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Perspectives on Strategic and Emerging Issues in Africa West Coast banking

February 2011 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

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

We are pleased to launch this PwC I would like to thank: survey of mainly the banking industry on the West Coast of Africa with • the Chief Executive Officers and references to the insurance markets Senior Executives who participated in certain countries. The survey in this survey for their time, attempts to gather and compare commitment and support in diverse views from senior banking making this publication possible; executives from banking institutions • the partners and staff in our offices in Angola, Democratic Republic of on the West Coast of Africa and Congo (DRC), Cote d’Ivoire, Ghana our Johannesburg office who have and Nigeria, whilst at the same time assisted in producing this report; protecting confidentiality of the and participants. As in our South African Banking and Insurance surveys, this • in particular, Dr Brian Metcalfe for survey offers perspectives on the his work in producing this report. strategic and emerging issues in these We trust that you will find the territories. results and analysis insightful and we welcome any feedback you This survey has been developed by may have on the report so that we PwC and Dr Brian Metcalfe and the can incorporate it into future PwC key objectives are to: surveys. • offer perspectives on certain strategic and emerging issues in Africa West Coast Banking; • establish data on certain industry trends; Tom Winterboer • encourage timely discussion and Financial Services Leader: Southern debate on the best options for Africa and Africa capitalising on trends to enhance and improve performance of the February 2011 various banks; and • provide perspectives on how Africa West Coast Banking could evolve over the next three years.

PwC 3 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.

4 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Introduction

Introduction

PwC 5 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

6 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Introduction

The five banking markets The following findings are based on The DRC’s banking industry is and their level of economic interviews with a sample of banks therefore at a very early stage of development in five financial markets in West and development. Central Africa. Oil exporter segment The report examines the five The oil exporter segment is markets in separate sections. In characterised by strong exports this introductory section, some of per capita but weak levels of the common themes and major diversification. This segment differences are highlighted. This contains two of the report’s sets the scene for the more detailed participants, Angola and Nigeria. analysis that follows. Both markets have benefited from To place the five different markets in oil but also suffered from the global a broader African context, the four financial crisis and the subsequent segment economic model devised by drop in commodity prices. Oil McKinsey has been used. revenues have had far reaching influences on these countries’ This model classified countries banking structures. For example, in according to their level of Angola Sonangol, the state owned diversification and exports per capita. oil company, has shareholdings in Examination of past economic six banks. Sonangol is the largest development has found that as shareholder in Banco Africano de countries develop they migrate along Investimentos the country’s largest both of these axiis. Africa has 53 bank. different countries and the growth prospects will vary for individual In Nigeria the drop in oil revenues countries. The evolution of the and the lack of loan diversification financial sector in these countries opportunities in the broader economy will mirror their respective stages have been cited as a major cause of of economic development. The five the recent banking crisis. banking markets documented in this report fall into different development The Nigerian economy was unable segments. to absorb the excess liquidity that flowed into the capital markets. As Pre-transition segment a result, the market capitalisation of The Democratic Republic of Congo the NSE increased 5.3 times between (DRC) can be positioned in the 2004 and 2007, while bank stocks pre-transition stage. The pre- increased 9 times. These dramatic transition economies are very poor. increases set the stage for the Although some markets such as DRC resultant market crash. 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.

PwC 7 Introduction

Transition segment Diversified segment The third segment includes Only one country reviewed in this economies in transition and are report can be placed in the diversified characterised by rapidly growing group. Cote d’Ivoire is positioned on economies. Ghana fits into this the periphery of this segment and the group and is also well endowed on-going political instability there will with natural resources. Gold and affect its economic progress. cocoa are traditional exports and as of December 2010 oil will support However, it is important to recognise export earnings. It is expected that that Cote d’Ivoire has a relatively oil will contribute an annual average sophisticated infrastructure and is not of US$1.2 billion to state revenues only a significant exporter of coffee over the next twenty years. The and palm oil but is also the world’s banking sector which is already largest producer of cocoa beans. relatively advanced can be expected to benefit as the economy diversifies and develops. Exhibit 3

Exports per capita, 2008, $ 10000 Libya Oil exporters Equatorial Gabon Mauritius Guinea Diversified Botswana Angola Algeria Tunisia Egypt Namibia 1000 Congo, Rep. Cote d’Ivoire South Africa Chad Nigeria Zambia Morocco Sudan Cameroon Senegal Mali Ghana Kenya Mozambique 100 Sierra Leone Madagascar DRC Tanzania Uganda Transition Rwanda Ethiopia Pre-transition 10 3020 40 50 60 70 80 90 100 Economic diversification Size of GDP per capita Manufacturing and service sector share of GDP, 2008, % bubble <$500 $2,000–5,000 proportional to GDP $500–1,000 >$5,000 $1,000–2,000

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

8 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Introduction

Participating banks (28 banks)

Angola Ghana • Banco Africano de Investimentos • Barclays Bank of Ghana (BAI) • Ecobank Ghana 6 • Banco Caixa Geral Totta Angola1 • Ghana Commercial Bank • Banco Comercial do Huambo • HFC Bank • Banco de Fomento Angola2 • Stanbic Bank Ghana 4 • Banco Millenium Angola3 • Standard Bank Angola4 Nigeria • Citibank Nigeria Cote d’Ivoire • Standard Chartered Bank Nigeria • Société Générale de Banques en • Standard Bank IBTC 4 Côte d’Ivoire (SGBCI)5 • Ecobank 6 • Banque Atlantique Côte d’Ivoire (BACI) 6 • HSBC • 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

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

PwC 9 Introduction

Summary of the major drivers of It is readily acknowledged that all The most important drivers of change change by market five markets examined are embracing in each market is recorded below: massive changes in their financial sectors. • Angola - liquidity • Cote d’Ivoire - demographics Two important themes were found across the markets, the ongoing • DRC - new foreign entrants performance of the domestic • Ghana - regulation and reporting economy and the application of regulation and reporting in the • Nigeria - mergers and respective countries. consolidation

Angola Cote DRC Ghana Nigeria d’Ivoire 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

10 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Introduction

Summary of the most pressing The following table provides a In Angola, Cote d’Ivoire and Ghana issues/major concernes by market summary of the issues that are at the risk management is a critical issue. forefront of the minds of the bankers interviewed in this survey. In DRC, it is subservient to other issues such as a skill shortages, Three issues are repeated on at least business continuity, banking the three occasions. They are credit risk unbanked, currency fluctuations and management, risk management and improving revenue growth. improving revenue growth.

Angola • Availability of key skills • Credit risk management • Risk management Cote • Risk management d’Ivoire • Credit 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 • Improving revenue growth • Litigation risk • Tax legislation Ghana • Brand awareness • Credit risk management • Margins • Risk management • Service quality • Improving revenue growth 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

PwC 11 Introduction

Summary of major skill shortages There is a widespread shortage of Other skill shortages have more by market skills in the banking industry in the specific relevance in individual markets surveyed. markets.

Two skill deficits received particular For example, all types of risk in the attention, capital management and DRC, compliance in Ghana and risk management. Nigeria, executive directors in Cote d’Ivoire and Ghana and non-executive directors in DRC.

Angola Cote DRC Ghana Nigeria d’Ivoire 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

12 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Introduction

Summary of major changes by The table below summarises the In addition there are some changes market major changes highlighted by the that are more specific to particular participants. They display some markets such as oil and Angola, bank common themes such as: increasing market restructuring and Nigeria, levels of competition (Angola and new bank entrants and DRC and Cote d’Ivoire), new technologies the political environment and Cote (Cote d’Ivoire, DRC and Ghana), d’Ivoire. new bank capital requirements (Cote d’Ivoire, Ghana and Nigeria) and credit bureau formations (Angola and Ghana).

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 • Increasing competition d’Ivoire • 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

PwC 13 Introduction

Summary of products that will The participants shared their views On the corporate side, cash become more important over the on both retail and corporate products management as well as trade finance next three years in each market that they believe will increase in will grow rapidly and capital markets importance over the next three years. will play a more important role. On the retail side, mobile banking Capital markets are expected to featured strongly. Debit cards are develop in Cote d’Ivoire and Angola important and there will be an and increase in their scope and increase in the issuance of credit sophistication in the most advanced cards. As the middle class grows in market examined in the report - the markets examined, mortgages and Nigeria. Project financing received a asset based financing will expand. mention in Ghana and infrastructure financing was thought to be of critical importance in Nigeria.

Angola Cote DRC Ghana Nigeria d’Ivoire 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 a and credit) 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 a government level foreign exchange a infrastructure financing a investment banking a leasing a project finance a trade finance a a a a treasury products a

14 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Introduction

Comparison of banking statistics

The Banker Date Tier 1 Assets Tier 1 Capital Capital US$m World Rank US$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 Assets US$m US$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 na 12/09 41 661 l’Afrique Occidentale Banque Internationale pour Ie na 12/09 34 661 Commerce et l’lndustrie Banque Nationale na 12/09 42 502 d’investissement 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 na 12/09 14 223 l’Afrique au Congo 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

PwC 15 Introduction

Comparison of banking statistics (continued)

The Banker Date Tier 1 Assets Tier 1 Capital Capital US$m World Rank US$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

16 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

Banks interviewed: • Banco Africano de Investimentos (BAI) • Banco Caixa Totta Angola • Banco Comercial do Huambo • Banco de Fomento Angola (BFA) • Banco Millennium Angola • Standard Bank

PwC 17 Angola

General background on Angola The economy in general Angola’s GDP growth between 2004 and 2008 averaged above 10% per Angola became independent from annum with a record high of 20% in Portugal in 1975. From the founding 2005. However, the global financial of the state Angola was engulfed in a crisis and the drop in the price of oil civil war between three factions, the at the time caused the economy to Popular Movement for the Liberation stall and record 0.7% growth in 2009 of Angola (MPLA), the National Front and approximately 5% in 2010. for the Liberation of Angola (FNLA) and the National Union for Total Financial institutions Independence of Angola (UNITA). A modernisation project (1992-2003) helped Angola move away from the In 1991 the Bicessa Accord led to a state-controlled financial system. The ceasefire between MPLA and UNITA banking and insurance sectors were and a national election. Although liberalised and new regulatory and the MPLA won a plurality of the vote supervisory systems were introduced. UNITA rejected the result and civil Prior to liberalisation, Angola had war returned. In 1994, the Lusaka two state-owned banks, Banco Protocol led to a new ceasefire but Nacional de Angola which is now the fighting between various factions Central Bank and Banco de Poupança continued until 2002. It has been e Crédito (BPC). estimated that 1.5 million people died in the civil wars and 4 million Insurance people were displaced. President Jose Eduardo dos Santos has been in The insurance sector has begun to power for 19 years and elections are open up with the assistance of the scheduled for 2012. World Bank. In 2003, the state- owned insurance company ENSA was Angola is estimated by the World restructured into three companies, Bank to have a population of 18.5 a holding company, an insurance million. In 2009 its life expectancy company (SARL) and a reinsurance was 38.48 years. In 2009 it had company Ango-Re. an estimated GDP per capita of US$8,300. Stock market (BVDA) Although a financial markets law Oil accounts for over 90% of Angola’s was passed and it was hoped that a exports. Angola is China’s most stock market would open in 2006, important supplier of oil. According this date continues to slip. In March to the Economist oil production 2010, the former Finance Minister stands at 1.9 million barrels making suggested it would be launched in Angola sub-Saharan Africa’s second 2010 but this failed to take place. largest producer after Nigeria. The chairman of the Capital Market Oil accounts for more than half of Installing Commission, said in 2010 Angola’s GDP, 80% of government that arrangements to set up the Bolsa revenues and 90% of export earnings. de Valores e derivativos de Angola Sonangol, the state oil company, has (BVDA) are far advanced. an equity stake in a number of banks (see table).

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

18 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

However in January 2011 Angop, the Infrastructure rebuild state news agency, announced that The government has begun because of “the commercial, business reconstruction of much of the and legal situation,” the Angola infrastructure that was destroyed exchange would not open in 2011. during the civil war. Financial support for new infrastructure has been The brokerage firm IMARA Angola provided in most instances by China has predicted that the Angola through the Chinese Exim Bank and exchange will become the third the China International Fund. largest in sub-Saharan Africa after South Africa and Nigeria. IMARA Before the civil war, agriculture was estimates there could be 14 IPO the mainstay of the economy. The candidates when the market opens. country was largely self-sufficient and This number might include up to exported coffee, sugar cane, bananas 10 banks. One bank that has stated and cotton. Today Angola is a major publicly that it would list on the BVDA food importer. is Banco Espirito Santo de Angola (BESA). Banco Espirito Santo of The government has a strategy to lift Portugal is the largest shareholder agriculture production. One example of BESA with a 52% holding. This of this is the U$1 billion Capanda is unusual relative to the other Agro-Industrial Pole (Malanga Portuguese banks in Angola which Province) where a consortium of now are either owned by Angolan Angolan and Brazilian companies shareholders or the state-owned oil plan to produce sugar and electricity. company Sonangol.

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

PwC 19 Angola

Banking system (Volume of Deposits and Credit) mAOA

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%)

The Angolan banking system is BAI offers customers Platinum, Gold dominated by five banks, which and Classic credit cards. According to together control about 80% of its 2009 Annual Report, 3,583 cards deposits and lending. These banks were issued.. are: In 2010 Novo Banco was renamed • Banco Africano de Investimentos BAI Micro Financas (BMF). BAI (BAI) is the main shareholder holding 92.93% while Chevron Sustainable • Banco Espirito Santo Angola Development owns 7.07%. BMF has (BESA) eight branches and offers Western • Banco de Fomento Angola (BFA) Union services. • Banco de Poupanca e Credito (BPC) The Top Five Market share by assets 2009 • Banco BIC. Others Between December 2008 and 2009, domestic deposits rose by 23.6% 19.9% 21.9% BIC and credit by 35.2%. This contrasted BPC dramatically with the 2008 increases 11.5% 17.2% of 92% in deposits and 140% in BFA credit. 13.8% BESA 15.7% BAI Three Angolan banks have subsidiaries in Portugal – BAI, BIC and Banco Privado Atlântico.

Shareholdings of Sonangol 31 December 2009 US$m* Equity % (the national oil company) in mAOA Associated Banks and Financial **Banco Millenium BCP 5,534 512,308 9,96% Companies 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%

Source: SONANGOL Annual Report 2009

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

20 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

Banks in Angola ranked by total Bank Date Total Assets Total Assets assets Formed 31 Dec 2009 31 Dec 2009 mAOA 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

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

The percentage of the population In the field of banking supervision prudential standards in line with served by the banks remains low the Governor noted the continued international best practices for the and is estimated at 11%. The level modernisation of inspection financial industry. of financial education also needs services and the implementation of to increase. We seek to develop a standards of good governance. Consumer financial services also banking system that is financially will be strengthened in 2011 with sound and socially responsible. By A Financial Intelligence Unit has the introduction of a unit dedicated the end of 2012 we would like to see been created by the BNA to analyse, to the recording and tracking of banking initiatives in all the cities prevent and detect attempts to use consumer complaints. and the number of branches close to the financial system for money one thousand. (There are currently laundering and terrorist financing. Extract from a speech made by BNA Governor 875 branches). By 2013 we would It is expected to begin operations in Jose Lima Massano at the end of year 2010 displayed on the BNA website like to see the banks serving 20% of the first quarter of 2011 the population. The soundness of the financial Extract from a speech made by BNA Governor system will also benefit from the Jose Lima Massano at the ABANC forum to Banking Consolidation Programme 24 November, 2010 displayed on the BNA website which will strengthen the capital structure of banks and adopt

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

PwC 21 Angola

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

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 BANC Founded in 2007. Small bank. Comércio 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.

