SENEGAL'S BANKING SECTOR BROADENING BUT CONSOLIDATION IS

UNCLAS SECTION 01 OF 02 DAKAR 000468

SIPDIS

DEPT FOR AF/W, AF/EPS AND EB/IFD/ODF
TREASURY FOR AFRICA DESK, OASIA/EBARBER

E.O. 12958: N/A
TAGS: EFIN EINV ECON SG
SUBJECT: SENEGAL'S BANKING SECTOR BROADENING BUT CONSOLIDATION IS
LIKELY

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1. Summary: Senegal's banking and finance sector, particularly in
Dakar, has long been one of the country's most positive economic
attributes. French and African banks dominate, but new banks are
also entering the market. The mid-term trend, however, is for
greater consolidation as competition (and perhaps the global credit
crisis) decreases profitability. Other factors include higher
deposit requirements that will be hard for smaller banks to meet,
and continued aggressive market expansion by international and
regional banks. West African and Monetary Union authorities are
taking positive steps to boost bank account penetration rates and to
improve the ease of regional transactions. End summary.

GROWTH IN BANKING SECTOR SHOWS POSITIVE SIGNS
--------------

2. The Senegalese banking sector is generally considered solid and
well developed compared to other West African Economic and Monetary
Union (WAEMU) countries. It remains the second largest in WAEMU
after that of Cote d'Ivoire, with about one-quarter of the Franc CFA
Zone's total banking assets. The ratio of banking deposits to GDP
is 34 percent in Senegal, versus the WAEMU average of 16 percent.
The large banks, in particular, remain profitable, but competition
on rates is fierce.


3. There are seventeen operational banks in Senegal, the majority
of which are privately owned, with more to come in the next two
years. Societe Generale de Banques au Senegal (SGBS),the largest
commercial bank, with total deposits and borrowing equaling USD 304
million, is an affiliate of Societe Generale France. The other
commercial banks are owned by private and foreign shareholders, the
major exception being the "Caisse Nationale du Credit Agricole du
Senegal" (CNCA) and the government-controlled Housing Bank, Banque
de l'Habitat (BHS).


4. Currently, the sector is dominated by SGBS and Compagnie
Bancaire de l'Afrique de l'Ouest (CBAO),followed by Banque
International pour le Commerce et l'Industrie du Senegal (BICIS) -
part of BNP Paribas group, Togo-based Ecobank, and Bank of Africa
(also headquartered in Togo). They all offer a wide range of retail
and commercial banking services. Other traditional commercial banks
include Credit du Senegal, (part of French Credit Agricole),and
Morocco's Attijariwafa Bank (Atti). Other banks cater to specific
sectors, including CNCA for agriculture financing, BHS (housing),
Banque Regionale de Solidarite (BRS) for the informal sector, and
Banque Islamique du Senegal (BIS),which offers its customers
sharia-compliant products (Septel). Three new commercial banks
entered the market in 2008-2009: Togo-based Bank Atlantique, Banque
Regionale des Marches, a WAEMU-sponsored microcredit bank, and
Malaysian-owned International Commercial Bank. Nigeria's United
Bank of Africa (UBA-Nigeria) has received authorization to begin its
operations in later this month.


5. The other significant players for commercial financing in
Senegal include Citigroup Senegal, which focuses on servicing local
affiliates of multinational companies and does not offer retail
banking, and BMCE Capital, an affiliate of the Bank Marocaine du
Commerce Exterieur, which is very active in project finance,
especially for major government projects, such as the new
international airport currently under construction. The
International Finance Corporation (IFC) has also been active in
local commercial project financing.

MOROCCAN BANKS ON THE MARCH
--------------

6. Moroccan banks have been particularly active in expansion via
acquisition. The local subsidiary of Atti merged with Banque
Senegalo-Tunisienne (BST) in July 2007. Atti holds two-thirds of
the the capital for the new bank, while BST hold the rest. In
December 2008, Atti acquired 79.15 percent of of CBAO (for USD 153
million) to become one of Senegal's largest commercial banks. The
new CBAO-Atti venture maintained CBAO's logo, though the BST brand
has been absorbed into Atti. Also in 2007, BMCE acquired a 35
percent stake in Bank of Africa's operations in Senegal.


