COTE D'IVOIRE'S BANKING SECTOR

UNCLAS SECTION 01 OF 04 ABIDJAN 000135

SIPDIS

SENSITIVE
SIPDIS

STATE PASS TO USTR

E.O. 12958: N/A
TAGS: ECON EFIN ETRD IV
SUBJECT: COTE D'IVOIRE'S BANKING SECTOR

REF: A. 06 ABIDJAN 1405 B. ABIDJAN 12


1. (SBU) Summary: The performance of Cote d'Ivoire's
banking system in the government-controlled south has
stabilized since the beginning of the political crisis in

2002. Profitability is relatively strong and the total asset
base has recently grown modestly. However, these results
mask a troubled client base, as non-performing loans and
outright defaults have increased markedly due in large
measure to the continued political and economic crisis.
Banking remains concentrated largely in the hands of
subsidiaries of French banking concerns. Banking executives
acknowledge the need to expand access to banking services
through microfinance and other mechanisms, but many Ivorians
remain outside of the banking system. Ebanking and eservices
remain underutilized. Public borrowing is on the rise,
according to industry sources, and could jump higher still
when the long-delayed elections campaign begins. The
Northern, Forces Nouvelles (FN)-held areas of the country
remain isolated from banking services, exacerbating the
economic difficulties of northerners, retarding the
administrative reintegration of the country and encouraging
the proliferation of informal money-transfer operations (the
"havala" system). Without a resolution of the crisis, the
banking sector will continue to sag. However, the revival
of the banking sector, especially in the North, would itself
be a key step towards resolving the crisis. End Summary.

Background and Statistics
=================

2. (U) As of December 2005 (the last point for which
accurate statistics are available),financial institutions'
balance sheets totaled CFA 2 trillion (USD four billion),up
1.7 percent from the previous year, accounting for 29.5
percent of the West African Economic and Monetary Union
(WAEMU) market. From 2004-05, net profitability was up 47
percent to CFA 28 billion (USD 56 million),generated
primarily by customer service operations, currency trading,
and securities and leasing. According to sources, while
lending operations produced meager results, overall return on
investment stood at a very respectable 20 percent on a total
capitalization base of USD 250 million. Overall loans
outstanding to the private sector are estimated at CFA 1.2
trillion (USD 2.3 billion),an increase of 1.4 percent from

2004. As measured against GDP, the value of total lending to
the private sector stands at 13 percent, which the WAEMU
considers low. This phenomenon partly reflects the banks'
cautious lending policy and the lack of long-term lending,
derived from the difficult business environment caused by the
ongoing political crisis. In contrast, since 2002, lending
to the government has increased 17 percent. Overall, asset
quality of bank portfolios has deteriorated: non-performing
loans rose by 31.8 percent from 2004 to 2005 to a current
total of USD 450 million, with a significant share (44.2
percent) of loans in actual default. Inflation dropped from
3.9 percent in 2005 to 2.5 percent in 2006.


3. (U) The banking system includes 19 credit institutions
(against 22 in 2003),of which 17 are banks (ten in 2003),
two are specialized lending institutions, one a coffee and
cocoa financing group and the other an automobile financing
company (down from five financing companies in 2003). The
Ivorian banking sector is concentrated among the seven
largest banks, with subsidiaries of French banks accounting
for nearly 60 percent of the customer base, but approximately
40 percent of total assets and 30 percent of total
capitalization. Two of these seven leading banks are
Ivorian. The following list includes all banks and financial
institutions, with figures up to date through 2005 as
reported to the BCEAO, ranked by total assets:

a. Banque Nationale de l'Investissement (BNI, Cote
d'Ivoire),100 percent state-owned, traditionally
specializing in state debt instruments but beginning to
diversify its portfolio among a range of capital-intensive
industries, such as petroleum production. It is capitalized
with USD 41 million (CFA 20.5 billion).
b. Banque Internationale pour le Commerce et
l'Industrie (BICICI),a retail bank owned by the French bank
Banque Nationale de Paris (BNP) with capital of USD 33
million (CFA 16.67 billion).
c. Societe Generale des Banques en Cote d'Ivoire
(SGBCI),the bank with the largest number of retail clients
and in which the French group Societe Generale owns a
majority, with capital of USD 31 million (CFA 15.6 billion).
d. Banque Internationale Pour l'Afrique Occidentale
(BIAO),a retail bank with capital of USD 20 million (CFA 10
billion). Effective December 11, 2006, the Belgian group