22 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

Securities of Central Bank at 31 December 2009

Maturity Values in thousands AOA Total 63 days 91 days 182 days 364 days Total 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 - - 1,188,371 - 1,188,371 12,837 Comércio 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

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

PwC 23 Angola

QQ In your view, what is the level Retail banking Retail banking of intensity of competition in Although retail banking is in a the following markets, and how developmental stage it was considered Intense 33.3% 33.3% will this affect your competitive intensely competitive by four response? participants. Moderate 16.7%

The following charts illustrate how the The majority of participants have made Light 16.7% banks perceive the level of competition significant or fundamental changes in three different markets; retail over the last year. None Competition banking, corporate banking and Response investment banking. No Minor Significant Fundamental change change operational change in and or - strategy ganisational and change positioning

Note: Based on responses from 3 banks Corporate banking Corporate banking The majority of participants view corporate banking as intensely Intense 50% 16.7% competitive. They also claim to have made significant or fundamental Moderate 16.7% 16.7% changes to strategy.

Light

None Competition Response No Minor Significant Fundamental change change operational change in and or - strategy ganisational and change positioning

Note: Based on responses from 3 banks Investment banking Investment banking Perhaps reflecting the nature of the economy and the lack of opportunities, Intense investment banking was assessed to have only light or moderate Moderate 50% competition. Light 25% 25%

None Competition Response No Minor Significant Fundamental change change operational change in and or - strategy ganisational and change positioning

Note: Based on responses from 3 banks

24 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

Micro-finance Micro-finance Micro-finance was not considered to be a competitive market at present. As the Intense economy grows, this can be expected to change. Moderate 40%

The competitive assessment of the Light 40% 20% market by participants suggests that demand for micro-finance exceeds the None appetite of the current micro-finance Competition Response providers. No Minor Significant Fundamental change change operational change in and or - strategy ganisational and change positioning

Note: Based on responses from 3 banks

PwC 25 Angola

Electronic banking in Angola Data from Empresa Interbancária de Both the number of POS transactions Serviços (EMIS) Angola shows that the and spend has also grown dramatically number of ATMs grew from below 100 as a result of the POS terminal in 2004 to 1,000 by 2009. expansion.

The number of POS terminals In an EMIS consumer survey in increased dramatically between 2008 December 2010, 86% of multicaixa and 2009 from 2,660 to 7,587. e-card holders said that the most important reason for using a bank card was to avoid bank queues.

Growth in ATMs Growth in ATM transactions Growth in ATM withdrawals

1000 50 2500

900 45

800 40 2000

700 35

600 Number 30 ATM 1500 of ATM Withdrawals 25 Number 500 Transactions US$ millions of ATMs (million) 20 1000 400 15 300 10 500 200 5 100 0 0 2005 2006 2007 2008 2009 0 2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009

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

8000 3.0 350

7000 2.5 300

6000 250 Number 2.0 5000 of POS POS transactions 200 Number Spend (million) 1.5 of POS 4000 US$ millions terminals 150 3000 1.0 100 2000 0.5 50 1000 0 2004 2005 2006 2007 2008 2009 0 0 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009

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%.

26 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

QQ What are the most important • The impact of the global economic • Once the stock market opens many changes taking place in your crisis and the drop in the price of banks will seek listings. financial services market? oil caused a major reduction in • Anti-money laudering legislation. Angola’s revenues. The banks are preparing for close • Many banks had relationships with AML monitoring. (The Governor local companies that had dollar- of the Central Bank, José Lima denominated debt but limited or Massano, announced in early 2011 no dollar revenue. that the bank will create a unit designed to prevent and detect • Fierce levels of competition. It acts that use the Angolan financial is expected that this will lead to system to finance terrorism and future consolidation. money laundering. Massano • Improvements in bank supervision. anticipates that the unit will become operational during the first • Improvements in infrastructure. quarter of 2011.) • Banks need to internationalise as much of the development has been at a domestic level. • Development of a credit bureau. Although data was collected a few years ago it was not maintained. As a result the initiative has been restarted and was anticipated to begin in early 2011. • The transition from a dollarised economy to the local Kwanza currency will take a long time. Much of the economic activity is centred on dollars.

PwC 27 Angola

QQ What are the strengths and Participants highlighted the following: weaknesses of the financial services sector? Strengths

• The financial system is one of the more developed parts of the economy. • Implementation of technology, for example the interbank ATM system, electronic payment of salaries, etc. • The banks are well capitalised. • Rapid development of branch networks. • Presence of international investors in the banking system with good knowledge. • Strong competition. Weaknesses • Need to improve corporate governance. • No credit database being shared between banks. • Some banks have been too aggressive in their network expansion. • Strong Portuguese rather than multinational influence. • Quality and training of staff is weak. Some banks have set up their own training institutes. • Improvements needed in supervision and regulation. • With the proliferation of banks some may develop capital problems. • Rules of the financial system yet to be provided in terms of consistency and transparency.

28 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

QQ Do you have any major A number of banks expressed concern One bank predicted a shakeout in the concerns about the financial over liquidity. industry. They suggested the current sector in Angola? number of around 20 banks today will There was a general concern about be reduced to 10 banks in five years’ the industry’s exposure to the real time. estate sector. One bank predicted an imminent correction in the real estate Concerns around the reliability of market. customers’ financial information provided for credit analysis. 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.

QQ Can you rate from 1 to 10 The banks awarded a score of 6 the level of development of out of 10 in assessing the level of the financial services sector development in Angola relative to in Angola relative to other other West African markets. markets in West Africa? (10 = maximum development.) 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.

PwC 29 Angola

QQ What developments are needed One participant suggested that credit The bureaucracy often slows down to move the financial services needed to be disseminated more simple transactions such as overseas market forward? widely in the country and not just to a funds transfers. “select few”. The limited development of the The exchange rate mechanism legal environment means that some needs to be more consistent and products such as leasing or factoring transparent. One banker said that are yet to be made available. 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.

QQ How will consumer needs in 2013 Although there are no recognised The number of cards in use remains differ from those of today? statistics it is generally believed that small but is expanding. The 2009 only 11% of the population has bank Banco BAI annual report stated that accounts. it had issued just 3,583 cards. As the country’s largest bank it is clear The use of internet banking is very that the number of credit cards in limited but is expected to grow. circulation remains very limited.

Mobile banking will increase in importance.

30 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

QQ What are the major drivers of The top three drivers of change in In August 2010 the Angola change in the financial services the Angolan financial market were Government acknowledged that some industry today? Please rank the identified as liquidity, the local banks were struggling with liquidity “top 5” in order of importance. economy and foreign exchange issues. Local media has reported controls. (Angola has a complex that this has caused some banks foreign exchange and control system to limit lending and prevent some administered by the National Bank of withdrawals. Angola). In its 2010 budget, the government These drivers were closely followed indicated that it would allow banks to by the use of technology and the access government loans if they met regulatory environment. collateral requirements and followed a restructuring and recapitalisation programme.

Liquidity

Performance of domestic economy

Foreign exchange control

Technology

Regulation and reporting

Funding constraints

Compensation of professionals

Corporate social responsibility

Demographics

Capital markets

Mergers/Consolidation

Money laundering

Fiscal pressures

Foreign entrants

0 5 10 12 Score

Based on responses from 5 banks

PwC 31 Angola

QQ What are the most pressing The top three pressing issues The significance of oil resources issues facing your organisation? identified by participants were the was reflected in the next two most availability of key skills in the banking important pressing issues, being industry followed by credit risk commodity prices and currency management and risk management in fluctuations. general.

Availability of key skills Credit risk management Risk management Commodity prices Currency fluctuations Customer acquisition/growth Service quality Appropriate staff incentive schemes Addressing compliance and regulation Level of crime Market volatility Retaining existing customers Improving revenue growth Back office/operational/system quality Brand awareness Building a customer base Overcapacity Corruption Data security and privacy Impact of the latest phase of the financial crisis Payment systems Profit performance Volatility interest rates Capital management Retail sales practices Banking for the previously un-banked Business continuation Cost reduction Deregulation of commission Internet and data security Litigation risk Margins Tax legislation Transparency of fees and commissions Valuation and pricing of financial instruments IFRS reporting and IFRS amendments Low-cost alternatives/competitors Complex instruments 2.0 1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 More pressing issues

Based on responses from 4 banks

32 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

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

QQ Have you completed a merger or None of the banks interviewed were an acquisition in the last year involved in a merger or acquisition and are any planned for next during the last year. year?

QQ Will there be an entrance of new The participants unanimously agreed financial services players into that there would be more financial Angola in the next 3 years? 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.

QQ What is your institution’s The participants agreed primary method of growth in unanimously that organic growth Angola ? was the primary method of growth in Angola.

PwC 33 Angola

QQ Do you support the concept of While four banks support deposit Support for Deposit Insurance deposit insurance? 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 QQ Do you see the intensity of The participants agreed unanimously regulation of the financial that regulations would increase services industry increasing or substantially over the next three decreasing over the next three years. Two areas which were years? mentioned specifically were capital adequacy and operational risk.

QQ Do you plan increased compliance All the participants agreed that they spending over the next three would increase compliance spending years? over the next three years. Three participants specifically expect to increase their spending by 100%.

QQ Do you believe financial services All the participants agreed organisations’ risk management that financial institutions’ risk systems are sufficiently robust? management systems were not sufficiently robust at this time.

QQ In which area could there Several areas could benefit from be improvements in your improvements in risk management, organisation’s risk management including: systems? • operational risk. • credit risk. • policies and procedures for specific sectors such as real estate, liquidity policies 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.

34 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

QQ In which areas are you currently The availability of key skills was These shortages are closely followed experiencing the greatest identified earlier in this section as by the limited availability of skilled shortage of skills? 1 is low, 5 is the most pressing issue in Angolan executive directors and IT specialists. high banking.

The three key areas of skills shortage are:

• capital management; • financial reporting; and • risk management.

Capital management

Financial reporting

Risk management

Executive directors

Information technology (IT)

Compliance

Audit committee

Internal audit

Administration

Non-executive directors

0 5 10 15 20 25 Score

PwC 35 Angola

QQ Has your organisation adopted Four of the five participants indicated IFRS (International Financial that they have adopted IFRS for group Reporting Standards)? What purposes. do you see as the key benefits of adopting IFRS? The most important benefits of IFRS were identified as more transparent disclosures and increased reliability in financial reporting.

QQ Do you think that the adoption The participants agreed unanimously Full understanding of the impact of IFRS will enhance market that IFRS will enhance market of IFRS reporting? How confident reporting. are you that you have a full understanding of the impact of The majority of participants believe IFRS on your organisation? that they fully understand the impact of IFRS on their bank.

Somewhat confident Very confident

QQ Do you currently use a The banks have not yet installed Currently have a CRM system CRM (Client Relationship comprehensive CRM systems. At this Management) system? 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).

No Yes

36 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

Our organisation will undergo Joint ventures and partnerships will be QQ Do you agree or disagree with significant M&A over the next three key to our expansion plans the following statements? years

Neither Neither Agree Agree Disagree Disagree

Only one bank plans to be involved in Two banks agreed that joint ventures M&A over the next three years. and partnerships will be an integral part of future expansion.

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

Neither Neither Agree Agree Disagree Disagree

The banks, reflecting on their foreign The banks are in growth mode and do shareholders, do not envisage any not plan any business disposals. future foreign investor partnerships.

Our organisation will seek a strategic Our organisation is already structured domestic investor or a partner in a in the way we want significant new venture in the next three years

Neither Neither Agree Agree Disagree Disagree

Only one bank indicated that it might Considerable change can be seek a strategic domestic investor. anticipated in the banks’ business models. Two banks agreed that their current structure matched their future business expansion.

PwC 37 Angola

QQ Are significant investment The respondents unanimously and business process changes indicated that they planned significant envisaged for risk management investments in risk management and and compliance purposes over the compliance processes over the next 12 next 12 months? months.

QQ What will the role of branches be There is a major branch expansion in 2013? 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.

QQ Which product areas will become Retail products increasingly important over the • Mortgages next three years? • Leasing (legislation not yet in place) • Savings products • Cards Wholesale products • Capital markets (in May 2010 Angola received credit ratings from S & P, (B+), Moody’s (B1) and Fitch (B+) paving the way for international bond issues. • Investment banking • Asset management including a real estate investment fund • Debt markets • Leasing

38 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

QQ Which foreign financial Banks from South Africa, Brazil, China Foreign banks and institution do you believe may and the rest of Africa are expected to Angolan oil choose to move into Angola over move into Angola over the next few the next three years? years. BP’s Angolan unit launched a syndication arranged by Some of the banks mentioned by BNP Paribas SA and Standard participants included ABSA, Bank Chartered Bank to obtain a $3 of Brazil, Citibank, HSBC, Ecobank, billion term loan facility backed Société Générale and BNP Paribas. by crude oil sales from its Angolan production.

The facility for BP Angola is a The Angolan banks are interested in five year amortizing term loan QQ What are the top three offshore expanding their activities in SADC maturing June 30, 2015, the markets you believe your (Southern African Development banks said in a joint statement. organisation should focus on Community). going forward? Source: BNP Paribas SA , Standard SADC (founded in 1980) includes 15 Chartered Bank Statement, 2 September, member states: Angola, Botswana, 2010 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.

QQ How will the financial services As noted elsewhere in this report there markets needs of the consumers has been growing usage of both ATMs of 2013 differ from those of and POS terminals. today? 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.

PwC 39 Angola

QQ What is your estimate of annual Two participants expected minimal growth in revenue for 2010 and growth in 2010 but all expect to be over the next three years? 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.

100

90

80

70

60

50

40

30 Expected annual growth rate in 2010 Expected annual growth 20

10

0 0 10 20 30 40 50 60 70 80 90 100

Expected annual growth rate in 2013

40 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Angola

Peer Review

QQ Can you name the top three A simple scoring method awarded 3 banks in terms of success points to first place, 2 points to second (performance, presence, and 1 point to third place. This allowed momentum, etc.) across a the banks to be ranked based on a total variety of different markets? 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.

