 Fidelity Bank Plc Fidelity Bank, FSB, Manny Bank 01/02/2006

8 First Bank of Nigeria Plc First Bank of Nigeria Plc, FBN Merchant, MBC 01/29/1894

9 First City Monument Bank Plc FCMB, Co-operative Dev, NAMBL, Midas 11/11/1983

10 First Inland Bank Plc Inland, First Atlantic, IMB, NUB 01/02/2006

11 Guaranty Trust Bank Plc Guaranty Trust Bank Plc 01/17/1990

12 Intercontinental Bank plc Intercontinental, Global, Equity and Gateway Banks 10/02/1989

13 Oceanic Bank International Nigeria Plc Oceanic Bank Plc, International Trust Bank 03/20/2000

14 Platinum Habib Bank Plc Platinum Bank, Habib Nigeria Bank 05/02/2001

15 Skye Bank Plc Prudent, Bond, Coop, Reliance and EIB Banks 01/03/2006

16 Spring Bank Plc Guardian Express, Citizens, Fountain Trust, Omega 01/03/2006

17 Stanbic - IBTC Bank Plc IBTC, Regent, Chartered (2005), Stanbic (2007) 01/02/2006

18 Standard Chartered Bank Nigeria Plc Standard Chartered Bank 06/09/1999

19 Sterling Bank Plc Magnum Trust Bank Ltd, NBM Bank Ltd, NAL Bank 11/25/1960

20 Union Bank of Nigeria Plc Union, Union Merchant, Universal Trust Banks 01/02/2006

21 United Bank For Africa Plc Standard Trust, UBA, CTB 01/02/2006

22 Unity Bank Plc New Africa, TCB, CentrePoint, BON, NNB, Intercity, Pa 01/02/2006

23 Wema Bank Plc Wema Bank Plc, National Bank Plc 01/17/1945

24 Zenith Bank Plc Zenith Bank Plc 06/20/1990


Universal banks in Nigeria

Understanding the current make-up of the banking sector

There are currrently 24 universal banks in Nigeria as demonstrated in the table below. The table on the next page records banks that required a rescue package.

Nigeria

PwC 155

Rescued banks• Afribank

• Bank PHB

• Finbank

• Intercontinental Bank

• Oceanic Bank

• Spring Bank (acquired by Bank PHB)

• Union Bank 11,500

12,000

12,500

13,000

13,500

14,000

14,500

15,000

15,500

16,000

2010

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2009

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2009

Q3

2009

Q2

2009

Q1

2008

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2008

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Total Assets of 24 Banks at April 2010

General

Finance & Real Estate

Transport & Communication

General Commerce

Public Utilities

Real Estate & Construction

Manufacturing

Mining & Quarrying

Agriculture

Sectoral Distribution of Credits 2009


The following charts highlight the stagnation in asset growth for the Nigerian banks from the middle of 2008 to 2010 and the sectoral distribution of lending in 2009.

The total assets of the 24 deposit taking banks at April 2010 were N15,056 billion (US$ 99 billion)*.

One of the criticisms of the banks has been the lack of support for the development of infrastructure and the provision of long term financing.

The low level of commitment to manufacturing and public utilities is apparent in the second chart.

Asset stagnation in the banks


Nigeria


Banks in Nigeria ranked by equity and deposits in 2009

Equity DepositsTotal assets plus contingents

Zenith Bank 1 3 2

First Bank of Nigeria 2 1 1

United Bank For Africa 3 2 3

Guaranty Trust Bank 4 4 4

Access Bank Nigeria 5 7 5

Fidelity Bank 6 8 8

First City Monument Bank 7 10 9

Diamond Bank Nigeria 8 5 7

Skye Bank 9 6 6

Stanbic - IBTC Bank 10 13 11

Ecobank 11 9 10

Citibank Nigeria 12 15 14

Standard Chartered Bank 13 14 13

Finbank na 12 15

Unity Bank na 11 12

Source: Published audited financial statements of banks at 31 December 2009 as shown in published Fidelity Bank Annual Report 2009

2010 2013 % Change

Number of bank branches 432 590 36.6

Number of bank employees 7380 8100 9.8

Based on responses from the five participants

A Central Bank of Nigeria directive requires all offsite ATMs (that is those not located at a bank branch) to be operated by independent ATM Deployers (IADs).One example of an IAD is ATM Consortium (ATMC) which has 14 member banks.

The member banks are Afribank, Diamond Bank, Finbank, First Bank, Fidelity Bank, UBA, Union Bank, Unity Bank, Bank PHB, Wema Bank, Ecobank, GT Bank, Oceanic Bank and Sterling Bank (Source: www.ATM-c.com, February 2011).

It is estimated that there are approximately 8,500 ATMs in Nigeria.

Nigeria

PwC 157

• New banking guidelines. With the appointment of Sanusi Limido Sanusi as Governor of the Central Bank there has been a “back to basics” approach.

• Huge effort made to recapitalise the distressed banks and prepare them for sale.

• Creation of AMCON (Asset Management Corporation of Nigeria).