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Belgolaise sold its 80 percent stake in the BIAO. The
Ivorian Insurance Group (the Nouvelle Societe Internationale
d'Assurance) now owns 60 percent of the shares while the
Ivorian private pension fund "Caisse Nationale de Prevoyance
Sociale," (CNPS),owns 20 percent and the Ivorian government
owns the remaining 20 percent.
e. Societe Ivoirienne de Banque (SIB),a retail bank
owned by the French Bank Credit Lyonnais, with capital of USD
8 million (CFA 4 billion).
f. Ecobank, a diversified retail bank based in Togo
which has operations in 15 West and Central African countries
and capital in Cote d'Ivoire of USD 6 million (CFA 3.2
billion).
g. Bank of Africa, a commercial lending bank (it has
no deposit accounts) owned by a group based in Benin (but
with a fast-growing network of local banks throughout West
and East Africa) and possessing 5 million in capital.
h. Citibank. Citi is the only U.S. bank present in
Cote d'Ivoire, and has capital of USD 15 million invested
(CFA 7.5 billion). It has only 465 clients which are
primarily corporate accounts and very few individual accounts.
i. Banque Atlantique de Cote d'Ivoire. Owned by a
consortium of mainly Ivorian investors and companies, this
bank focuses on lending to large commercial enterprises and
is capitalized with USD 14 million in assets (CFA 7 billion).
j. Standard Chartered Bank. 100 percent owned by its
British parent, this diversified bank has USD 30 million in
capital (CFA 15.3 billion).
k. Versus Bank. Formed in March 2004 by Ivorian
management but largely financed by foreign investors, this
bank has a wide-ranging portfolio and USD 6 million in
capital (CFA 3 billion).
l. Compagnie Bancaire de l'Atlantique en Cote
d'Ivoire. Owned by Banque Atlantique (see i) and
specializing in the financing of imports/exports and
capitalized with USD 6 million (CFA 3 billion).
m. Banque de l'Habitat de Cote d'Ivoire. Sixty five
percent owned by individual investors and 17.5 percent owned
by the Ivorian government, it specializes in real estate
lending and has $3.4 million in capital (CFA 1.8 billion).
n. Omnifinance. Private Ivorian investors own 65
percent and the same financial group invested in Bank of
Africa owns 20 percent. This bank specializes in lending to
small and medium sized enterprises (SMEs) and has USD 6
million in capital (CFA 3 billion).
o. Bank pour le Financement de l'Agriculture. The
Coffee and Cocoa Regulation Fund owns 48 percent and private
Ivorian investors own the remaining 52 percent. It has USD 4
million in capital (CFA 2 billion).
p. Cofipa Investment Bank de Cote d'Ivoire. This
Congo-Brazzaville-based bank concentrates on commercial
banking and has USD 6 million in capital (CFA 3 billion).
q. Societe Africaine de Credit Automobile. A group
owned by a diverse set of holding companies (the largest of
which owns a Moroccan auto distributor),this financial
institution concentrates on auto loans and has USD 2.4
million in capital (CFA 1.3 billion).
r. Fonds de Garantie des Cooperatives Cafe-Cacao.
This non-bank financial institution (it has no depositor
accounts) is 42 percent owned by cocoa and coffee
cooperatives, 24 percent owned by exporters, 24 percent by
various banks and 10 percent by the Ivorian government. It
specializes in lending to cooperatives who would otherwise
have difficulty in meeting borrowing requirements set by
banks. It has a small capitalization base of USD 600,000
(CFA 300 million).