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

PwC 41 42 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

Banks interviewed: • Société Générale de Banques en Côte 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

PwC 43 Côte d’Ivoire

General background on The economy in general In March 2009, Côte d’Ivoire received Côte d’Ivoire debt relief under the Enhanced Côte d’Ivoire has a population of Heavily Indebted Poor Countries approximately 21 million. It is (HIPC) Initiative. The IMF approved a estimated that it had GDP growth US$565.7 million Poverty Reduction of 2.3% in 2008 and 3.2% in 2009. and Growth Facility. The IMF Board GDP per capita is estimated to be noted Côte d’Ivoire’s performance US$1,700. under its two Emergency Post- Conflict Assistance programmes and The Côte d’Ivoire economy has called for continued reforms toward historically been highly dependent HIPC completion point. (Source: U.S. on the production and export of State Department). tropical products. It is the world’s largest producer of cocoa beans Recent elections and a significant exporter of coffee and palm oil. Since 2007 oil and Côte d’Ivoire’s elections were held in gas production have grown in November 2010 having been delayed relative importance. Dependence on six times. agricultural exports has exposed the economy to swings in commodity Although conflict ended in 2007 prices. political tensions remain high and future stability remains uncertain. In comparison to other developing During the civil war the country was countries, Côte d’Ivoire has a divided between the pro-government sophisticated infrastructure. South and the anti-government forces Abidjan is the most modern port in in the North. West Africa. In the past it has been viewed as the economic engine of At the time of publication of this Francophone West Africa. report the political crisis that resulted from the disputed winner in the The political and social crisis that November 2010 presidential election, began in 2002 has had a major impact remains. on economic development. The U.S. State Department has noted that The incumbent President Laurent “Economic growth has been negative Gbago disputes the result with the or low each year since the outbreak of rival candidate Mr Alassane Ouattara the armed rebellion in late 2002, with and a political stalemate exists. a cut-off of most external assistance, (except humanitarian aid) mounting The African Union is trying to domestic and foreign arrears and negotiate an end to the crisis. a drastic slowdown in foreign and domestic investment.”

44 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

Background on participants Current employment in the six banks The number of retail bank accounts at interviewed is 2,753 and this is the six banks in 2010 was estimated expected to increase by 14% to 3,150 to be 820,000 rising to 980,000 over employees by 2013. three years.

The six banks have 199 branches in On the corporate side, fee income 2010 and they expect these to more as a percentage of total income was than triple by 2013 to 335 branches. estimated to exceed 40% for three banks in 2010 and by 2013 this will The banks expect to almost double rise to 60% for two of these banks. the number of ATMs from 296 to 520 by 2013. The banks indicated that they had 38 corporate clients with loan facilities Four banks provided data on debit exceeding US$25 million and by cards. These are anticipated to grow 2013 this would grow to 53 corporate from 280,000 in 2010 to 460,000 in clients. 2013. Estimates of middle market customers Only three banks supplied credit card were distorted by one bank’s figures estimates. In 2010 they estimated and as a result have not been 35,000 credit cards expanding to included. 160,000 by 2013.

PwC 45 Côte d’Ivoire

IMF Statement on Côte d’Ivoire “Economic activity has held up well These delays impose costs on the issued in September 2010 in 2010. Economic growth appears budget. Also, the implementation on track to reach the program target of cocoa and coffee sector reforms of 3% for the year despite sporadic is important for the floating power outages, difficulties in the oil completion point under the HIPC and refinery sectors, and some civil Initiative. unrest during the first half of 2010. The mission welcomed the Continued strong world cocoa authorities’ reaffirmation of their prices, in particular, have helped main economic policy objectives: support economic activity facilitating higher economic growth and construction is having a and reducing the widespread significantly better year. Inflation poverty in Côte d’Ivoire. has remained in the range of 2%. The external current account In line with the country’s poverty continues to show a sizeable surplus reduction strategy, budget as both exports and imports are expenditure will continue to growing robustly. shift towards pro-poor spending, including basic health care and With respect to the economic education. program in 2010, the budget outcome at the end of June But with an investment rate of was generally in line with less than 10% of GDP, the country program commitments. Revenue urgently needs substantial new performance accounted for much of investment in the coming years, a better-than-programmed overall especially in power and transport budget deficit (0.5 percent of GDP), infrastructure. but this is not expected to affect the outlook for the year as a whole. Thus it will be important that the authorities develop a Public expenditure remained within comprehensive borrowing strategy, the planned envelope, with foreign- one that takes into account debt funded investment being executed sustainability issues and the long- especially well, though the target run fiscal path in setting borrowing for pro-poor spending was missed objectives.” 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.

46 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

Banking in Francophone West Africa

The Central Bank of West African The conditions of approval are mainly

unisiaT States (BCEAO) oversees banks and based on : financial institutions conducting Morocco activities in the member states of the • the name West African Economic and Monetary Algeria Libya • the legal status of the Union (WAEMU). These relations Western Sahara establishment mainly fall within the scope of the

Mauritania functions performed by BCEAO • at the end of 2010 the minimum Mali Niger Cape Verde Chad as far as the surpervision of the capital which currently stands at Senegal * Gambia Burkina banking sector and the control and CFA 1 billion (US$ 2 million) for Guinea Bissau Faso Guinea distribution of credit are concerned. banks throughout the States will

Benin a Nigeria

Sierra Leone Côte n

ha

ogo

T G be raised to CFA 10 billion (US$ Liberia d’Ivoire Cameroon Composition of WAEMU 20.4 million)*, and that of financial Equatorial Guinea ongo C institutions will be raised from CFA Gabon Seven groups dominate the 300 million (US$ 0.6 million)* to WAEMU banking system through 39 CFA 3 billion (US$ 6 million)*. establishments with relatively wide Bénin, Burkina Faso, Côte-d’Ivoire, national networks. • the adequacy between the Guinée Bissau, Mali, Niger, Sénégal resources and objectives of the and Togo. Banking Law establishment to be created The Banking Law provides a • the quality of shareholders definition of banks and financial • the worthiness and experience of institutions, and of the credit and managers, and investment activities they offer. It specifies the conditions of entry and • an activity programme showing the determines the obligations which viability of the operation. must be met by banks and financial In order to enable all banks and institutions in the execution of their financial institutions of the Union to operations. The Banking Law defines have access to the banking market the scope of the control exerted by of each member state, in optimal the Central Bank and the Banking competition conditions, the Council Commission, and spells out the rules of Ministers of the Union decided, governing the Monetary Union and at its meeting held on 3 July 1997, the sanctions applicable in case these to adopt the principle of unique rules are not respected. approval. Thus, as from 1 January 1999, any bank or financial institution Banks and financial institutions duly authorised by a state of the must be authorised and registered Union, may carry out a banking or on the list of banks and financial financial activity in the other states of institutions to be able to operate. the Union, and provide services of the This authorisation is granted by the same nature in any other area in the Minister of Finance after BCEAO Union, without having to request new has examined the application and authorisations. the WAEMU Banking Commission has certified its conformity with Source: BCEAO and WAEMU applicable laws.

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

PwC 47 Côte d’Ivoire

Bank groups in Francophone West In 2009, the number of financial Africa (UEMOA) 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 Market Teller Number of Staff Institutions share windows customer accounts 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 2 0,3% 2 0 18 financial companies) 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 3 2,6% 51 175,923 770 (UBA) Total 39 65,3% 870 2,988,224 10,597

48 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ Number of financial institutions The adjacent table shows that Côte Banks Fin. Total in each UEMOA country d’Ivoire has 20 banks within the instit UEMOA total of 99 banks, based on the Bénin 12 1 13 Central Bank’s statistics for December 2009. Burkina 11 5 16 Côte d’Ivoire 20 3 23 Senegal has the second largest Guinée-Bissau 4 - 4 representation with 18 banks. Mali 13 4 17 The structure of the financial sector Niger 10 1 11 within the Francophone region is Sénégal 18 3 21 shown in the table below. The broad- Togo 11 2 13 based banks account for 91% market share in UEMOA. Total 99 19 118

Activitès Bénin Burkina Côte Guinée- Mali Niger Senegal Togo UEMOA Market Teller Number Effective principales d'Ivoire Bissau share windows of bank accounts Bank Group Number Market Teller Number of Staff Banks 12 11 18 4 13 10 16 11 95 98,9% 1.335 4.474.801 16.940 Institutions share windows customer - general 10 9 15 3 9 8 12 10 76 90,5% 1.202 3.931.533 15.109 accounts - specialist 2 2 3 1 4 2 4 1 19 8,4% 133 543.268 1.831 Ecobank (ETI) 8 14,8% 216 825,632 2,537 . agriculture - - 1 - 1 - 1 - 3 3,1% 58 235.68 587 Société Générale 4 12,9% 119 466,689 1,976 . morgage 1 1 1 - 1 1 1 - 6 3,2% 30 241.168 526 BOA GROUP 8 10,7% 103 361,074 1,240 . micro-finance 1 1 1 1 2 1 2 1 10 2,1% 45 66.332 718 (of which two are 2 0,3% 2 0 18 financial companies) Financial 1 5 2 - 3 1 3 2 17 1,1% 50 5.747 263 etablishments Attijariwafa Bank 4 10,3% 141 646,725 1,373 Credit sales - 1 - - - - 1 - 2 0,0% 30 5.623 82 BNP Paribas 5 8,5% 95 288,752 1,473 Credit sales 1 4 2 - 2 - 2 - 11 0,8% 17 124 157 AFG 7 5,5% 145 223,429 1,228 and/or leasing United Bank for Africa 3 2,6% 51 175,923 770 Venture capital - - - - 1 1 - 2 4 0,3% 3 0 24 (UBA) and guarantee Total 39 65,3% 870 2,988,224 10,597 funds

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.

PwC 49 Côte d’Ivoire

Regional Economic Integration in Francophone West Africa

unisiaT The West African Economic and union and common external tariffs Morocco Monetary Union (WAEMU) or Union (early 2000); have harmonised économique et monétaire ouest- indirect taxation regulations; and Algeria Libya africaineEgypt (UEMOA) is an organisation have initiated regional structural Western Sahara of eight states of West Africa and sectoral policies. A September

Mauritania established to promote economic 2002 IMF survey cited the UEMOA as Mali Niger Sudan Eritrea Cape Verde Chad integration among countries that “the furthest along the path toward Senegal Gambia Burkina share a commonDjibouti currency, the CFA integration” of all the regional Guinea Bissau Faso Guinea franc. Ethiopia groupings in Africa.

Benin a Nigeria

n Central

Sierra Leone CÙte ha

ogo African Republic T d’Ivoire G Somalia Liberia Cameroon da UEMOAgan wasKenya created by a Treaty UEMOA institutions include: Equatorial Guinea U ongo Gabon C DemocraticsignedRwanda in Dakar, Senegal, on 10 Republic of CongoJanuaryBurundi 1994, by the Heads of State • a common central bank – Banque and GovernmentanzaniaT of Benin, Burkina Centrale des Etats de l’Afrique de

Faso, Côte d’Ivoire,Comores Mali, Niger, l’Ouest (BCEAO); UFMOA Mayotte Angola Senegal,Malawi and Togo. In 1997, Guinea- WAMZ Zambia • a Regional Banking Commission, Bissau became its eighth member ECOWAS only and regional Stock Exchange since Zimbabwe r ca Namibia state. s ga 1998, and a partially functioning Botswana da Mozambique a M Mauritius Securities Exchange Commission; UEMOA is a customs and monetary Swaziland Southunion betweenLesotho some of the members • BOAD (Banque Ouest Africaine Africaof Economic Community of West de Développement) which is African States (ECOWAS). Its considered an independent, objectives are: specialised institution under the UEMOA treaty; and • greater economic competitiveness, • Institutions also include a Court through open and competitive of Justice, a General Accounting markets, along with the Office, regional Chamber of rationalisation and harmonisation Commerce, and, eventually, a of the legal environment; Parliament, none of which is fully • the convergence of macroeconomic functioning. policies and indicators; • the creation of a common market; • the coordination of sectoral policies; 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

50 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ What are the most important • Increased levels of competition changes/developments taking between banks. New banks that place in your financial services have entered the market include market? UBA and Diamond Bank from Nigeria and BGIF from Gabon. • Increase in the number of branches and ATMs. • Hiring pressures. New entrants are hiring staff away from existing banks, as a result there is upward pressure on remuneration levels. • New technologies such as electronic payments and mobile banking. • Evolving financial needs for both consumers and SMEs. • The economy has suffered as a result of the “National Crisis” but after the elections the economy is expected to improve. • Development of the credit card market. • New capital requirements. A minimum capital requirement has been set at CFA 10 billion (US$ 20.4 million)* for the end of 2010. It has been said that such a requirement will not be particularly onerous for the regional banking groups but it represents a real challenge for the smaller independent banks.

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

PwC 51 Côte d’Ivoire

QQ Do you have any major concerns • Changes in capital requirements about the financial sector in Côte means that some degree of d’Ivoire? consolidation is on the horizon. • Small size of the banking market. Less than 1 million bank accounts in a country of 21 million people. More than 5 million people have mobile phones. • Rural population remains untouched by the banking sector. • Economic dependence on the agricultural sector – particularly cocoa. • Excess of competition.

Based on the responses of six banks QQ Score of the level of development. 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.

QQ What are the strengths and Strengths Weaknesses weaknesses of the financial • Operating in a regional market • Limited branch network services industry? • Adoption of new technology • Unstable political environment • An under-banked market • Lack of market sophistication • Single currency • Concentrating of banking in Abidjan • Some of the new entrants have the ability to leverage their expertise • Corruption and fraud and capacity • High proportion of SMEs are high • Expanding economy risk • Banking sector is well regulated

52 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ What developments are needed • Greater support for SMEs, most • Awaiting a credit bureau. The to move the financial services have limited or no access to banks. Central Bank does aggregate data market forward? on bank loans but it is not fully • Increased electronic banking and comprehensive and effective. The availability of credit cards. (See IMF has been providing assistance below) to help set up a credit bureau. • Retailers are currently hoarding • Need to improve service quality. cash rather than depositing it in banks. • Absence of medium and long-term funding. • Better governance especially on Fiduciary Bonds. • Need to capitalise banks at the regional level rather than at a • More accurate national economic national level. and financial data. Limited information available at company level.

QQ Card services within In January 2005, the UEMOA/ This permits clients to have a card Francophone West Africa WAEMU interbank card processing bearing the GIM-UEMOA logo, with UEMOA/WAEMU centre (CTMI-UEMOA) was created as the following features: a public limited company. It provides interbank services and various • a chip-card technology using proxy services on behalf of banking, Europay Mastercard Visa (EMV) financial and postal institutions in standards; West African Economic and Monetary • acceptance by ATMs of all GIM- Union (WAEMU). UEMOA members whatever the country; and The technical processing of card-based operations (authorisation, routing, • acceptance by trading companies management of payment stoppage, affiliated to a GIM-UEMOA member etc) is centralised on the CTMI- bank. 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.