• The future buyback plans.

Q What are the most important changes/developments taking place in your financial services market?

• The true health and status of the banks’ loan portfolios.

• The strength and ability of human resources at the Central Bank to oversee the industry.

• Unconvinced that the Central Bank will be able to sell all the failed banks.

• Central Bank Governor has tended to over-state his brief and comment more broadly than needed.

• Financial media is weak in Nigeria.

• The stability of the Nigerian stock market (see adjacent box).

Q Do you have any major concerns about the financial sector in Nigeria?

The CEOs of the following banks were charged with financial crimes:

• Oceanic Bank

• Intercontinental Bank

• Union Bank

• Afribank

• Finbank

(The Nigerian capital market was severely impacted by the global financial crisis. As portfolio investors withdrew their capital, the market capitalisation of the Nigeria Stock Exchange fell from N13 trillion (US$85 billion)* in September 2008 to N7.2 trillion (US$47 billion)* by March 2009.)


Nigeria



Strengths

• Global network.

• Strong local reputation.

• Governance processes.

• Innovative products.

• Strong product suite.

• Well-trained, capable staff.

• Robust risk management.

Weaknesses

• Small scale of many banks.

• Struggle to adapt to local market environment.

• Foreign banks not linked in to the same degree as local banks.

• Limited number of good quality clients means all banks chasing the same targets.

• Overall banking system has a human resource challenge. Inadequate number of skilled people in the system.

• Relatively small capital base of some foreign banks.

Can you rate on a scale of 1 to 10 the level of development of the financial services sector in Nigeria relative to other markets in West Africa? (10 = maximum development.)

The foreign banks recognised that Nigeria is the most developed financial services market in West Africa. They also acknowledge that the size and scope of Nigeria positions it ahead of other West African markets.

The average score on development was 8 out of 10.

Although much smaller in scale and development, one foreign bank suggested Ghana should be in second place.

Nigeria

PwC 159


The participants highlighted the following areas for development.

• Central bank supervision failed in the financial crisis and it is important that this is radically improved in the future at both at the Central Bank and in the individual banks.

• A major improvement is required in the country’s infrastructure including electricity supply.

• The financial architecture needs significant investment including cash processing, ATM networks and the development of an affective credit bureau.

• Developments in the capital market.One bank believed this would be helped by reducing taxes on corporate banks. Deposits are placed for very short periods and the long term market needs to be developed.

• Development of an infrastructure asset class through PPP (Public Private Partnerships). One participant argued that a significant amount of capital was trapped in pension funds.

“While few policy changes are anticipated at the outset, this raises the possibility of a more interventionist regulator, looking to boost lending to strategic sectors such as power and industry, and to fulfil broader financial inclusion aims.”

Razia Khan, Regional Head of Research, Africa, at Standard Chartered Bank, UK

Nigeria


Moderate

Intense

None

Light

Nochange

Minorchange




Response

25%

25%

Com

pet

ition

25%

25%

Moderate

Intense

None

Light

Nochange

Minorchange




Response

75% 25%

Com

pet

ition

Retail bankingRetail banking

Retail banking is considered to be intensely competitive and all the participants have made significant or fundamental changes to their strategy in the last year.

Corporate banking

In similarity to retail banking, corporate banking was also viewed as intensely competitive. Three banks suggested they had made significant changes to strategy.

Q In your view, what is the level of intensity of competition in the following markets; and how will this affect your competitive response?

Corporate banking

Investment banking

Response

Moderate

Intense

None

Light

Nochange

Minorchange




75%25%

Com

pet

ition

Investment banking

Although the banks have made little change to their investment banking strategy, they still consider it to be very competitive.

In addition to competition from domestic banks, they must also compete with teams of bankers from outside the market.


Nigeria

PwC 161

Moderate

Intense

None

Light

Nochange

Minorchange




Response

Com

pet

ition 100%


According to the publication Micro-finance Nigeria 74% of the adult population has never banked, 85% of adult females are unbanked and 73% of adult Nigerians are financially excluded (that is have no formal access to finance).

Stanbic IBTC’s product called e.susu attempts to address this sector by allowing small traders to make financial transactions and transfers. Depositors can deposit cash at points of collection (POC) and then make withdrawals from ATMs.



The participants were split 50/50 on the issue of market overcrowding. Although the market is considered highly competitive, there is still a large portion that remains under-serviced.

Four participants unanimously agreed that the greatest competitive threat to the banks was established broad based financial institutions already active in the market.

This confirms that start-ups, niche players and new competitors are of minor importance, banks already present represent the main competitive challenge.

Micro-financeIn 2010 the Central Bank and the NDIC examined the micro-finance banking sector in Nigeria. The review exposed a high level of non-performing loans, gross under-capitalisation, poor corporate governance, incompetent boards and insider related credits. As a result the Central Bank revoked the licenses of 224 of the countries 820 micro-finance banks.

Subsequently the Central Bank granted provisional approval for new licenses to 121 of the 224 micro-finance banks subject to them meeting certain requirements.