4. (U) The banking sector in Cote d'Ivoire is part of the
financial sector of the WAEMU economic region, whose Central
Bank is the "Banque Centrale des Etats de l'Afrique de
l'Ouest" (BCEAO). The BCEAO is the sole issuer of currency in
the WAEMU region and organizes and supervises banking and
financial activity. Banking regulation is carried out by the
WAEMU's regional banking commission "Commission Bancaire"
(located in Abidjan). Market entry requirements for the
Ivorian banking sector are relatively low; the minimum
capital requirements are CFA 1 billion (USD 2 million) for
banks and CFA 300 million (USD 600,000) for non-banking
institutions.


5. (SBU) According to executives from top banks BNI,
Citibank and Ecobank, microfinance will be a key focal point
in business planning and expansion. Prior to the outbreak of
the 2002 crisis, the development prospects of this sector
were significant; in 2000, the country counted 16
microfinance institutions, offering a total of 287 points of
service (for about 331,000 customers),compared with 154 bank
branches. The large banks and new players (such as the Bank

ABIDJAN 00000135 003 OF 004


of Africa) are attempting to expand access to banking
services to underserved markets. Executives from Ecobank
tell us that they value the prospects of small business
lending highly for its potential to generate new revenues and
employment in the region. Citibank has a high-profile public
relations campaign to stress to its clients the convenience
and efficiency of its e-banking, a tremendous advantage to a
small-but growing concern. However, in general the low rate
of access to the banking sector for the general population
remains a major problem affecting both small enterprises and
potential individual retail clients: Ivorian society is
somewhat "under-banked" compared to other West African
countries, as Ivorian financial institutions account for 31.3
percent of all WAEMU assets, whereas the Ivorian GDP is 37
percent of the regional economy. Industry sources point to
this as another indication that there is considerable
potential for expanded banking services. However, bankers
privately acknowledge that banking fees are high and
e-services are scarce in comparison to other relatively
high-income African countries, particularly Anglophone
countries.


6. (U) Even though the banks tell us they are interested in
expanding their lending to small and medium enterprises
(SMEs),few of them have actually done so. Currently, while
two financial institutions offer services for SMEs, the
primary sources of such lending is the Ivorian National
Business Development Fund (FIDEN),created in 1999 by the
Ministry for Industry and which gives priority to export and
import-substitution businesses.

Monetary Policy, Macroeconomic trends, Impact of Political
Situation on Banking
========================================

7. (U) Inflation in Cote d'Ivoire has been contained by the
tight monetary policy of the BCEAO, whose primary objectives
are to maintain stability between the CFA franc and the euro
and to control inflation in the CFA zone. The BCEAO's
monetary policies closely track those of the European Central
Bank (ECB) by design. Since its inception in 1945, the BCEAO
deposits 65 percent of all foreign exchange receipts in
France,s national treasury to ensure the French Central Bank
would have access to sufficient hard currency if ever needed
to address monetary difficulties and thus ensure the CFA's
stability. An example of this close association can be found
in the stability of their respective interbank rates: all
through 2005 the BCEAO interbank rate stayed close to 4.88
percent while the ECB's stayed similarly close to 2.1
percent. In 2006, the BCEAO's interest rates increased
modestly in step with the ECB's. The CFA franc is pegged to
the Euro at a rate of 655.96 CFA to 1 Euro and it is likely
that the CFA peg will remain. Sources in the industry cite
continued strong commodity prices and consistently strong
political opposition to a CFA devaluation as central
underpinnings of the continued peg. The CFA was last
devalued in 1994 as part of an effort to aid African exports.
As a result of the rise in the value of the Euro vs. the
dollar in recent years, a 2005 IMF working paper suggests a
moderate worsening of the terms of trade and actual trade
performance in exporting to the U.S. while exports continue
to rise moderately to the EU.


8. (SBU) Banking executives worry that continued delays in
holding Cote d'Ivoire's elections will only prolong the
economic uncertainty and further delay the resumption of
international support. The Director General of BNI predicted
that campaign spending in the run-up to planned elections
(either in 2007 or later) will push the fiscal deficit up by
an additional 1.8 percent of GDP, further reducing the supply
of capital available for borrowing by the private sector.
Although a successful election would likely result in the
resumption of international funding and budget support, BNI
expects government expenditure to remain high and the fiscal
deficit to increase further, to 2.5 percent of GDP, in 2007.