PwC 53 Côte d’Ivoire

Regional Economic Integration in the rest of West Africa

QQ West African Monetary Zone Progress on the West African The WAMZ was formed in 2000 (WAMZ) within ECOWAS Monetary Zone to try and establish a strong stable currency to rival the CFA franc, whose The West African Monetary Zone is exchange rate is tied to that of the a group of five countries in ECOWAS euro and is guaranteed by the French (Economic Community of West Treasury. The eventual goal is for the African States) that plan to introduce CFA franc and Eco to merge, giving a common currency, the Eco, by the all of West and Central Africa a single year 2015. stable currency. The five member states are the The launch of the new currency is Gambia, Ghana, Guinea, Nigeria and being prepared by the West African Sierra Leone. Liberia (also a member Monetary Institute based in Accra, of ECOWAS) has expressed an interest Ghana. This is intended to be the in joining. forerunner of a common central bank. However, several of the WAMZ’ The WAMZ is dominated by Nigeria, countries suffer from weak currencies Africa’s largest oil producer and most and chronic budget deficits. 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.

54 Perspectives on Strategic and Emerging Issues in Africa West Coast banking 33 53 68 76 88 51 Côte d’Ivoire 124 135 133 129 349 193 553 377 496 427 515 895 Total 4,695 6 73 20 26 31 40 39 76 32 101 190 128 378 194 316 244 291 527 2,712 Employees 51 13 27 37 36 96 32 53 56 45 65 159 175 183 180 183 224 368 1,983 Officers - 342 of 1,071 6,264 1,488 2,254 3,029 7,701 15,132 12,341 50,302 19,086 25,172 91,320 918,741 139,690 134,835 136,786 271,928 Number accounts 3 2 1 3 5 7 6 4 1 10 16 14 73 23 34 33 27 44 306 (c) Network

9,188 sheet 33,872 17,422 59,380 38,652 37,906 50,566 44,177 73,517 92,327 total (b) 234,963 183,995 316,442 246,058 324,009 341,775 323,923 659,880 Balance 3,088,052 69 36 19 79 77 90 121 103 150 188 480 376 646 502 661 698 661 6,304 1,347 US$m ------150 8,840 1,200 7,490 Non National - - - 908 3,000 2,000 4,800 1,284 2,040 4,800 12,000 10,000 10,300 12,337 13,910 13,856 16,667 15,556 Private 123,458 ------697 3,000 1,960 6,090 State 53,639 21,392 20,500 (a) 3,000 2,000 6,000 3,000 1,755 7,490 4,000 4,800 12,000 10,000 22,676 10,300 12,337 20,500 20,000 13,856 16,667 15,556 Capital FCFAm 185,937 6 4 6 4 8 24 12 20 46 21 15 10 25 42 41 28 34 32 380 US$m 1966 1966 Date 04/06/2009 28/10/2009 14/05/2008 21/07/1994 11/02/2005 08/05/2006 01/12/2003 26/11/1996 28/04/1993 06/02/2004 01/02/2000 11/02/2005 09/01/1966 14/12/1995 11/08/1978 04/03/1999 30/12/1980 16/03/1989 CNCE BSIC UBA C.I.B.C.I BRS-CI BRIDGE BANK VERSUS BANK ACCESS BANK SHCI BFA SCB-CI CITIBANK SIB BOA-CI BACI BNI BIAO-CI ECOBANK BICICI SGBCI Caisse Nationale des Caisses d'Epargne Totals Banque Sahélo-saharienne pour l’Investissement et le Commerce United Bank for Africa Cafipa Investment Bank – Côte d'lvoire Banque Regionale de Solidarite Bridge Bank Group Bridge Bank Group Versus Bank Versus ACCESS BANK Côte d’Ivoire Banque de I'Habitat Côte d’Ivoire Banque pour Ie Financement de I'Agriculture Standard Chartered Bank – Côte d'lvoire Chartered Standard CITIBANK - Côte d'lvoire Societe Ivoirienne de Banque Bank Of Africa - Côte d’Ivoire Banque Atlantique de Côte d’Ivoire Banque Nationale d'investissement Banque Internationale pour l'Afrique Occidentale Ecobank Côte d'lvoire Banque Internationaleet pour Ie Commerce l'lndustrie de la Côte d’Ivoire Société Générale de Banques en Côte d’Ivoire 31/12/2009 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 Background of banks d’Ivoire statistics in Côte 1 (a) Accounts in FCFA millions in FCFA (a) Accounts figures (b) Provisional and offices of agencies in the(c) Number network

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

PwC 55 Côte d’Ivoire

QQ In your view, what is the level Retail banking Retail banking of intensity of competition in Five of the six respondents consider the following markets, and how retail banking to be intensely Intense 16.7% 33.3% 33.3% will this affect your competitive competitive in Côte d’ Ivoire. response? Moderate 16.7% Furthermore half the group have made The following charts illustrate fundamental changes to their retail Light how the banks perceive the level offering. One bank said it will open None of competition in three different up to ten new branches in 2010. Competition markets; retail banking, corporate Response No Minor Significant Fundamental banking and investment banking. change change operational change in and or- strategy ganisational and change positioning

Note: Based on responses from 6 banks

Corporate banking Corporate banking Five banks considered competition to be intense. Two banks also indicated Intense 16.7% 50% 16.7% they had made fundamental changes. Moderate 16.7% Spreads are narrowing and banks are trying to improve service quality. Light

None Competition Response No Minor Significant Fundamental change change operational change in and or- strategy ganisational and change positioning

Note: Based on responses from 6 banks

Investment banking Investment banking Only four banks claimed to be involved in merchant and investment Intense 25% 25% banking. Two viewed this segment as moderately competitive and two as Moderate 25% 25% intensely competitive Light One bank suggested that it serviced None this segment directly from Paris. Competition Another believed there was potential Response No Minor Significant Fundamental for a number of deals. They cited change change operational change in and or- strategy companies such as PERTROCI ganisational and (national oil company), SIFCA (palm change positioning

oil, sugar cane and national rubber), Note: Based on responses from 6 banks 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.

56 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ Do you believe that the financial With over 20 banks in the market and services market is overcrowded? more foreign banks about to enter, the respondents concluded that the market was overcrowded. (In 2004 there were 16 banks in Côte d’Ivoire.) No Two thirds Yes Two banks, one foreign and one said Yes domestic, contended it was not overcrowded.

Based on responses from 6 banks

QQ Which category of institutions The participants identified will present the most significant established broad based financial competitive threat to your institutions already in the market organisation over the next three as their major competitors. One years? 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.

QQ In the financial services market, Côte d’Ivoire’s financial consumers how will consumer needs in 2013 needs are evolving and there are differ from those of today? 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.

PwC 57 Côte d’Ivoire

QQ What are the major drivers of Demographics were considered the The importance of a satisfactory change in the financial services most important driver of change. Not outcome to the elections was industry today? Please rank the only is the overall marketing effort recognised with the fourth place “top 5” in order of importance. expanding, but as noted elsewhere position of politics. in the report, there is a major shift towards electronic service delivery. Disintermediation, governance and the performance of the domestic In second place is capital markets economy were also considered to be followed by funding constraints. important drivers. One bank noted the expansion of commercial paper and other capital market instruments.

Demographics

Capital markets

Funding constraints

Politics

Disintermediation

Governance

Performance of domestic economy Consumerism

Foreign entrants

Global economic downturn

Government intervention

Liquidity

Money laundering

Mergers/Consolidation

Regulation and reporting

Solvency

Technology

Fiscal pressures

0 5 10 15 Score

Based on responses from 5 banks

58 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ What are the most pressing issues The most pressing issue was identified facing your organisation? 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.

Risk management Credit risk management Retaining existing customers Banking for the previously un-banked Improving revenue growth Building a customer base Profit performance Availability of key skills Service quality Litigation risk Margins Back office/operational/system quality Corruption Internet and data security Retail sales practices Addressing compliance and regulation Cost reduction Data security and privacy Payment systems Business continuation Level of crime Tax legislation Brand awareness Capital management Customer acquisition/growth Transparency of fees and commissions Appropriate staff incentive schemes Commodity prices Overcapacity Low-cost alternatives/competitors Volatility interest rates Market volatility Valuation and pricing of financial instruments Currency fluctuations Impact of the latest phase of the financial crisis IFRS reporting Deregulation of commission Complex instruments 2.0 1.5 1.0 0.5 0.0 0.5 1.0 1.5 2.0 More pressing issues

Based on responses from 5 banks

PwC 59 Côte d’Ivoire

QQ Will there be an entrance of the The respondents unanimously agreed New financial services entrants new financial services players that Côte d’Ivoire would continue into Côte d’Ivoire in the next to see new financial services players three years? enter the market.

Several Nigerian banks are expected 100% to join UBA and enter the market. believe there will be more new entrants 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 Based on responses from six banks and a participant suggested that a Lebanese bank may enter the market. BGFI of Gabon is also expected to set up an operation.

QQ What is your institution’s The primary method of growth for Primary method of growth primary method of growth? 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. Start up Organic growth

QQ Do you support the concept of Four banks supported deposit Support for Deposit Insurance deposit insurance? 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 No meant that deposits were, in effect, Yes already “insured”.

60 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ Do you see the intensity of The majority of banks believe that Intensity of Regulation regulation of the financial the regulatory environment will get services industry increasing or tougher in the future and regulations decreasing over the next three will increase substantially. years? 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.

Increase slightly Increase substantially

QQ Do you plan increased Compliance spending will increase in compliance spending over the five of the six banks interviewed. Two Plan to increase compliance next three years? banks provided estimates above 20%. spending An international bank indicated that it already had significant expenditure on compliance.

No Yes

PwC 61 Côte d’Ivoire

QQ Do you believe financial services Only one local bank expressed Risk management systems organisations’ risk management confidence in the robustness of robust systems are sufficiently robust? 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. No Yes

QQ In which area could there Several participants highlighted the be improvements in your need to have an accurate financial organisation’s risk management database. A credit bureau has just systems? 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.

62 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ Are significant investment Most participants expect that business Changes envisaged for risk and business process changes process changes will be introduced management and compliance envisaged for risk management in the next year to help improve risk and compliance purposee over the management. next 12 months? One suggested it would make improvements to prevent money laundering while another expected changes in relation to retail banking.

No Yes

QQ Has your organisation ever Only two of the six participants said Performed liquidity stress testing performed liquidity stress testing that they had performed liquidity simulations simulations? stress tests.

No Yes

PwC 63 Côte d’Ivoire

QQ How would you rate your It is clear from the table below that the organisation’s level of banks in Côte d’Ivoire remain neutral preparedness for changes or unprepared across a number of key resulting from Basel II? 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.

Strategic Credit risk Operational Regulatory Market issues management risk review discipline management Very R R RR R R unprepared Unprepared R Neutral RR R R RR R Prepared R RR R Very prepared R R R

64 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ In which areas are you currently The greatest area of skills shortage The shortage of executive directors, experiencing the greatest in Côte d’Ivoire at present is risk audit committee members, shortage of skills? (1 is low, 5 is management. compliance and IT skills were all high) assigned high scores. 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.

Risk management

Executive directors

Audit committee

Compliance

Information technology

Non-executive directors

Capital management

Financial reporting

Internal audit

Administration

0 5 10 15 20 25

PwC 65 Côte d’Ivoire

QQ Has your organisation adopted The Central Bank has not yet required IFRS (International Financial member countries to adopt IFRS, and Reporting Standards)? 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.

QQ Do you think that the adoption The participants unanimously agreed of IFRS will enhance market that IFRS would improve market reporting? reporting if and when it is introduced.

QQ How confident are you that In terms of future adoption of IFRS the Confident in adopting IFRS you have a full understanding majority of participants are confident of the impact of IFRS on your that they understand the impact of organisation? IFRS on their organisation but one bank is somewhat confident while another has no confidence.

No confidence Somewhat confident Very confident

66 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ Do you envisage any IT platform Five of the six participants anticipate Envisage IT platform changes changes in the short term IT platform changes in the short term. (administration platforms, general ledgers, business process management, human resource systems or business intelligence)?

No Yes

The majority of banks do not have QQ Do you currently use a customer relationship management CRM (Client Relationship Currently have a CRM system systems. Alongside the absence of a Management) system? 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.

No Yes QQ Identify major technology The following weaknesses in weaknesses in the financial technology were identified: services industry? • telecommunications – low speeds and interruptions; In 2002 UEMOA initiated the • fraud – quite a high incidence transition to a common electronic of fraud and as a result, high payments system. The project is insurance costs; called Gim-UEMOA. • the ability to understand and In 2009 GIM had 51 banks leverage new IT systems; connected to the system with an • data losses and systems frequently estimated 800,000 to 1 million out of order (domestic bank); and users.

• limited use of credit cards. Source: Gim-UEMOA

PwC 67 Côte d’Ivoire

QQ What do you believe will be the Areas of future technology application top three areas of technology were identified as follows: application in financial services by 2013? • 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.

QQ Does your organisation have Four banks indicated they had Documented IT governance a documented IT governance a documented IT governance framework framework approved by the framework approved by their audit committee? audit committees. Two banks said such a framework was still to be implemented.

No Yes

QQ Have you implemented Five banks said they complied with Privacy principles plan a programme to ensure international privacy principles while protection of personal information compliance with internationally one bank said it planned to do this. recognised privacy principles and/or legislation that deals with the protection of personal information?

No Yes

68 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ Have you implemented a Four banks have implemented a Payment Card Industry programme to ensure ongoing programme to comply with card data Data Security Standard Plan compliance with Payment Card security standards (DSS). Industry (PCI) Data Security Standard (DSS) requirements? Two banks said they planned to do this.

No Yes

PwC 69 Côte d’Ivoire

QQ Do you agree or disagree with Our organisation will undergo Joint ventures and partnerships will be key to our expansion plans the following statements? significant M&A over the next three years

Neither Neither Agree Agree Disagree Disagree

The majority of respondents do not Only one bank expects to be involved expect to be actively involved in M & A in joint ventures. over the next three years.

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

Neither Neither Agree Agree Disagree Disagree

Two banks may become involved with The majority of participants have no a strategic foreign investor. plans for disinvestments.

Our organisation will seek a strategic Our organisation is already structured domestic investor or a partner in a in the way we want significant new venture in the next three years

Neither Neither Agree Agree Disagree Disagree

Two banks may seek a strategic Half the group are satisfied with their domestic partner over the next three current structures. years.

70 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ On which strategic areas does Strategically the areas on which the your organisation spend more participating banks spend the most time? Please rank the top three time are: in order of most time spent. • acquiring new clients; • managing risk; and • improving profitability.

15

10

Score

5

0

Managing risk

Retention of clients Improving profitability Process re-engineeringEntry into new markets Investment performance Acquisition of new clients Cost reduction and refocusing

Acquisition and retention of key staff

Based on responses from 6 banks

QQ What is the level of attractiveness The participants clearly believe Côte Another bank said the financial sector for a foreign financial institution d’Ivoire represents an attractive was under-serviced and possessed to move into CDI (on a scale of market for foreign financial many opportunities. They considered 1 to 5 where 5 is the maximum institutions. Two banks assigned the Côte d’Ivoire to have good governance attractiveness) maximum score of 5 out of 5 while and to be well regulated. 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.