Source: Financial Stability Report, Central Bank June 2010.

Nigeria


0 5 10


Consumerism

Capital markets

Disintermediation

Technology

Politics

Liquidity

Opportunities in the rest of Africa

Global economic downturn


Recession



Governance



Score


The major drivers of change in the Nigerian financial services industry were identified as

• mergers and consolidation;

• governance; and

• performance of the domestic economy.

Three other factors were also recognised as important, being: foreign exchange control, the economic recession, and regulation and reporting.

Nigeria

PwC 163

Q Have you completed a merger or an acquisition in the last year and are any planned for next year?

Q Will there be an entrance of the new financial services players into Nigeria in the next three years?

Q Do you anticipate further demands on the need for increased transparency on pricing and product comparisons?

The participants unanimously agreed that there would be further demands on the need for greater transparency on pricing and product comparisons.

The participants indicated that they had not made any acquisitions in the last year and two of the banks suggested that acquisitions may occur in 2011.

The participants unanimously agreed that new financial services players would be entering Nigeria in the next three years.

They believed that several South African banks will enter the market.

Several banks commented that acquisition decisions may await the outcome of the national elections in April 2011.

Ecobank acquired AIB (Africa International Bank )in November 2008 after the collapse of an acquisition bid by Diamond Bank.

Standard Bank acquired a controlling interest in IBTC in 2007.

Nigeria


Based on responses from just three banks the most important strategic areas ranked in order of importance were as follows:

• Acquisition of new clients;

• Improving profitability;

• Managing risk;

• Regulatory issues and dealing with government;

• Acquisition and retention of key staff;

• Cost reduction and business refocusing; and

• Retention of clients.

Q On which strategic areas does your organisation spend more time?

0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100


Exp

ecte

d a

nnua

l gro

wth

rat

e in

201

0

Q What is your estimate of annual growth in revenue for your business for 2010 and over the next three years?

As the chart indicates the banks expect revenue growth to pick up over the next three years. They expect revenue growth of 20% to 30% by 2013.

Nigeria

PwC 165

Q What is your institution’s primary method of growth?

The participants unanimously agreed that their primary method of growth was organic. However, several mentioned that they would also be interested in future acquisitions.


Yes

Support for Deposit InsuranceAll of the participants support the concept of deposit insurance.

In November 2010 the NDIC (Nigeria Deposit Insurance Corporation) increased its coverage level for banks from N200,000 (US$ 1,315)* to N500,000 (US$ 3,288)* and for Micro-finance banks and primary mortgage institutions from N100,000 (US$ 658)* to N200,000 (US$ 1,315)*.

NDIC has also established a financial stability fund in which N1.5 trillion (US$ 10 billion)* will be contributed over the next 10 years by both the banks and the Central Bank of Nigeria.

Organic growth



Nigeria


Stay the same

Increase slightly


Intensity of Regulation Q Do you see the intensity of regulation of the financial services industry increasing or decreasing over the next three years?


Two respondents believe that regulations will increase substantially over the next three years.

One bank however noted that the issue was the quality and competence of the regulators.

Regulations associated with risk management and corporate governance are expected to be much stricter in the future.

The majority of participants expect to increase their compliance spending over the next three years.

One bank stated that the Central Bank was encouraging banks to increase their compliance spending, to invest in software and to improve processes.

No

Yes



No

Risk management systems robustThe participants do not believe that the local banks have robust risk management systems. However, they believe there have been improvements. In particular they highlighted the weak credit approval systems, poor loan monitoring and inadequate stress testing. As noted earlier in this report, Central Bank Governor Sanusi in June 2009 specifically mentioned an “inability to conduct effective credit assessments” in his criticism of the banks’ management.

Nigeria

PwC 167


Yes

Performed liquidity stress testing simulations

All the banks surveyed have performed liquidity stress testing simulations.

Nigeria


In which areas are you currently experiencing the greatest shortage of skills? (1 is low, 5 is high)

0 5 10 15 20


Internal audit

Audit committee

Administration

Information technology (IT)

Financial reporting

Executive directors

Compliance

Capital management

Risk management

The top three areas of skills shortages were identified as:

• risk management;

• capital management; and

• compliance.

They were followed by the shortage of skills in executive directors, financial reporting and information technology.

Nigeria

PwC 169


Q Do you think that the adoption of IFRS will enhance market reporting?


Somewhat confident

Very confident

Confidence in adopting IFRS

Only two of the participants indicated that they had adopted IFRS in Nigeria.

Three of the banks were somewhat confident in their adoption of IFRS in Nigeria, one bank said it was very confident.

The Central Bank has said that as Nigerian banks move towards the adoption of IFRS by 2012 in order to enhance transparency, surveillance activities would focus on capacity building for supervisory staff to ensure a seamless transition from the Nigerian Generally Accepted Accounting Principles (NGAAP) to IFRS.

The Roadmap Committee of Stakeholders on the Adoption of IFRS in Nigeria was inaugurated in 2009 by the NASB (Nigeria Accounting Standards Board) and facilitated by the World Bank.