9. (SBU) The ongoing political crisis has disrupted banking
operations, causing a reduction of the volume of pre-crisis
bank transactions of approximately 10 percent. Of 165 bank
branches, 32 have closed. The banking sector has been
affected by business closures, lost sales and job losses in
the economy. Client insolvency and an increase in unpaid
debts owed by both businesses and individuals has been the
inevitable result. Because of the increasing risks, banks
have preferred to concentrate resources on short-term lending
to established businesses and on lending to the government.
Banking executives predict that challenges for the banking
sector include trying to expand long-term lending and taking
more aggressive action against non-performing loans.

ABIDJAN 00000135 004 OF 004


Executives predict revenue will remain flat due to the
sluggish domestic economy (economic performance would be even
worse without recent increases in oil and gas revenues) and
the impact of the continued departure of expatriates on many
small and medium-sized businesses.

Banking in the North
==============

10. (SBU) The crisis in 2002 left the country divided both
geographically and financially. Since 2002, all accredited
financial institutions previously doing business in the
FN-held north have closed, due to the lack of security and
repeated bank robberies since the crisis (reftel A). As a
result, residents of the North wishing to do banking business
must travel to Yamoussoukro or Abidjan, an expensive journey
taking several hours. Travelers must pay bribes to pass
through the many road checkpoints, both government and FN,
along the way. The absence of any accredited financial
institution is a key underlying obstacle to the
administrative reintegration of the country (reftel A),
because government employees, including teachers, are paid
through their bank accounts. The leader of the FN, Guillame
Soro, has promised to guarantee security for any bank that is
willing to return to the FN-held north but so far, banks
remain hesitant. (Note: Soro held talks on this issue with
Finance Minister Delegate Charles Diby on January 15, and
Diby announced on January 31 that the Finance Ministry would
reopen its presence in the North at the end of February to
begin rebuilding the financial infrastructure needed by banks
to restore their operations. End Note.) During a recent
trip around the North by EconOffs, businesses, such as
textile mills, cashew processing facilities and cotton and
nut producer cooperatives, all appealed to the U.S. to
encourage a return of the banks to the North.


11. (U) There is one savings and loans institution that
covers all of the FN-held territory: the Popular Savings,
Loan and Credit Bank of Cote d'Ivoire. However, it is not
accredited by the Central Bank, and its capitalization and
deposit base remain small (total capitalization stands at CFA
65,000,000, or USD 130,000). It offers retail banking
services to a total of 8,440 clients, of which 2108 are in
Bouake. It opened in February 2005 and since then has opened
eleven full-service branches and mini-branches. Women
account for 45 percent of clientele, but the large cotton and
cashew cooperatives represent the majority of its biggest
clients. It offers a range of services to account-holders,
but the fee to open an account is prohibitively high,
especially for small farmers or merchants for whom the
average loan is around CFA 25,000 (USD 50). Lending interest
rates are between 10 and 15 percent.

The Havala System
=============

12. (SBU) According to a local official in the northern city
of Korhogo, the havala system (the traditional form of
long-distance money transfer found throughout West Africa and
the Middle East),is very active in the north, to the extent
that it has become a primary method for transferring sums of
money from the government-controlled south to the FN-held
north. According to a consensus of the local council of
Korhogo, the transfer fee is usually 10 percent of the
transferred amount or, for small amounts, a flat rate of CFA
5,000 (USD 10). A client in one zone of the country makes
contact with a middleman who in turn contacts an associated
moneylender in the other zone. The client pays the amount
plus the 10 percent fee or flat rate, and the moneylender in
the other zone delivers the cash to the indicated person.
This process can take up the three days, as the actual
physical transfer of money goes via drivers transporting
goods who routinely drive the north-south route through the
center of Cote d'Ivoire.

Comment
======

13. (SBU) Cote d'Ivoire's troubled banking sector is a
symptom of the country's protracted political crisis, which
has produced an ongoing economic malaise that has dragged
down banking sector performance. The banking sector will
continue to sag without progress in the now-stagnant peace
process. However, the revival of the banking sector,
particularly in the North, would itself be a key step in
resolving the country's political problems, and thus
reinvigorating the broader economy.
Hooks