7. Atti is also making a push to become one of the biggest
pan-african banks. As of January 2008, Atti holds a 51 percent
stake in the International Bank of Mali and a 51 percent stake in
Cote d'Ivoire's Societe Ivoirienne de Banque. It acquired Credit du
Congo (81 percent),Societe de Banque Cameroon (65 pct of capital),
and Union Bank of Gabon (59 pct of capital). Atti is also taking an
equity stake in Burkina Faso's Cauris Bank International and is
reportedly pursuing the International Bank for Africa in Niger.
Similarly, the President of Ecobank has stated an interest in
acquiring the WAEMU holdings of France's Credit Lyonnais.


8. In a recent press interview, SGBS' General Manager Sandi Gallo
minimized the CBAO-ATTI deal and retorted, "We are not afraid of the
new ATTI/CBAO. We control 29 percent of the market, 26.5 percent of

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the banking workforce, provide USD 22 million in new medium-term
loan to our commercial clients, and purchased USD 48 million of
Senegal's treasury bonds in 2007." Gallo welcomed the ATTI/CBAO as
an opportunity to strengthen banking competition.

CONSOLIDATION IS LIKELY
--------------

9. In spite of the entry of new banks into Senegal, the mid-term
trend is likely towards merges and consolidation for a number of
reasons. One important factor is that the WAEMU Central Bank
(BCEAO) is imposing higher cash reserve requirements on commercial
banks, with minimum deposits increasing from CFA 1 billion to CFA 5
billion (USD 2-10 million) by the end of 2009. This reserve
requirement is scheduled to increase to CFA 10 billion by December
31, 2010. There is much speculation that the smaller banks do not
have the capital available to meet these new requirements. The
banking sector in Senegal is also much more competitive than most of
the WAEMU region and banks are forced to charge lower rates of
interest than elsewhere. Two local bank directors speculated that
this is due to Societe General and other French banking interests'
efforts to push down rates and profitability to force weaker banks
out of the market. Finally, though Senegal's banking sector was not
directly impacted by the "toxic assets" that have weighed down
balance sheets in the U.S. and Europe, the global credit crunch
could still put some local banks in jeopardy. In the shake-out, the
strong banks, including Socite General, Atti, and Ecobank, are
likely to gain market share at the expense of the small banks.


10. According to a BCEAO report published in December 2008, the
proliferation of banks has not contributed to improvements in
development financing in the WAEMU region. For instance, total
loans granted to support development projects within WAEMU represent
only 16 percent of GDP compared to 80 percent in South Africa,
according to the report. BCEAO authorities stated that further bank
proliferation "could weaken the sub-regional banking system."


11. A recent measure put in place to improve the WAEMU banking
integration is the "groupement interbancaire monetique" (GIM) an
integrated banking card for all of the 97 banks and financial
institutions in the Franc CFA Zone. In addition, an electronic
clearing system which links all the banks in the WAEMU has been
introduced recently, allowing the immediate settlement and transfer
of checks. These new systems, however, require investment and staff
from the financial institutions, which again, might be too steep
expensive for some of the smaller operations.


12. While Senegal, especially Dakar, remains an attractive market
for banks, the pressure on interest rates is reportedly decreasing
local profitability and is motivating some banks to become more
active in other WAEMU countries, including Cote d'Ivoire and Mali.
At the same time, one attraction for local banks is that the
customer base is set to grow. While it is estimated that only five
to six percent of Senegal's 12-plus million residents currently
holds a bank account, WAEMU's authorities have introduced
legislation that lowers the required monthly income threshold for
opening a standard bank account as an incentive to increase banking
penetration rates.

COMMENT
--------------

13. While local bankers complain about the increasingly cut-throat
competition in Senegal's banking sector, the relatively lower
interest rates could help the country maintain adequate levels of
new investment during the global recession. At the same time, there
is a tremendous need for the competition to also be reflected in
improved service and new financing and investment instruments. The
WAEMU's efforts to ease regional banking is very welcome and should
decrease the amount of (legal) currency being carried across borders
in the Franc CFA zone by traders, business people, and Embassy
TDYers.

BERNICAT