Participants unanimously agreed that the adoption of IFRS would enhance market reporting.

The benefits the participants believed IFRS would provide, ranked in order of importance were as follows;

• more transparent disclosures;

• better comparability of companies;

• increased reliability of financial reporting; and

• easier access to international capital markets.

Nigeria


Only two banks envisage IT platform changes in the short term. One bank indicated that its proprietary IT banking platform needs to be changed constantly to meet the requests of the Central Bank.



Q Identify three major technology weaknesses in the financial services industry?

The technological weaknesses in Nigeria were recorded by participants as follows:

• the inability of industry participants to share technology. There have been problems with the ATM InterSwitch system. This adds to individual bank costs. (In January 2011 a private equity group Helios Investment Partners acquired a majority stake in InterSwitch. InterSwitch accepts the chip and pin Verve Card which is currently issued by 16 of the 24 banks);

• weak communications both within Nigeria and internationally. One bank mentioned that a major satellite link had been down for two months and this affected their global access;

• a lack of technology specialists; and

• telecom was considered expensive and unreliable and there were bandwidth limitations.

Two banks said they were satisfied with their client relationship management systems and recorded a satisfaction level of four out of five. One bank is in the process of building a CRM system.

Challenges to the electronic payments and settlements system• A weak infrastructure;

• High transaction costs;

• High dependence on cash transactions;

• A high incidence of poverty and ignorance;

• A high level of illiteracy;

• A low level of Internet access;

• Inadequate inter-operability and inter-connectivity;

• The high cost of deploying and maintaining the payments infrastructure;

• A low level of public awareness of the existence of some non-cash payment products, resulting in under-utilisation of e-payments solutions; and

• The concentration of e-payment facilities in urban centres.


Nigeria

PwC 171


The future areas of technology application were as follows:

• mobile banking; and

• platform computing.

A parallel provider to InterSwitch mentioned on the previous page is Valucard (Vpay) which is owned by Visa Inc. and a consortium of Nigerian banks.

eTranzact (see adjacent box) has recently received approval for its Mobile Money product.

In November 2010, the Central Bank approved eTranzact’s Mobile Money solution. The new mobile money platform works on GSM networks and PTO platforms. Four Nigerian banks are partnering in this service with eTranzact, First Bank, Skye Bank, United Bank for African and Wema Bank.

eTranzact allows funds transfer to a mobile phone which can be then withdrawn from an ATM without the use of a physical card. With the ATM Cardlex Cash the recipient does not need to have a bank account, all that is needed is a mobile phone.

eTranzact was formed in 2003 and has operations in Nigeria, Ghana, Tanzania, Zimbabwe, Cote d’Ivoire and UK.

Internet

Mobile phone

POS

ATMs

Volume of e transactions 2009

Internet

Mobile phone

POS

ATMs

Value of e transactions 2009

The Central Bank has reported that ATM volume increased by 81.5% between 2008 and 2009 with the number of transactions growing from 60 million to 110 million. The value of transactions expanded by 37.3% from N400 billion (US$ 2.63 billion)* to N549 billion (US$ 3.6 billion)* in 2009.

ATMs are by far the most popular electronic channel. They accounted for 95.3% of volume and 85% of value at the end of 2009.

Q Volume and value of ePayment transactions at the end of 2009 based on Central Bank data


Nigeria


Q Does your organisation have a documented IT governance framework approved by the audit committee?

Yes

Documented IT governance framework


Yes

Privacy principles planprotection of personal information

The banks interviewed have implemented a programme to comply with internationally recognised principles regarding protection of personal information.

Yes

Payment Card Industry Data Security Standard Plan

Q Have you implemented a programme to ensure ongoing compliance with Payment Card Industry (PCI) and Data Security Standard (DSS) requirements?

All the participants have implemented a programme to comply with DSS.

All of the banks interviewed reported that they had a documented IT governance framework approved by the audit committee.

Nigeria

PwC 173

Neither

Agree

Disagree

Neither

AgreeDisagree

Agree

Neither

Disagree

Neither

Agree

Disagree

Disagree

Agree

Neither







The banks interviewed remained noncommittal on whether they might be involved in M&A activity.

The participants were split on whether they would seek joint ventures in their expansion.

As expected none of the participants plan to dispose of any business lines over the next three years.

There was no interest in seeking a domestic partner over the next three years.

Only one participant believed that they were not currently structured in their desired form.

Nigeria


Q What is the level of commitment of your parent institution in Nigeria when compared to similar operations in other parts of Africa (on a scale of 1 to 10 where 10 is the maximum commitment)

Q Can you suggest three product areas that will become increasingly important over the next three years?

The following product areas are expected to become increasingly important over the next three years:

Retail banking

• consumer lending;

• vehicle and asset financing;

• mortgages (underdeveloped market at the moment where many loans remain unsecured);

• high costs associated with arranging mortgages;

• electronic payments (both debit and credit); and

• asset management.

Four foreign banks provided an assessment of the level of commitment of their parent bank to the Nigerian market. Three of them scored 10 out of 10 while one scored 9 out of 10.