PwC 71 Côte d’Ivoire

QQ What is the level of commitment The four foreign banks in the group of your parent institution in assigned an average attractiveness Côte d’Ivoire when compared to score of 9 out of 10. Two banks similar operations in other parts awarded the maximum score of 10 of Africa (on a scale of 1 to 10 out of 10. where 10 = max commitment)

QQ Can you suggest three product Retail banking Corporate banking areas which will become • Mobile banking • Cash management increasingly important over the next three years? • Pre-paid cards • Trade finance • Credit cards (currently debit cards) • Capital markets (share and bond markets very undeveloped) • Consumer loans • Residential mortgages (presently totally under-developed)

QQ What is your estimate of annual The participants expect the pace of By 2013 the lowest level of growth growth in revenue for your revenue growth to increase by 2013. was 10% while three banks expect business for 2010 and over the 15% or greater. next three years? In 2010 two banks expected 20% growth while four banks anticipated Only one bank projected slightly below 15%. lower growth in 2013 versus 2010.

100

90

80

70

60

50

40

30 Expected annual growth rate in 2010 Expected annual growth 20

10

0 0 10 20 30 40 50 60 70 80 90 100

Expected annual growth rate in 2013

72 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ Joint ventures and partnerships The three most important means of will be key to our expansion achieving growth over the next three plans 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.

15

10

Score

5

0

New channels Organic growth Launching of new Client segmentationForeign Partnerships products and services

Local acquisitions and mergers Foreign acquisitions and mergers

Based on responses from 6 banks

PwC 73 Côte d’Ivoire

QQ Over the last year can you The table below provides some insight Corporate banking showed different classify your organisation’s into the relative profitability of the levels of profitability while two banks profits in terms of capital different market sectors. viewed treasury as profitable and one allocated in each of the following bank believed it was only marginally categories? Retail banking was deemed to profitable. be profitable or very profitable. Although home loans displayed mixed returns it should be emphasised that this market remains undeveloped.

Loss Marginally Profitable Very 30% or <0% profitable 10 – 20% profitable more 0 -10% 20 – 30% Retail banking RRR RR Home loans RR R R Vehicle financing RR Corporate banking RR RR R Merchant & investment R R banking Treasury R RR Internet banking R R Commercial Property R

74 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Côte d’Ivoire

QQ Is your organisation’s operating All but one bank claimed to have Operating model clearly model clearly documented and a clearly documented and defined documented and defined defined? operating model.

No Yes

QQ What will the role of branches/ Bank branches varied according to outlets be in 2013? 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.

PwC 75 Côte d’Ivoire

Peer Review

QQ Can you name the top three A simple scoring method awarded It is clear from the Peer Review that banks in terms of success 3 points to first place, 2 points to the two French owned banks, Société (performance, presence, second and 1 point to third place. This Générale and BICICI (BNPParibas) momentum, etc.) across a allowed the banks to be ranked based gained strong peer recognition. variety of different markets? on a total score. Ecobank and Banque Atlantique were Banks were asked not to record an also mentioned across several product opinion unless they were active in areas. that segment and were comfortable in providing an accurate ranking Citibank and Standard Chartered in terms of success (performance, Bank were recognised in the area of presence and momentum) as opposed trade finance. to mere size.

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

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

76 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

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)

PwC 77 Democratic Republic of Congo

General background on the The economy in general The ADB estimates growth will Democratic Republic of Congo rebound to 6.5% in 2010 and 8.8% in The Democratic Republic of Congo 2011. is located in the heart of Africa and shares a 9,000 km border with nine The ADB believes that the political and countries. It is a country the size of security situation improved in 2009 Western Europe and contains a third of but remains fragile. Local elections the world’s cobalt and 4% of its copper set for 2008 were still not held then reserves. It has a population of around or by 2009. A general election is now 71 million (US Census Bureau estimate scheduled for 2011 and local elections for 2010). Kinshasa has a population of for 2012. between 8 to 10 million. The economy became more The DRC held its first democratic dollarised in 2009 owing to inflation elections in 40 years in 2006, a major and exchange rate instability. The step forward after civil wars between Congolese Franc (CDF) lost 45.2% 1996 and 2003 killed more than of its value against the US dollar and an estimated 4 million people. The inflation averaged 44% in 2009. government has begun to introduce reforms to stimulate investment. Economic growth slowed to 2.5% in However, progress is slow and 2009 (from 6.2% in 2008) as a result the financial sector is chronically of a drop in export prices. underdeveloped. There are no stock or corporate bond The DRC has for the past two years markets in the DRC. remained at the bottom of the 182-nation index of countries in the A 2004 International Finance World Bank’s Doing Business Report. Corporation (IFC) report suggested In 2009 it set up a Doing Business formal employment in the DRC was Steering Committee with technical just 2.7%. help and funding from the IMF to improve its ranking. The banking system The African Development Bank (ADB) There was a general feeling by survey in its African Economic Outlook 2010 participants that the banking system made the following assessment: remains very vulnerable and to reduce risks the Central Bank of Congo (BCC) “The financial system was hit by the has tightened conditions for setting up world economic crisis and is still fragile. new banks. Slow growth in 2009 reduced bank deposits by firms and banks giving credit However one banker pointed out that to export and import firms were faced the country has perhaps the world’s with an increase in bad loans because of lowest capital requirement to set up a less trade. new bank – US$10 million and several new banks were established in 2010. Foreign currency deposits and loans were between 90% and 95% of all Rawbank created by the Rawji family deposits and loans in 2008. They in 2001 is now the largest bank by declined from January 2009 because assets size in the DRC. of fewer exports. Money transfer companies also suffered a big drop in business.”

78 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

The Financial Standards Forum’s The Financial Standards Forum, a US The problems facing the country are assessment of the DRC’s economic not-for-profit foundation, made the so massive though that even under the outlook following assessment on the DRC’s best of circumstances, it will take many economic outlook in a report dated years to recoup the losses the economy November 2009: has recently suffered. When measured in nominal dollar terms for instance, “The DRC is potentially a very the economy in 2009 was 39.5% below wealthy country given its vast mineral its level of 1980 and the per capita resources. Its potential though income during this period dropped by has been squandered by economic 65.5%. mismanagement, bloody chaotic internal conflicts, a staggeringly high Unfortunately, given the high level of level of corruption and dilapidated corruption and mismanagement, the infrastructure. lack of political accountability and a consistent record of poor governance, The government is hoping that the it seems unlikely the DRC will seize the massive infusion of assistance from opportunity presented by the massive China will be the spark that will trade agreement with China and enact propel economic growth, spur exports measures that will appreciably improve and generate physical and social the living standard of its largely infrastructure. destitute population.”

PwC 79 Democratic Republic of Congo

Overview of banks in the DRC There are currently around 20 The DRC has in the last few years banks in the DRC. Most of these experienced an influx of foreign are foreign owned. However, banks from countries such as unlike other markets where foreign Lebanon, Cameroon, Nigeria, ownership is associated with global Gambia, Togo and Uganda and also banks, the DRC’s banking industry is foreign government supported micro- characterised by a number of smaller finance entities such as ProCrédit and foreign banks. Advans Bank.

Both Citibank and Standard Bank To provide insight into the unique have a presence but over the years composition of the DRC banking a number of foreign banks have market an annotated summary of the downsized or withdrawn. For participants is set out below. 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.

Banque Commerciale du BNP Fortis continue to provide a management contract for the Congo (BCDC) 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 A locally owned bank owned by a third generation Jewish family. l’Afrique du Congo (BIAC) Banque Internationale de Originally established in 1994 by Kinshasa based entrepreneur Crédit (BIC) 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.

80 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

Overview of banks in the DRC Mining Bank of Congo Part of the Metropol Group – a Russian holding company. (continued) 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.

Background on participants The six banks interviewed have One banker suggested that there were around 1,000 employees in total and now 20 banks marketing to around this is expected to grow by 30% over 200 corporate customers. the next three years. Collectively, they have over 30 branches at present. He indicated that there might be This number is expected to increase around 25 borrowers of $10 million significantly for a number of banks or more in the DRC and that by in the next three years as they roll 2013 this might increase to over 100 out services across the country. One borrowers. 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.

PwC 81 Democratic Republic of Congo

Assets, loans, deposits and On the following three pages tables performance of DRC banks 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.

Bank performance and indicators at 31 December 2009

In US dollars Total Credit Deposits Total Total Net Equity Loan/ Deposit At 31 December, assets income expenses profits deposit Growth 2009 ratio

Rawbank 308 99 238 27 24 3.14 32 42% 46% Banque Commerciale du 300 107 222 56 52 4.22 30 48% 8% Congo Banque Congolaise 263 146 98 46 78 -32.02 40 148% -44% Banque Internationale 223 102 195 29 29 0.65 14 52% 51% pour l’Afrique au Congo Trust Merchant Bank 185 83 134 22 22 0.11 35 62% 20% Banque Internationale de 144 62 110 28 22 5.89 20 56% 16% Crédit 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

82 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo - - - - - 835,013 2007 3,701,789 3,050,405 67,363,051 91,875,069 46,231,441 48,672,513 47,041,201 24,775,093 23,960,793 27,204,976 38,097,529 421,973,860 - - - 2008 8,061,177 5,119,053 6,640,672 1,112,950 82,350,867 67,979,069 61,279,538 60,097,207 45,088,584 35,758,027 10,070,771 101,615,619 130,968,638 106,551,789 721,581,011 n.a n.a n.a 14,967 527,679 2009 7,689,833 5,987,022 1,157,011 98,608,046 96,048,499 63,091,880 46,421,985 22,566,948 211,891,285 197,187,210 175,966,092 119,427,067 Deposits 1,045,428,513 - - - - - 397,267 2007 5,800,471 9,313,039 8,628,379 4,204,586 5,108,894 31,686,807 38,677,834 24,312,739 21,222,445 15,696,960 36,106,872 200,759,026 - - - 228,421 745,206 2008 2,461,369 5,586,231 49,952,975 73,468,389 60,317,057 55,520,328 42,294,138 13,330,543 22,322,829 22,995,194 22,431,347 112,245,740 483,154,560 n.a n.a n.a 23,204 650,480 561,570 2009 5,732,304 3,156,321 88,376,247 95,553,433 91,898,918 74,164,372 55,631,962 29,854,120 21,312,531 30,299,722 10,758,853 507,412,466 Loans & advances to customers - - - - - 2007 7,873,752 1,219,576 91,626,156 56,730,579 63,018,494 60,340,311 29,385,777 32,837,232 42,351,865 93,523,600 10,396,786 128,228,310 616,312,862 - - - 2008 9,809,775 1,635,285 97,370,252 91,844,220 87,586,719 67,474,106 58,268,357 49,133,948 14,405,074 11,833,908 30,571,314 141,028,090 192,972,285 207,938,821 1,060,236,869 n.a n.a n.a 2009 4,572,148 2,151,090 87,399,294 72,343,483 44,680,574 18,057,638 11,544,151 10,865,302 274,304,585 267,253,348 201,591,004 164,674,375 129,392,505 107,981,097 Assets 1,394,659,503 Source: Individual banks’Source: annual reports Ranking of banks by assets 2009 in DRC in CDF ('000) Rawbank Banque Commerciale du Congo Banque Commerciale Banque Internationale pour l'Afrique au Congo Trust Merchant Bank Merchant Trust Banque Internationale de Crédit ProCrédit Bank Congo ProCrédit Stanbic Bank Congo Citigroup Citigroup Ecobank Congo Acces Bank Congo Advans Bank Fibank Mining Bank Congo Banque Congolaise Afriland First Bank CD Solidaire Bank Congo Solidaire Total Total in USD ('000) PwC 83 Democratic Republic of Congo

Name of Bank No. Branches Bank branches in the DRC 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

Estimate of ATMs 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

84 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ In your view, what is the level Retail banking Retail banking of intensity of competition in Although the retail banking the following markets, and how market is considered to be very Intense 16.7% will this affect your competitive undeveloped, participants believed response? Moderate it to be moderately competitive, 33.3% 33.3% perhaps suggesting that the banks The following charts illustrate are chasing a small emerging target Light 16.7% how the banks perceive the level None of competition in three different Competition markets; retail banking, corporate Response No Minor Significant Fundamental banking and micro-finance. change change operational change in and or- strategy ganisational and change positioning

Note: Based on responses from 4 banks

Corporate banking Corporate banking Corporate banking was considered Intense 50% 16.7% to be intensely competitive. None of the participants rated the level Moderate 16.7% 16.7% of corporate competition below

moderate. Two banks have made Light significant strategic changes. None Competition Response No Minor Significant Fundamental change change operational change in and or- strategy ganisational and change positioning

Note: Based on responses from 4 banks

Micro-finance Micro-finance

Micro-finance was considered to be Intense moderately competitive. In the last year, banks interviewed have made Moderate 75% only minor changes to their strategy. Light 25%

None Competition Competition Response No Minor Significant Fundamental change change operational change in and or- strategy ganisational and change positioning

Note: Based on responses from 4 banks

PwC 85 Democratic Republic of Congo

QQ What are the major drivers of The top three drivers of change in change in the financial services the DRC were identified as foreign industry today? 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.

Foreign entrants

Money laundering

Fiscal pressures

Capital markets

Government intervention

Regulation and reporting

Technology Compensation of professionals Corporate social responsibility Demographics

Funding constraints

Politics

Liquidity Performance of domestic economy Governance

0 5 10 15 20 Score Based on responses from 6 banks

86 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ What are the most pressing The most pressing issues in the DRC, issues facing your organisation? 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.

Availability of key skills Banking for the previously un-banked Business continuation Currency fluctuations Improving revenue growth Litigation risk Tax legislation Building a customer base Corruption Credit risk management Risk management Service quality Back office/operational/system quality Commodity prices Customer acquisition/growth Level of crime Profit performance Retail sales practices Retaining customers, managing expectations Appropriate staff incentive schemes Cost reduction Data security and privacy Impact of the latest phase of the financial crisis Internet and data security Margins Addressing compliance and regulation Brand awareness Capital management Low-cost alternatives/competitors Transparency of fees and commissions IFRS reporting and IFRS amendments Market volatility Overcapacity Payment systems Volatility interest rates Complex instruments Valuation and pricing of financial instruments

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 increasing importance

PwC 87 Democratic Republic of Congo

QQ What are the most important The most important changes in DRC changes taking place in your were recorded as follows: financial services market? • 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.