These scores suggested that despite the recent upsets in the local banking market the foreign banks see future opportunity and are resolute in their level of commitment.

The Central Bank has introduced the following measures to further improve access to credit to the real sector:

• reduction in the Cash Reserve Requirement and Liquidity Ratio;

• extension of guarantee to all lenders in the inter-bank market; and

• enhancing the life-cycle of money market instruments by extending their tenure to a maximum of 364 days.

These measures are designed to encourage banks to lend to the real sector of the economy, especially agriculture, SMEs, and infrastructure projects.

Corporate banking

• derivatives;

• developing the corporate bond offerings;

• financial advisory services (investment banking);

• trade financing; and

• infrastructure financing.

Nigeria

PwC 175

Q Over the last year can you classify your organisations’ profits in terms of capital allocated in each of the following categories?

Loss <0% Marginally profitable

0 -10%



30% or more

Retail bankingR

Home loans

Vehicle financing

Corporate banking R RMerchant & investment

bankingRR

TreasuryR R

Internet banking R

The limited sample size impacts on the validity of this response but it does suggest that the participants find the Nigerian market to be profitable particularly in corporate and investment banking.

Nigeria


Nigeria Peer Review

1 2 3

Corporate banking GT Bank Zenith Bank First Bank

Retail banking First Bank GT Bank UBA

Foreign Exchange Trading Citibank/First BankStandard Chartered

Bank

Trade finance Zenith BankStandard Chartered

BankGT Bank

Peer Review

The following Peer Review is based on the opinions of five foreign banks. As a result it should be interpreted as a rudimentary assessment of the activities of the banks mentioned.



They were not permitted to rank their own institution. Often banks chose just to indicate first and/or second


PwC 177

Appendices

Appendices


Factor Expected trends in Africa Channels of transmission to growth

Impact on "trend" (potential growth)

Financial markets Credit conditions on international markets

Over the medium term, access of Africa's EMEs and FMEs will be lower than before the crisis, due to investors’ increased risk-averseness.

Lower investment through lower access to credit - direct impact on EMEs and spillover effects to others.

Negative

Development of housing markets in Africa's EMEs and FMEs

Likely to develop further in EMEs (North Africa, South Africa); start in some other countries (Ghana).

Increased domestic demand (higher demand for complements).

Positive, but relatively small

Commodity prices Oil prices Global demand set to rise relative to global supply.

For oil importers, higher prices for inputs (transfer, power). For oil exporters, higher revenues.

Negative on balance, as costs to importers likely to increase

Food prices Global demand set to rise relative to global supply.

Inflationary pressures. Negative

Demographics Population growth in Africa High population growth likely to continue.

If growth picks up, additional labour supply is useful. Otherwise (more likely) large social pressures will arise.

Ambiguous, but likely more negative after the crisis than before

Population growth in China Slowing population growth in China.

Lower population growth in China will increase wages and create opportunities for African manufacturing to expand.

Positive, provided that Africa is ready to seize this opportunity (through enabling environment, etc.)

Other factors Structural reform They have been always lagging, and there is a risk that crisis will lower the appetite of African constituencies for further structural reform.

Slower improvements in the business climate and governance, slower technology adoption.

Negative

Regional integration Likely to increase after the crisis as countries are looking for ways to rebalance sources of growth and demand.

Increased regional demand and diversified risks. Efficiency gains through integration (easier movement of production factors) will kick in.

Positive, but significant progress will take time

Increased protectionism/slower dismantling of barriers to trade and capital flows

Likely to increase after the crisis as countries most integrated to the global economy were also the hardest hit by the crisis.

Lower demand for African exports among advanced economies; slower progress with regional integration.

Negative

Climate change (relevant over the long term)

Physical impact of climate change is unlikely to be substantial in the short term (before 2015), but will increase afterwards.

In the long term, yields and area of arable land will be reduced. Short term, more frequent and intense natural hazards.

Minimal over the shorter term and ambiguous over the longer term, depends on countries' mitigation and adaptation.

Changes in economic fundamentals impacting longer-term growth in Africa

Source: African Development Bank, adapted from Asian Development Bank (2010).

Appendices

PwC 179

Time frame/objective Policy options Country examples Comments

Short term

Counteract shortages of trade finance

National governments, IFIs and others stepped in. AFDB established US$1bn Trade Finance Initiative

Ghana, Nigeria AFDB and partners mobilised US$1.2 million trade finance to support Ghana's cocoa sector; United Bank of Africa Plc (UBA in Nigeria received US$150 million)

Liquidity support to the banking sector

Bank recapitlisation Nigeria, Tanzania In Nigeria, government responded to the banking crisis

Monetary expansion Lowering policy rates South Africa, Mauritius and Egypt

Raising inflation targets South Africa

Raising monetary targets Tanzania, Kenya, Uganda

Fiscal expansion Increase spending Tanzania, Kenya, Uganda Zambia: Increase social safety net spending (fertiliser program)

Mozambique, Zambia

Reduce tax rates Zambia Reduction in fuel excise duties

Expand tax exemptions Sierra Leone, Zambia

Co-ordinated fiscal and monetarypolicy

Raise monetary targets while increasing fiscal expenditures

Tanzania, Uganda, Kenya

New sources of budget financing Infrastructure bonds Kenya

Exchange rate policies Openness measures

Minimising ER volatility Trade protectionism (trade and NTBs) Imposing capital controls

Zambia, Sierra Leone

Longer term

Mobilisation of resources Tax revenue mobilisation Sierra Leone, Zambia GST introduced on 1 Jan 2010

Raising efficiency of the financial sector

Domestic banking supervision reforms

Increased monitoring of NPLs Zambia, Sierra Leone

Openness measures Introducing FDI exemptions Sierra Leone New tax incentives introduced to attract FDI

Regional integration and co-operation

Progress with regional integration East African Economic Community Increased regional co-operation

Co-ordination of banking supervisions and regulation of cross-banking financial flows

West African Economic and Monetary Union

MOU on cross-border supervision

Source: African Development Bank

Examples of African responses to the global financial crisis

Appendices


2006a 2007a 2008a 2009b 2010b 2011c 2012c

Gross domestic product

Nominal GDP (US$ m) 45,163 61,402 80,354b 83,590 85,249 102,637 127,004

Nominal GDP (Kz bn) 3,630 4,710 6,029b 6,631 7,835 9,648 11,822

Real GDP growth (%) 18.6 21.1 13.3b -0.6 2.9 7.3 8.5

Population (m) 17.1 17.6 18.0 18.5 19.0 19.5 20.0

GDP per head (US$ at PPP) 4,377 5,216 6,336b 7,147 6,982 7,037 7,481

Key: a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Source: Economist Intelligence Unit, IMF, International Financial Statistics.

Angola

2006a 2007a 2008a 2009b 2010b

GDP at market prices (FC bn) 4,114 5,148 6,526 8,729 12,636

GDP at market prices (US$ m) 8,785 9,963 11,668 10,779 12,004

Real GDP growth (%) 5.6 6.3 6.2 2.8 5.0

Consumer price inflation (av; %) 13.2 16.7 18.0 46.1a 26.0

Population (m)d 60.80 62.52 64.26 66.02a 67.83

Copper production ('000 tonnes)c 131 145 239 299a 385

Cobalt production ('000 tonnes)d 14.6 17.3 42.1 55.8a 62.0

Diamond production (m carats)d 28.9 28.3 20.9 18.0a 12.0

Key: a Actual. b Economist Intelligence Unit estimates. c World Bureau of Metal Statistics. d Banque centrale du Congo.

Source: Economist Intelligence Unit

DRC

GDP and population estimates and projections

Appendices

PwC 181

Exports 2008 % of total

Cobalt 38.3

Copper 35.4

Crude oil 11.9

Diamonds 10.7

Destination of exports 2009a % of total

China 46.8

US 15.4

Belgium 10.7

Zambia 5.8

Key: a IMF, Direction of Trade Statistics; based on partners’ trade returns and subject to a wide margin of error.

Source: Economist Intelligence Unit

2006a 2007a 2008a 2009b 2010b 2011c 2012c

GDP

Nominal GDP (US$ bn) 145.4 165.9 214.5 183.2 222.7 252.1 279.6

Nominal GDP (N bn) 18,710 20,874 25,425 27,274 33,393 38,993 44,742

Real GDP growth (%) 6.0 6.4 6.0 6.7d 7.6 5.6 6.6

Population and income

Population (m) 140.4b 143.3b 146.3b 149.3 152.2 155.2 158.1

GDP per head (US$ at PPP) 1,908b 2,048b 2,173b 2,292 2,433 2,564 2,741

Nigeria

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Official estimate.

Source: Economist Intelligence Unit , IMF, International Financial Statistics.

DRC (continued)

GDP and population estimates and projections (continued)

Appendices


2006a 2007a 2008a 2009a 2010 b 2011c 2012c

GDP

Nominal GDP (US$ m) 20,420 24,764 28,524 26,166 31,422 37,889 44,825

Nominal GDP (GH¢ m) 18,705 23,154 30,179 36,867 44,799 54,180 63,570

Real GDP growth (%) 6.4 6.5 8.4 4.7 6.6 8.9 7.3


Population (m) 22.4b 22.9b 23.3b 23.8b 24.3 24.8 25.5

GDP per head (US$ at PPP) 1,283b 1,377b 1,495b 1,548b 1,628 1,768 1,881

Ghana

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Source: Economist Intelligence Unit, IMF, International Financial Statistics.

Cote d’Ivoire

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Source: Economist Intelligence Unit , IMF, International Financial Statistics.