88 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ Present concerns with the The participants’ concerns were The government collected less financial sector? recorded as follows: revenue in 2009 because of the world recession, with income • Inadequacy of management in the from tax bodies and mining Central Bank. Participants noted and oil revenue down 24.4% that there are many older people from 2008. Coverage of public working in the Central Bank who spending fell to 62% in 2009 have not been trained in modern (from 81.4% in 2008). The budget techniques. They also commented deficit persisted throughout 2009 that the banks are requested to file but narrowed to 1.6% of GDP numerous paper reports. owing to government efforts to • There is a major fiscal problem cut spending and collect more within the country (see box). revenue, along with the world economic recovery and more • Most of the banks have 95% to external funding. 97% of deposits in US dollars but the Central Bank requires that reserves be placed in local currency.

• Lack of law enforcement. One Source: AfricanEconomicOutlook participant said that a competitor AfricanEconomicOutlook.org combines the advised him that he had 40 cases expertise of the African Development Bank, currently pending in court and he the OECD Development Centre, the United had never won a case. Nations Economic Commission for Africa and a network of African think tanks and research • Low level of bank representation centres. across the country. • Cash ratio of 7% with Central Bank. The Central Bank holds this sum interest-free.

QQ Steps needed to advance the Steps needed to advance the financial financial sector? 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.

PwC 89 Democratic Republic of Congo

OHADA Organisation pour OHADA, established in 1993, is the The 16 member states of OHADA are l’Harmonisation en Afrique du French acronym for ‘Organisation as follows: Droit des Affaires pour l’Harmonisation en Afrique du Droit des Affaires’, which translates Benin, Burkina Faso, Cameroon, into English as ‘Organisation for the Central African Republic, Comoros, Harmonisation of Business Law in Congo-Brazzaville, Cote d’Ivoire, Africa’. Gabon, Guinea-Bissau, Guinea, Equatorial Guinea, Mali, Niger, OHADA provides a legal framework Senegal, Chad and Togo. and covers eight areas of regulation (on corporate law, commercial law, Membership of other non-French- security, enforcement measures and speaking countries such as Ghana, arbitration) given effect by uniform Nigeria and Liberia is under acts directly applicable in the sixteen discussion. member states. Harmonisation of general contract law, the law of evidence, telecommunications law and employment law are expected.

DRC plans to join OHADA According to the US State Department The OHADA treaty was expected to in December 2009, the Congolese take effect in the DRC on January 1, parliament approved a law 2011. Other measures undertaken authorising the DRC’s admission by the Government of the DRC to to the Organisation for the improve the business and investment Harmonisation of Business Law in climate include President Kabila’s Africa (OHADA), and President Kabila promulgation of a new customs code promulgated this law in February and a new law related to value-added 2010. The Government of the DRC tax (VAT) in August 2010. The new officially launched the National customs code is scheduled to come OHADA Commission in April 2010. into effect in February 2011.

The DRC expected to sign and deposit T

unisia the instrument of OHADA accession by November 2010. Morocco

Algeria Libya Egypt Western Sahara

Mauritania Mali Niger Sudan E Cape Verde Chad ritrea Senegal Gambia Burkina Djibouti Guinea Bissau Faso Guinea Ethiopia

Benin a Nigeria

n Central

Sierra Leone Côte

a h

ogo African Republic T d’Ivoire G Somalia Liberia Cameroon a nd ga Kenya Equatorial Guinea U ongo Gabon C Democratic Rwanda Republic of Congo Burundi

Tanzania

Comores Mayotte Angola Malawi Zambia

Zimbabwe Perspectives on Strategic and Emerging Issues in Africa West Coast banking r 90 ca Namibia s ga Botswana da Mozambique a M Mauritius

Swaziland South Lesotho Africa Democratic Republic of Congo

QQ Rate of the level of development? 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.

PwC 91 Democratic Republic of Congo

QQ What are the strengths and Strengths weaknesses of the financial • Very open market with enormous services industry? 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.

Weaknesses • A very small proportion of the • No credit bureau, although population has access to banking discussions are taking place on services; this; • All the banks are working with the • If not properly regulated, serious same approximately 100 major risks of money laundering; customers; • No stock exchange; and • The total capital in the industry at • Registration of land is problematic. the end of 2008 was just US$150 There are no ID cards in the DRC million; and if a birth certificate is lost • To open a bank requires a it can not be replaced. These Presidential Decree. The process limitations make it difficult to requires consent of the Central accurately and easily identify their Bank, the Minister of Finance, the customers. 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);

92 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

Progress made on the IMF policy The IMF prepared an update on the plan. The plan specifically mentions directives progress made by the DRC in June the requirement to restructure 2010 regarding the Extended Credit one major commercial bank. The Facility and Financing Assurance IMF also requires the Central Bank Review. to formulate an action plan to implement International Financial An edited summary of progress made Reporting Standards (IFRS). in relation to the banking sector is shown in the table below. In terms of greater transparency and timeliness, the Central Bank is The table indicates that the Central also required to publish its financial Bank must audit banks’ loans and if statements and audit report within necessary, require a recapitalisation six months of the financial year end.

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

Sector Measures Timetable C. Banking Objective: Strengthen banking supervision supervision; capacity and improve the health of the banking banking system system. (i) Banking 1. Implement a new matrix of sanctions for End-June supervision non-compliance with the banking supervision 2010 regulations. (ii) Banking system 2. Perform audits to assess the quality of the loan End-May portfolio of all remaining banks, and establish 2010 a plan to restructure or recapitalise them. 3. Adopt a strategy to improve the health of Done commercial banks based on the results of the March 2009 assessment undertaken with technical assistance from IMF and World Bank experts. 4. Restructure a major commercial bank. Initial End-May steps taken by end-May 2010 2010 D. Accounting and Objective: Improve accounting and transparency transparency (i) Accounting and 1. Approval by the Central Bank’s board of End- audit operations directors for an action plan to adopt and December implement International Financial Reporting 2010 Standards (IFRS). (ii) Transparency 1. Not later than six months after the end of Continuous and the financial year, publish the central bank’s communications financial statements and audit reports, including the auditor’s opinion.

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.

PwC 93 Democratic Republic of Congo

QQ Can you prioritise your strategies The banks interviewed are still very 15 for achieving growth over the small and they propose to roll out next three years. new products and grow organically.

Although new players are entering the market and consolidation is 10 expected in the future, it is early days for mergers and acquisitions. Score

5

0

New channels Organic growth Client segmentation

Launching of new products Local acquisitions and mergers

Based on responses from 5 banks

QQ On which strategic areas does As the existing players attempt to 10 your organisation spend the most gain market traction, the primary 9 time? focus of senior management is the acquisition of new customers and at 8 the same time, the retention of key 7

personnel. 6 Score Managing risk is also a key strategic 5 activity. 4 3

2

1

0

Managing risk

Improving profitability Entry into new marketsProcess re-engineering Acquisition of new clients

Acquisition & retention of key staff Cost reduction & business refocusing Based on responses from 4 banks

94 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ Do you believe that the financial In keeping with the earlier comments services market is overcrowded? and statistics on the rudimentary development of the financial market, participants do not believe the market to be overcrowded. 80% said the market was Yes One participant did however criticise not overcrowded the undercapitalisation of the existing banks. He noted that most Not had just the minimum required levels overcrowded of capital and were not securely capitalised for future growth. Based on responses from 5 banks

QQ What type of instititions Three banks indicated that the represent the greatest greatest competitive threat competitive threat to your bank? 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.

QQ How will the needs of DRC The banks predicted that there would financial consumers change over be growing demand for a range the next three years? 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.

PwC 95 Democratic Republic of Congo

QQ What is your institution’s The primary method of growth for the Primary method of growth primary method of growth in the banks interviewed is organic growth. DRC? The low level of market evolution means that mergers or acquisitions are not yet a meaningful option. 100% chose organic growth

QQ Do you support the concept of The DRC does not have a deposit Support for deposit insurance deposit insurance? insurance system at present but participants voiced unanimous support for a future scheme.

CGAP* has commented that before 100% a deposit insurance scheme could support deposit insurance 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.

QQ Deposit insurance timeframe? In this survey only two of the six banks Timeframe for deposit insurance 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 beyond 10 years the state monopoly of insurance. next 10 years

next 5 years

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

96 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ Does your organisation comply The participants had different should not be in a hurry to move with Basel II? responses regarding their to Basel II because there can be receptiveness to Basel II. significant risks if the move is not well prepared. Local banks replied either that they were preparing for Basel II or that The report included DRC within a Basel II did not apply to the DRC. It group of six countries that it stated would appear that the DRC has still “are yet to meet the preconditions some way to go before Basel II will be for entering into regional financial implemented. integration.”

The African Development Bank in What is COMESA? its 2010 report on Financial Sector Integration commented that COMESA COMESA, the common market for (see adjacent) has adopted a variable Eastern and Southern Africa has 19 speed approach to regional financial member states and a population of integration. It cautions that COMESA 430 million.

T

unisia

Morocco

Algeria Libya Egypt Western Sahara

Mauritania Mali Niger Sudan E Cape Verde Chad ritrea Senegal Gambia Burkina Djibouti Guinea Bissau Faso Guinea Ethiopia

Benin a Nigeria

n Central

Sierra Leone Côte

a h

ogo African Republic T d’Ivoire G Somalia Liberia Cameroon a nd ga Kenya Equatorial Guinea U ongo Gabon C Democratic Rwanda Republic of Congo Burundi

Tanzania

Comores Seychelles Angola Malawi Zambia

Zimbabwe r ca Namibia s ga Botswana da Mozambique a M Mauritius

Swaziland South Lesotho Africa

Total GDP of over US$ 360 Billion

PwC 97 Democratic Republic of Congo

QQ Do you plan increased Three banks expect to increase their Increase compliance spending compliance spending over the compliance spending by more than next three years? 20% over the next three years.

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

Yes

No

QQ Do you see the intensity of The Central Bank has been slow to Increase in regulation regulation of the financial push through regulatory changes and services industry increasing or as a result participants expect only decreasing over the next three slight increases in regulation over the years? 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 Increase substantially made to regulation. Increase slightly

98 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ Do you believe financial services The majority of participants contend Risk management systems organisations’ risk management that risk management systems are not are sufficiently robust systems are sufficiently robust? 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.

No

Yes

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

PwC 99 Democratic Republic of Congo

QQ Has your organisation adopted The foreign banks interviewed said IFRS (International Financial that they had adopted IFRS while the Reporting Standards)? 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.

QQ How confident are you that The participants are only somewhat you have a full understanding confident that they fully understand of the impact of IFRS on your the potential impact of IFRS on their 20% organisation? organisation when it is eventually implemented.

80%

Very confident

Somewhat confident

QQ What do you see as the key The participants support the adoption benefits of adopting IFRS? of IFRS. The two most important benefits identified unanimously by participants were increased reliability of financial reporting and increased transparency.

Better comparability of companies

More transparent disclosures

Easier access to international capital markets Increased reliability of financial reporting 0 20 40 60 80 100 Percentage in agreement

100 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

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.

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.

PwC 101 Democratic Republic of Congo

QQ What is your estimate of annual Six banks provided projections on growth in revenue for 2010 and their expected annual growth in over the next three years? 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%.

100 One participant expects 100% in 2010 90 and 50% in 2013

80

70

60

50

40

30 Expected annual growth rate in 2010 Expected annual growth 20

10

0 0 10 20 30 40 50 60 70 80 90 100

Expected annual growth rate in 2013

102 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ In which areas are you currently There is a chronic shortage of skills in experiencing the greatest the financial sector in the DRC. One shortage of skills? 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.

Non-executive directors Market risk Operational risk Credit risk Liquidity / ALM Regulatory risk (e.g. Basel) Risk management Executive directors Administration Audit committee Compliance Internal audit Capital management Financial reporting Information technology (IT) 0 5 10 15 20 Score Based on responses from 5 banks

PwC 103 Democratic Republic of Congo

QQ What do you believe will be the The top areas of technology top three areas of technology application in financial services by application in financial services 2013 were identified as follows : by 2013? • 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.

QQ Can you identify major The participants unanimously agreed technology weaknesses in the that the most important technological financial services industry? 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.

104 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ Do you currently use a Client Three out of five respondents do not Client Relationship Relationship Management currently use a CRM system. Management system (CRM) system? One of these banks predicted that their CRM system would be active next year.

No Yes

QQ Do you envisage any IT platform Two banks plan major IT platform IT Platform changes changes in the short term changes in the short term. (administration platforms, general ledgers, business process management, human resource systems or business intelligence)?

No

Yes

PwC 105 Democratic Republic of Congo

QQ Over the last year can you classify In terms of return on capital, your organisation’s profits in participants performed best in terms of capital allocated in each treasury and micro-lending. Retail of the following categories? 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 Very 30% or profitable 10 – 20% profitable more 0 -10% 20 – 30% Retail banking RR R R Home loans R R Corporate banking RR R R Merchant & investment banking Treasury RR Micro-lending R R R

106 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ Which product areas will become The following product areas increasingly important over the were judged to be of increasing next three years? importance:

• mobile banking • mortgages • debit cards and in future credit cards • trade finance • foreign exchange • fixed income products at the governmental level.

Loss <0% Marginally Profitable Very 30% or profitable 10 – 20% profitable more One example of mobile payments 0 -10% 20 – 30% in the DRC is Celpay – owned by Retail banking RR R R FirstRand Bank of South Africa. Home loans R R Celpay provides Government to Corporate banking RR R R person (G2P), Business to business Merchant & investment (B2B), Consumer to business banking (C2B) and Consumer to consumer Treasury (C2C) transfers. Celpay allows RR customers to transfer money or Micro-lending R R R 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.

PwC 107 Democratic Republic of Congo

QQ What will the role of branches be A number of participants have branch in 2013? 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.

QQ Which foreign financial The banks expect more foreign banks institution do you believe might to enter the DRC market. These could choose to move into the DRC over include BGFI Bank from Gabon which the next three years? 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.

108 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

QQ What is the level of Despite the many challenges commitment of your parent associated with providing financial to your institution in the DRC services in the DRC, four banks when compared to similar answered this question and recorded operations in other parts of an average commitment score of 8.8 Africa? out of 10.

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

DRC Developments in Commercial Banking System 2003 to 2008

(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

Source: IMF and Congolese authorities

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

PwC 109 Democratic Republic of Congo

Peer Review

QQ Can you name the top three A simple scoring method awarded banks in terms of success 3 points to first place, 2 points to (performance, presence, second and 1 point to third place. This momentum, etc.) across a allowed the banks to be ranked based variety of different markets? 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.

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.

110 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

The insurance sector in the DRC

SONAS 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.