2006a 2007a 2008a 2009b 2010b 2011c 2012c

GDP

Nominal GDP (US$ m) 17,367 19,796 22,696b 22,529 22,570 22,586 22,940

Nominal GDP (CFAfr bn) 9,081 9,487 10,163b 10,638 11,184 11,852 12,539

Real GDP growth (%) 0.7 1.7 2.3 4.2 3.6 4.0 4.1


Population (m) 19.7 20.1 20.6 21.1a 21.6 22.1 22.6

GDP per head (US$ at PPP) 1,587 1,624 1,660b 1,705 1,737 1,795 1,865

GDP and population estimates and projections (continued)

Appendices

PwC 183

Ease of doing business (rank) 163 Sub-Saharan Africa: Lower middle income

GNI per capita (US$) Population (m)

3,490 18.5

Starting a business (rank) 164 Getting credit (rank) 116 v Trading across borders (rank) 166

Procedures (number) 8 Strength of legal rights index (0-10) 4 Documents to export (number) 11

Time (days) 68 Depth of credit information index (0-6) 3 Time to export (days) 52

Cost (% of income per capita) 163.0 Public registry coverage (% of adults) 2.4 Cost to export (US$ per container) 1,850

Minimum capital (% of income per capita)

28.7 Private bureau coverage (% of adults) 0.0 Documents to import (number) 8

Time to import (days) 49

Dealing with construction permits (rank)

128 Protecting investors (rank) 59 Cost to import (US$ per container) 2,840

Procedures (number) 12 Extent of disclosure index (0-10) 5

Time (days) 328 Extent of director liability index (0-10) 6 Enforcing contracts (rank) 181

Cost (% of income per capita) 694.3 Ease of shareholder suits index (0-10) 6 Procedures (number) 46

Strength of investor protection index (0-10)

5.7 Time (days) 1,011

Registering property (rank) 174 Cost (% of claim) 44.4

Procedures (number) 7 Paying taxes (rank) 142

Time (days) 184 Payments (number per year) 31 Closing a business (rank) 147

Cost (% of property value) 11.5 Time (hours per year) 282 Time (years) 6.2

Total tax rate (% of profit) 53.2 Cost (% of estate) 22

Recovery rate (cents on the dollar) 8.4

Angola

Extract from ‘Doing Business 2011’published by the World Bank and the International Finance Corporation

Doing Business 2011 is the eighth in a series of annual reports investigating the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 183 economies – from Afghanistan to Zimbabwe – and over time.

Regulations affecting 11 areas of the life of a business are covered: starting a business, dealing with construction permits, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, closing a business, getting electricity and employing workers. Data on getting electricity and employing workers is not included in the ranking on the ease of doing business in this year’s report.

Data in Doing Business 2011 is current as of 1 June 2010.

Source: Doing Business 2011, The World Bank and The International Finance Corporation

Appendices



GNI per capita (US$) Population (m)

1,060 21.1

Starting a business (rank) 172 Getting credit (rank) 152 Trading across borders (rank) 160













3.3 Time (days) 770







Cote d’Ivoire


World Bank rankings and selected statistics relating to the “Ease of Doing Business” in each of the markets covered in this report

Appendices

PwC 185

Ease of doing business (rank) 175 Sub-Saharan Africa: Low income GNI per capita (US$) Population (m)

16066.0












Cost (% of income per capita) 2,692.2 Ease of shareholder suits index (0-10) 4 Procedures (number) 43


3.3 Time (days) 625









World Bank rankings and selected statistics relating to the “Ease of Doing Business” in each of the markets covered in this report (continued)

Appendices


Ease of doing business (rank) 67 Sub-Saharan Africa: Low income GNI per capita (US$)Population (m)

70023.8




Cost (% of income per capita) 20.3 Public registry coverage (% of adults) 0.0 Cost to export (US$ per container)

1,013





151 Protecting investors (rank) 44 Cost to import (US$ per container)

1,203



Cost (% of income per capita) 1,017.7 Ease of shareholder suits index (0-10) 6 Procedures (number) 36


6.0 Time (days) 487






Recovery rate (cents on the dollar)

23.7

Ghana



Appendices

PwC 187


GNI per capita (US$)Population (m)

1,140154.7




Cost (% of income per capita) 78.9 Public registry coverage (% of adults) 0.0 Cost to export (US$ per container)

1,263





167 Protecting investors (rank) 59 Cost to import (US$ per container)

1,440





5.7 Time (days) 457






Recovery rate (cents on the dollar)

26.8

Nigeria



Appendices


Acronyms

AFD Agence Française de Développement (French Development Agency)

AfDB African Development Bank

ANAPI Agence Nationale de Promotion des Investissements (National Agency for Investment Promotion

ARPTC Agence de Régulation des Postes et Télécommunications (Postal and Telecommunications Regulatory Agency)

ASBL Association sans but lucratif (Not-for-profit Association)

BCC Banque Centrale du Congo (Central Bank of the Congo)

BIO Belgian Investment Company for Developing Countries

CEMAC Communauté Economique et Monétaire d’Afrique Centrale (Central African Economic and Monetary Community)

CGAP Consultative Group to Assist the Poor

CIDA Canadian International Development Agency

Coopec Coopérative d’Epargne et de Crédit (Savings and Credit Cooperative)

CPCC Conseil Permanent de la Comptabilité au Congo (Permanent Council on Accounting in the Congo)

DfID Department for International Development (U.K.)