PwC 111 Democratic Republic of Congo

Future changes in the insurance What is CIMA? CIMA Objectives sector and the impact of CIMA CIMA is the abbreviation for • create conditions conducive to the the Inter-African Conference on healthy and balanced development Insurance Markets in French West of insurance companies; Africa. There are 14 member • foster investment in the economy of countries: Benin, Burkina Faso, their country or the region, general Cameroon, Central African Republic, technical and mathematical Comoros, Congo, Côte d’Ivoire, provisions, by means of insurance Gabon, Equatorial Guinea, Guinea and reinsurance operations; Bissau, Mali, Niger, Senegal, Chad

T unisia and Togo. • foster the creation of a broader and Morocco more integrated market under the CIMA appoints the members of the most favorable technical conditions Algeria Libya Egypt Western Sahara Regional Commission for Insurance for insurance; and Supervision (Commission régionale Mauritania • train managers and technicians in Mali Niger Sudan de Econtrôle des assurances (CRCA)) Cape Verde Chad ritrea the insurance field. Senegal and the managers of the General Gambia Burkina Djibouti Guinea Bissau Faso Guinea Secretariat.Ethiopia

Benin a Nigeria

n Central

Sierra Leone Côte

a h

ogo African Republic T d’Ivoire G Somalia Liberia Cameroon a ndCIMA interprets the Insurance Code ga Kenya Equatorial Guinea U ongo Gabon C Democratic Rwandaand defines, modifies and augments Republic of Congo Burundithe insurance code. (see below) Tanzania

In additionComores to CRCA, each member Mayotte Angola Malawi Zambia state also has a National Insurance Directorate (Direction Nationale des Zimbabwe r ca Namibia s Assurances,ga (DNA)). Botswana da Mozambique a M Mauritius CIMASwaziland also maintains a separate South Lesotho Africa International Insurance Institute in Yaoundé, Cameroon, which is responsible for training.

112 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Democratic Republic of Congo

The CIMA Code Oversight of insurance agencies prior to the creation of CIMA The CIMA Code is an attempt to adapt to socio-cultural constraints and to Insurance business conducted in each the requirements of international country was subject to the oversight standards. The Code consists of six of the State in question. books: Provisions for this oversight, which Book 1, on policy contracts, regulates was entrusted to the Minister of relations between the insurer and the Finance, were set out in a legal text insured, and generally protects the dating, in most cases, from the early interests of the latter; 1960s.

Book 2, on compulsory insurance, Indeed, in most countries, the deals in particular with general- insurance business was regulated liability automobile insurance, for in a rudimentary, incomplete and which it sets out rules. Its specificity archaic manner. Contract law was is that it establishes a scale of based on the French law of July compensation for physical injury, 13, 1930. Regulation of insurance capping damage awards to victims intermediaries was practically non- and their assigns. existent. Solvency requirements, when they existed, were limited Book 3 deals with insurance solely to investments. The notion of companies; a solvency margin was unknown. Procedures for the safeguarding and Book 4 covers accounting rules rehabilitation of companies were applicable to insurance companies; seldom envisaged.

Book 5 covers general agents, Finally, there were no defined brokers and other insurance and accounting rules applicable to capitalisation intermediaries; insurance companies.

Book 6 deals with specific insurance From a structural standpoint, agencies. oversight of the insurance business, which was generally situated within a Source: World Bank 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 113 Democratic Republic of Congo

114 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

Banks interviewed: • Barclays Bank of Ghana • Ecobank Ghana • Ghana Commercial Bank • HFC Bank • Stanbic Bank Ghana

PwC 115 Ghana

General background on Ghana The economy in general Banks interviewed Ghana has a population of 24 million. The five banks interviewed employ GDP per capita in 2009 was estimated 4,974 people and together expected to be US$1,500. Its estimated GDP a modest increase to 5,090 by 2010. growth in 2009 was 4.1% compared One bank expects to reduce its to 7.3% in 2008 and 5.7% in 2007. employment total while another Provisional figures at September 2010 expects it to remain the same. indicated that GDP had increased by 5.9% (Budget Statement 2011). The number of branches is expected to grow by 29% over the next three Although Ghana is well endowed with years to 937. ATMs are expected to natural resources it remains heavily expand by 51% with the addition of dependent on international financial more than 200 new machines to grow and technical assistance. to a total of 609 machines by 2013. The participants indicated that their Even though real GDP GDP growth in 2008 and 2009 current total of 429,000 debit cards growth slowed down to was assisted by strong gold and are expected to grow to 1.4 million by cocoa prices and steady economic 2013. 4.1% in 2009, mainly on management. account of the impact of Three banks provided projections The inflation rate in 2009 was on credit cards which are expected the world economic crisis, estimated to be 19.3%. In 2009 Ghana to total around 50,000 by 2013. One growth is expected to bounce recorded a budget deficit of 10%. bank noted that it was approaching the roll-out of credit cards with back to about 5.9% in 2010 Ghana is Africa’s second largest gold caution. as the domestic and world producer on the continent after South Africa. The five banks indicated that they had economic environment 2.45 million retail accounts in 2010, improves. Real GDP growth Oil was discovered off the Ghanaian expected to grow by 64% to 4.025 coast in 2007 and it is expected to million by 2013. is projected to reach about generate an annual average of US$1.2 12.3% in 2011, on account billion in state revenue for two Four banks provided estimates on the decades. (The Economist, December number of large corporate accounts of strong performance in the 2009). Commercial production is at their bank. Together they recorded manufacturing and services forecast to begin in December 2010. 36 large accounts (borrowings greater than US$25 million) in 2010 sectors and the coming on and expect this to grow to 70 large stream of oil production and accounts by 2013. (There will be double counting in some of these exports. combined estimates.)

Dr. Kwabena Duffuor Minister of Finance and Economic Planning 18 November 2010

116 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

The number of middle market their positions through mergers non-core banking activities such customers (with borrowings between or open up for acquisitions. These as insurance and capital market US$1.25 million and US$25 million) will be necessary to enhance their activities financed with depositors’ were estimated by four participants competitiveness and thereby improve funds. In the global financial markets, to be 2,760 in 2010 and 4,450 in their ability to participate in high these trends widened the boundaries 2013. One bank accounted for a large value transactions. of regulation beyond the banking amount of this total. sector and without effective oversight ICT Platforms for the delivery of from other financial regulatory Finally, regarding the percentage of financial services bodies, gave rise to what is now fee income within total income, four termed ‘shadow banking’. As part of Following the global financial respondents ranged from just 20% to restructuring the global architecture crisis, risk management has taken 38% in 2010. By 2013, the estimates therefore, steps are being taken in a centre stage in bank regulation and ranged from 30% to 60%. number of countries to limit banks supervision. Different kinds of risk from actively engaging in proprietary have been identified; market, credit, Selected remarks from an address trading that was not instigated by and operational risks. Operational by K.B. Amissah-Arthur, Governor, clients, referred to as the Volcker risk has assumed great significance, Bank of Ghana, Chartered Institute Rule. due largely to the reliance on of Bankers Annual Dinner, 27 Information and Communication November, 2010. As the financial sector continues to Technology, or ICT, platforms for grow in Ghana licensed universal “Minimum capital requirements the delivery of financial services. banks have started to branch The rapid pace of ICT usage in the In 2007 the Bank of Ghana took into areas such as providing banking sector requires continuous steps to increase the minimum bancassurance services or setting knowledge update by both operators capital requirements of banks. All up subsidiaries to engage in capital and regulators. Indeed, regulators the foreign controlled banks have market activities. There is need for will have to acquire special complied with the new capital base effective collaboration between expertise in IT auditing to ensure of GH¢60 million (US$41 million)*, financial sector regulators; that is appropriate monitoring of ICT-related substantially improving their the Bank of Ghana, the National vulnerabilities in the banking sector. solvency. However, we observe that Insurance Commission and the The Bank of Ghana will also insist the longer dispensation granted Securities and Exchange Commission that stakeholders in the industry to domestically controlled banks and the National Pensions Regulatory improve corporate governance to comply with the minimum Commission. This approach of cross- systems, especially the installation of requirement has rather placed them sector supervision or consolidated an effective internal control system. at a competitive disadvantage. supervision is necessary to ensure that emerging risks emanating Broadening Financial Sector Most domestic banks have achieved from financial sector activities are Regulation the first phase of attaining the identified and dealt with. Already, GH¢25 million (US$17 million)* One of the critical lessons that arrangements are underway to before next month’s deadline; emerged from the global financial institutionalise collaboration between however, the transition from GH¢25 crisis is the need to tighten financial BOG, SEC, NPRC and NIC by ensuring million (US$17 million)* to GH¢60 regulation. This was underscored by regular interaction, information million (US$41 million)* in two the inherent risks of diversifying into sharing and, where possible, carrying years is expected to remain a major non-bank financial businesses. The out joint examinations of common challenge. To achieve the next stage argument for additional regulation institutions. of capitalisation therefore, domestic has centred on the risk exposures banks have to seriously consider and speculative activities as banks their options and consolidate broadened their horizon to include

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

PwC 117 Ghana

With the growing number of regional To enhance competition and efficient banks in the domestic economy, operation of the banking sector cooperation with regional supervisors therefore, we should encourage in the exchange of information on the broadening of the ownership cross border financial activities will of the banks by encouraging the enhance oversight responsibilities and offloading of shares on the stock strengthen our banking systems. Bank market. However, the withdrawal of Ghana will pursue and formalise of such large shareholders from the these arrangements and deepen and banking system has to be properly strengthen the work of the College sequenced and managed. The control of Supervisors in the sub-region to objective in the banking system facilitate the process. Substantial must be balanced by objectives such progress has been made in this area. as growth and stability to ensure that the emerging banking system Government dominance in the meets the nation’s broad objectives financial sector of a stable, sound banking system. In the coming years, Central Bank In assessing the banking system, we policy will seek to consolidate the have taken note of the dominance of positive developments in the financial Government and quasi-Government system. Tough decisions will be taken, agencies in the ownership structure of particularly in addressing emerging a number of banks, but also as a major challenges such as recapitalizing the source of deposits, some of which banks. In exercising its regulatory are concentrated and contribute to and supervisory role, the Bank of weakening some of the banks. Ghana will henceforth show least forbearance for non-compliant banks. This will ensure that confidence and trust in our financial system is not shaken.”

118 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

Background on banks in Ghana

Bank Background Access 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.

PwC 119 Ghana

Banks ranked by asset size Ghana has 26 banks at present with Bank, Ecobank and Stanbic Bank. several new banks poised to enter the With the exception of GCB which market. The top five banks by asset is majority government owned, the size are Ghana Commercial Bank, other four banks are foreign owned. Barclays Bank, Standard Chartered

(Thousands of Ghana Cedis) 2009 2009 2008 2007 Change As a US$m*** %

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

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

120 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

Banks ranked by number of The top five banks by branch The top five banks account for over branches networks are Ghana Commercial 50% of all bank branches while GCB Bank, Barclays Bank, Agricultural operates just over 20% of all bank Development Bank, Ecobank and branches. SG-SSB.

Within the group of 26 banks, 12 are locally owned and 14 are foreign- owned.

Bank dates of incorporation, ownership and branches

Incorp. Ownership Branches Ghana 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

PwC 121 Ghana

QQ What are the most important Launch of a credit bureau Increase in minimum capital changes taking place in your requirements for banks XDS Data Ghana was the first credit financial services market? bureau to be launched in Ghana In 2007 the Bank of Ghana under the Credit Reporting Act 2007, announced recapitalisation of the which regulates credit bureaus. banking system. The Bank of Ghana is charged with enforcing the Act. It required locally owned banks to have GH¢ 25 million (US$17 million)* However, one banker pointed out by 2010 and GH¢ 60 million (US$41 that credit approval remains a million)* by 2012. Foreign banks were challenge because of common names required to increase their capital to and the use of multiple forms of GH¢ 60 million (US$41 million)* by identification. the end of 2009.

(XDS Ghana is a sister company of PwC in its Ghana Banking Survey XDS Nigeria, the first company to 2010 reports that 10 of the 14 foreign receive the Central Bank of Nigeria’s banks met the requirement at the approval to operate there). end of 2009 and that six local banks had already met the requirement in Collateral registry established by December 2009 ahead of the 2010 the Central Bank deadline. The new registry began operations in Increased threat of competition February 2010. It is being widely used from the telecom sector by the universal banks and it is hoped that the registry will help facilitate Mobile operators such as Zain, MTN affordable long term credit for SMEs. and Vodaphone represent a threat in servicing the unbanked market Pressure on level of interest rates through mobile banking. 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).

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

122 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

Ghana urges commercial banks to cut lending rates Ghana 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

PwC 123 Ghana

QQ In your view, what is the level Retail banking Retail banking of intensity of competition in Retail banking was found to be the following markets, and how intensely competitive for three banks Intense 40% 20% will this affect your competitive and moderately competitive for two response? banks. Four banks indicated that Moderate 20% 20% they have made significant core The following charts illustrate fundamental changes. Light how the banks perceive the level None of competition in three different Competition markets; retail banking, corporate Response No Minor Significant Fundamental banking and micro-finance. change change operational change in and or- strategy gansiational and change positioning

Note: Based on responses from 5 banks

Corporate banking Corporate banking Three banks considered corporate banking to be intensely competitive Intense 40% 20% and two banks have made Moderate fundamental change to their strategy. 20% 20% One bank has made only minor Light changes.

None Competition Response No Minor Significant Fundamental change change operational change in and or- strategy gansiational and change positioning

Note: Based on responses from 5 banks

Investment banking Merchant and investment banking Although the banks have limited Intense 67% involvement in merchant banking and most of the foreign banks benefit Moderate 33% from head office support, two banks

recorded intensely competitive while Light one bank said it was moderately competitive. None Competition Response No Minor Significant Fundamental change change operational change in and or- strategy gansiational and change positioning

Note: Based on responses from 5 banks

124 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

Micro-finance Micro-finance The majority of banks view micro-finance as only moderately Intense 20% 20% competitive and three banks made Moderate either minor or no change to strategy. 40% 20%

Light

None Competition Response No Minor Significant Fundamental change change operational change in and or- strategy gansiational and change positioning

Note: Based on responses from 5 banks

QQ What are the strengths and Strengths weaknesses of the financial • Strong brands of the foreign banks services sector? • 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.

PwC 125 Ghana

QQ Do you have any major concerns The participants raised the following • Mis-selling by sales agents about the financial sector in concerns: • Ghana should have developed a Ghana? secondary market for financial • Too many banks, increased instruments but this has not yet competition occurred • High level of interest rates and the • Corporate governance threat of interest rate cuts • Loan quality of the average • Regulatory environment is tight borrower • Quality of local banks’ loan portfolios

QQ Can you rate on a scale of 1 to The five participants assigned an 10 the level of development of average score of 7/10 for Ghana’s the financial services sector in level of financial development Ghana relative to other markets in relation to other West African in West Africa? (10 = maximum countries. development). 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

QQ What developments are needed The participants strongly believe to move the financial services that more effort is needed to develop market forward? 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.

126 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

QQ Do you believe that the financial The participants believe the financial services market is overcrowded? services market in Ghana to be overcrowded. There appears to be No a continual flow of new foreign entrants from both the West Africa region and beyond. 80% said Yes

Yes The expectation is that development of oil and gas resources will attract Yes more banks in the near term. Only one domestic bank believes the market is not overcrowded. Based on responses from 5 banks

QQ Which category of institutions The primary source of competition will present the most significant to participants was identified as the competitive threat to your broad based financial institutions or organisation over the next three universal banks already active in the years? 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.