DGI Direction Générale des Impôts (equiv. Internal Revenue Service)

DGRAD Direction Générale des Recettes Administratives, Judiciaires, Domaniales et de Participations (Department of administrative, judicial, property, as well as participation income paid out of state funds)

DRC Democratic Republic of the Congo

DSIF Direction de la Supervision des Intermédiaires Financiers (Financial institutions supervision unit within the Central Bank)

FAO Food and Agriculture Organization

IFC International Finance Corporation

GTZ Deutsche Gesellschaft für Technische Zusammenarbeit (German Cooperation Agency)

KfW Kreditanstalt für Wiederaufbau (German Development Bank)

MAE Ministère des Affaires Etrangères (France)

MFI Microfinance Institution

OFIDA Office des Douanes et Accises (Customs and Excise Office)

OHADA Organisation pour l’Harmonisation du Droit des Affaires en Afrique (Organization for business Law Harmonization in Africa) fix with Roger’s change

PASMIF Programme d’appui au secteur de la microfinance (Microfinance Support Programme)

SA Société Anonyme (OHADA law) (equiv. Corporation)

SDM Sous Direction de Microfinance (Microfinance Department in the BCC)

SPRL Société de Personnes à Responsabilité Limitée (equiv. LLC)

SARL Société par Actions à Responsabilité Limitée (Congolese law) (equiv. LLC)

UNCDF United Nations Capital Development Fund

UNDP United Nations Development Programme

UNHCR United Nations High Commission for Refugees

UNOPS United Nations Office for Project Services

WAEMU West African Economic and Monetary Union

G2P Government to person

B2B Business to business

C2B Consumer to business

C2C Consumer to consumer

Appendices

PwC 189

West Africa

Contacts

Côte d’Ivoire01 BP 1361Abidjan 01Côte d’IvoireTel: +225 20 31 54 00Fax: +225 20 31 5461/62Contact: Didier N’guessan

GhanaPMB CT42CantonmentsAccraGhanaTel: +233 21 761 500Fax: +233 21 761 544Contact: Vish Ashiagbor

NigeriaPO Box 2419Lagos NigeriaTel: +234 1 320 3100Fax: +234 1 320 3101Contact: Gabriel Ukpeh

Central Africa

CameroonBP 5689Douala – AkwaRepublic of CameroonTel: +237 33 43 24 43/44/45/46Fax: +237 33 42 86 09Contact: Douty Fadiga

Congo32 Avenue du Général de GaullePointe NoireTel: +242 94 30 28Fax: +242 94 23 34Contact: Prosper Bizitou

Democratic Republic of CongoBP 10195Kinshasa 1DRCTel: +243 998 396 271Fax: +243 812 616 010Contact: Benjamin Nzailu

Gabon366, Rue Alfred-MarcheLibreville BP 2164Tel : +241 76 23 71Fax : +241 74 43 25Contact: Christophe Courtin

East Africa

KenyaPO Box 43963 – 00100Nairobi 00100KenyaTel: +254 20 285 5000Fax: +254 20 285 5001Contact: Richard Njoroge

TanzaniaPO Box 45Dar-es-SalaamTanzaniaTel: +255 22 213 3100Fax: +255 22 213 3200Contact: Leonard Mususa

UgandaPO Box 882KampalaUgandaTel: +256 41 236 018Fax: +256 41 230 153Contact: Uthman Mayanja

Appendices


Southern Africa

Contacts (continued)

South AfricaJohannesburg

Private Bag X36Sunninghill2157Tel +27 11 797 4000Fax +27 11 797 5819Contact: Tom Winterboer

Cape Town

PO Box 2799Cape Town8000Tel +27 21 529 2000Fax +27 21 529 3300Contact: Hennie Nel

BotswanaGaboronePO Box 1453GaboroneTel +267 395 2011

MadagascarRue Rajakoba AugustinAnkadivatoAntananarivo 101MadagascarTel: +261 20 22 217 63Fax: +261 20 22 338 64Contact: Liliane Raserijaona

MalawiBlantyrePO Box 1147/1064BlantyreTel +265 620 322Fax +265 621 215Contact: Tinashe Rwodzi

Mauritius18 CyberCity, EbèneRepublic of MauritiusTel: +230 404 5000 Fax: +230 404 5088/89Contact: Mushtaq Oosman

MozambiqueMaputoPO Box 2583MaputoTel +258 1 307 620Fax +258 1 307 621Contact: José Azevedo

NamibiaWindhoekPO Box 1571WindhoekTel +264 61 284 1000Fax +264 61 284 1001Contact: Louis van der Riet

SwazilandMbabanePO Box 569MbabaneTel +268 404 2861Fax +268 404 5015Contact: Paul Lewis

Fax +267 397 3901Contact: Rudi Binedell

ZimbabweHararePO Box 453HarareTel +263 4 307 213 19Fax +263 4 332 495Contact: Tinashe Rwodzi

Appendices

PwC 191

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