QQ How will the financial services The banks believe strongly that the are also expected to drive further market’s needs of the consumers Ghanaian financial consumer will be development of the ATM and branch of 2013 differ from those of noticeably different in three years networks. Internet and mobile today? time. banking usage will increase.

They anticipate a more informed The economy is expected to grow as and sophisticated consumer. They a result of oil and it is hoped that this expect technology to be more widely will assist in the spread of wealth. used with consumers demanding Delivery of service to the previously more efficient electronic delivery unbanked market is expected to of services. Consumers’ demands expand.

PwC 127 Ghana

QQ What are the major drivers of The top three drivers of change in Under the “other factors” category, change in the financial services Ghana banking were identified as respondents cited the entrance of industry today? regulation and reporting, followed new competitors and specifically the by new foreign entrants and the new capital requirements (which application of new technology. could have been included within regulation). The impact of the performance of the economy was also considered critical to facilitating change in the banking sector.

Regulation and reporting

Foreign entrants

Technology

Performance of domestic economy

Fiscal pressures

Liquidity

Other factors

Capital markets

Demographics

Globalisation

Foreign exchange control

Mergers/Consolidation

New domestic entrants

Compensation of professionals

Governance

Solvency

0 5 10 15 Score Based on responses from 5 banks

128 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

QQ What are the most pressing Six issues shared the top position The impact of the financial crisis was issues facing your organisation? for the most pressing issue in recorded as neutral while corruption Ghanaian banking. Both credit risk was recorded at the bottom of the list. management and risk management in general were included alongside Regulation, the unbanked market, margins and revenue growth, brand internet security and availability of awareness and service quality. key skills were all considered to be pressing and fell to the right of the axis.

Brand awareness Credit risk management Margins Risk management Service quality Improving revenue growth Addressing compliance and regulation Internet and data security Banking for the previously un-banked Availability of key skills Data security and privacy Retaining existing customers Appropriate staff incentive schemes Business continuation Cost reduction Impact of the latest phase of the financial crisis Level of crime Back office/operational/system quality Building a customer base Customer acquisition/growth Litigation risk Payment systems Valuation and pricing of financial instruments Capital management Currency fluctuations IFRS reporting and IFRS amendments Market volatility Transparency of fees and commissions Volatility interest rates Commodity prices Low-cost alternatives/competitors Overcapacity Retail sales practices Tax legislation Profit performance Complex instruments Corruption 2.0 1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 More pressing issues

PwC 129 Ghana

The Ghanaian Cedis 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

130 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

QQ Will there be an entrance of the The participants unanimously agree New financial services entrants new financial services players that more foreign banks will enter the into Ghana in the next three market over the next three years. years? Citibank is expected to open a retail banking franchise in the near term. 100% Although the market was considered believe there will be more new entrants 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 Based on responses from five banks 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.

QQ What is your institution’s Four banks indicated that they would Primary method of growth primary method of growth in expand through organic growth while Ghana? one bank said that acquisition would be its chosen method.

80% chose organic growth

Organic growth

Acquisition

PwC 131 Ghana

QQ Do you support the concept of The majority of participants support Support for Deposit Insurance deposit insurance? 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 No Bank of Ghana or a new Insurance Yes 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. QQ Do you see the intensity of The participants anticipate a Intensity of Regulation regulation of the financial substantial increase in regulatory services industry increasing or requirements going forward over the decreasing over the next three next three years. As noted earlier, years? regulation and reporting was seen as the most important driver of change in the industry.

Increase slightly Increase substantially

As a result of the increasingly QQ Do you plan increased compliance Plan to increase compliance demanding regulatory environment, spending over the next three spending the participants unanimously agreed years? that they will need to increase their level of compliance spending.

100% plan an increase

No Yes 132 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

QQ Do you believe financial services The majority of participants do Risk management systems robust organisations’ risk management not believe that financial service systems are sufficiently robust? 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 No cost of funds, currency depreciation Yes and inflation. Some banks have loan loss ratios exceeding 10%.

QQ In which area could The consensus view of participants there be improvements in was that there was significant room your organisation’s risk for improvement in risk management. management systems? 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 QQ Are significant investment planned significant business process and business process changes changes for risk management and envisaged for risk management compliance over the next 12 months. and compliance purpose over the next 12 months?

QQ Has your organisation ever Four out of five banks have performed performed liquidity stress testing liquidity stress testing. The fifth simulations? bank said that the process was being formalised at the time of the interview.

PwC 133 Ghana

QQ Does your organisation comply The Bank of Ghana has indicated that with Basel II? 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.

QQ How would you rate your Four banks answered this question. organisation’s level of Two banks scored 3 out of 5 (neutral) preparedness for changes and two banks scored 4 out of 5 resulting from Basel II? (prepared) across the following criteria, strategic issues, credit risk management, operational risk management, regulatory review and market discipline. As a result the overall average regarding the level of preparedness for Basel II was recorded as 3.5 out of 5.

134 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

QQ In which areas are you The greatest shortages of skills are Despite earlier comments regarding currently experiencing the associated with risk management. the shortage of IT skills, this factor greatest shortage of skills? was placed in seventh position. This need is followed closely by capital management, compliance and executive directors.

Risk management

Capital management

Compliance

Executive directors

Non-executive directors

Financial reporting

Information technology

Audit committee

Administration

Internal audit

0 5 10 15 20 25 Score

PwC 135 Ghana

A more detailed question on risk In June 2010 the Governor of the management skills placed market risk Bank of Ghana Mr Kwesi Amissah- at the top of the list. Arthur cautioned Ghanaian banks to increase their in-house capacity for risk analysis in the emerging oil and gas sectors.

Market risk

Operational risk

Credit risk

Regulatory risk

Liquidity/ALM

0 5 10 15 20 25 Score

QQ How confident are you that you The banks are confident that they have Full understanding of the impact of have a full understanding of the a full understanding of the impact of IFRS impact of IFRS (International IFRS. The Bank of Ghana directed all Financial Reporting Standards) banks to adopt the IFRS framework in on your organisation? 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 Somewhat confident and there is no fixed date by which Very confident reporting will be required to be in accordance with IFRS.

136 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

QQ Do you envisage any IT platform The majority of banks envisage IT Envisage IT platform changes changes in the short term? 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 No of sale terminals. Yes

QQ Do you currently use a Most respondents are yet to set up a Currently have a CRM system CRM (Client Relationship CRM system. Management) 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.

No Yes

PwC 137 Ghana

QQ Identify three major technology The following technology weaknesses • Weak networks, ATMs frequently weaknesses in the financial were identified: crashing. services industry? • Mobile banking is taking off in • Lack of IT skill sets in the industry, Kenya and East Africa but Ghana limited understanding of banking has been slow to adopt. software, IT personnel always moving between banks, IT • Despite the introduction of knowledge gap. e-zwich, the different banks’ systems are not communicating • Banks are buying ‘off the shelf’ effectively with each other. banking software so everyone uses the same software.

QQ Have you implemented The majority of respondents indicated a programme to ensure that they are complying with compliance with internationally internationally recognised privacy recognised privacy principles standards. One bank said that this and/or legislation that deals was underway. with the protection of personal information?

QQ Have you implemented a The respondents also suggested programme to ensure ongoing that they adhered to PCI and DSS compliance with Payment requirements although one bank Card Industry (PCI) and Data acknowledged that it did not know if Security Standard (DSS) these were being met. requirements?

138 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

QQ Do you agree or disagree with Our organisation will undergo Joint ventures and partnerships the following statements? significant M&A over the next will be key to our expansion plans three years

Neither Neither Agree Agree Disagree Disagree

Two respondents believe that they will Three banks expect to be involved in be actively involved in M&A over the joint ventures. next three years.

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

Neither Neither

Agree Agree

Disagree Disagree

One domestic bank thinks there may There is no indication that banks will be a future interest in a strategic be interested in disinvestments. foreign investor.

Our organisation will seek a Our organisation is already strategic domestic investor or structured the way we want a partner in a significant new venture in the next three years

Neither Neither

Agree Agree

Disagree Disagree

Only one participant suggested it may Most participants are satisfied with seek a strategic domestic partner over their current structures. the next three years.

PwC 139 Ghana

QQ Can you prioritise your Three strategies stand out as a means 10 strategies for achieving growth of achieving future growth. over the next three years? Please rank the top three. They are:

• client segmentation; Score • new products and services; and 5 • new channels. Organic growth and foreign partnership were assigned lower scores.

0

New channels Organic growth Launching of new Client segmentation Foreign Partnerships products and services

Local acquisitions and mergers Foreign acquisitions and mergers Based on responses from 5 banks

QQ On which strategic areas does The most demanding strategic area 10 your organisation spend more for the banks was the acquisition and time? Please rank the top three retention of key staff. in order of most time spent. This was followed by three equally important areas;

• acquisition of new clients Score 5 • cost reduction and • improving profitability.

0

Managing risk Acquisition and Standardisation Retention of clients retention of key staffImproving profitability Process re-engineering InvestmentEntry performance into new markets Acquisition of new clients

Cost reduction / businessBased refocusing on responses from 5 banks

140 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

QQ What is the level of Ghana is a very attractive location attractiveness for a foreign for foreign financial institutions. financial institution to move Participants scored it 4.4 out of 5. into Ghana (on a scale of 1 to 5 where 5 is the maximum level Two banks awarded the maximum of attractiveness)? score of five.

QQ What is the level of The three foreign owned banks said commitment of your parent that the commitment of their parent institution in Ghana when institution to the Ghanaian market was compared to similar operations 10 out of 10. in other parts of Africa (on a scale of 1 to 10 where 10 is the maximum commitment)?

QQ What is your estimate of Overall annual growth was projected annual growth in revenue for to be higher in 2010 than in 2013. Four 2010 and over the next three banks projected revenue growth in years? 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%.

100

90

80

70

60

50

40

30 Expected annual growth rate in 2010 Expected annual growth 20

10

0 0 10 20 30 40 50 60 70 80 90 100

Expected annual growth rate in 2013

PwC 141 Ghana

QQ Over the last year has your The following chart provides loss for two banks. organisation’s profits in terms a picture of the participants’ of capital allocated in each area profitability in terms of capital Corporate banking is profitable for been? allocated across a series of different three banks and very profitable for business lines. It can be viewed in one bank. association with the table on the following page from PwC’s Ghana Treasury is very profitable for four Banking 2010 report which records banks. return on equity for individual banks over a three year period. Two banks considered trade finance profitable and one bank said it was Retail banking, although very very profitable. profitable for two banks with a 20% - 30% return on capital, also records a

Marginally Very Profitable 30% or Loss <0% profitable profitable 10 – 20% more 0 -10% 20 – 30% Retail banking RR R RR Home loans R Vehicle financing R Corporate banking R RRR R Merchant & R investment banking Treasury R RRRR Internet banking R Micro-lending R R Commercial R property Brokerage R Trade finance RR R Unit trusts R

142 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

Industry Return on Equity reduced from 22% in 2008 to 12.1% in 2009

Rank Rank Rank 2009 2008 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

*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

PwC 143 Ghana

QQ Is your organisation’s operating Four of the participants noted that model clearly documented and their operating model was clearly defined? documented. Only one domestic bank held a different view and said its plan needed more work.

QQ What will the role of branches The typical Ghanaian bank branch has and outlets be in 2013? a staff of 12 people and offers a full service. One foreign-owned bank said all loans were approved at its head office location.

144 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Ghana

Peer Review

QQ Can you name the top three A simple scoring method awarded It is clear from the Peer Review that banks in terms of success 3 points to first place, 2 points to several foreign owned banks feature (performance, presence, second and 1 point to third place. This strongly. They include Barclays momentum, etc.) across a variety allowed the banks to be ranked based Bank, Standard Chartered Bank and of different markets? on a total score. Ecobank.

Banks were asked not to record an Ghana Commercial Bank was placed opinion unless they were active in in second position for retail banking that segment and were comfortable while several second tier banks and in providing an accurate ranking institutions (CAL Bank, UT Bank in terms of success (performance, and ProCrédit) are mentioned in the presence and momentum) as opposed context of micro-finance. to mere size.

They were not permitted to rank their own institution. Often banks chose just to indicate first and/or second place. Ghana Peer Review 1 2 3 Corporate 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

PwC 145 Ghana

146 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

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.

PwC 147 Nigeria

General background on Nigeria The economy in general Public-private partnerships are considered as one possible Nigeria has an estimated population mechanism to improve the road of 152 million. The financial sector network and electricity supply. was badly affected by the global financial crisis and the drop in the Nigeria’s crude oil output declined price of oil at the time. in the first half of 2009, with an estimated average production GDP growth was 6.45% in 2007, of 1.76 million barrels per day 6% in 2008, 6.7% in 2009. In the (mbd), but increased to 1.94 and first quarter of 2010 it was recorded 1.99 mbd in the fourth quarter of at 7.8%. The growth in 2010 was 2009 and first quarter of 2010, driven mainly by the non-oil sector, respectively. The improved output particularly agriculture, which was attributable to improvements constituted 35.9% of GDP and grew in the Niger Delta Region, following by 5.5 percentage points in the first the Federal Government’s amnesty quarter of 2010. programme. “Looking at the reforms in Inflation averaged 12.0 % between Source: Central Bank of Nigeria (CBN). the financial industry and the first quarters of 2008 and 2010. The reason for this relatively high the policy initiatives of the rate resulted from price increases in Federal Government, we are food, fuel and housing costs. inclined to believe that the One of the major impediments to financial market and the economic growth is the lack of infrastructure. economy will enter a phase of real growth in 2011”

FSDH Securities Limited

148 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

Background on Nigerian financial In March 2010, Nigeria had a formal Recent history of the banking sector financial sector composed of the sector following institutions: In 2005, Nigeria successfully consolidated its banking sector. • 24 deposit money banks; Eighty-nine banks were consolidated • 5 discount houses; to 24 banks. • 941 microfinance banks; The banks then experienced rapid • 107 finance companies; growth in a low interest rate environment and this resulted in a • 101 primary mortgage stock market bubble. The banks’ rapid institutions; expansion also lead to an explosion • 13 Pension Fund Administrators; in non-performing loans and turned the spotlight towards weak corporate • 5 Pension Fund Custodians; governance and risk management. • 1,621 bureaux de change operators; Former Central Bank Governor Charles Soludo, who had been • 690 securities brokerage firms; complimented for the successful • 5 development finance consolidation in the sector, was institutions; and subsequently criticised for inadequate supervision and regulation of the • 73 insurance companies. industry. He was replaced by the In addition an informal sector former CEO of First Bank, Sanusi exists made up of a range of small Lamido Sanusi. institutions that frequently lack transparency, have a very low capital Governor Sanusi’s appointment in base and offer limited services. 2009 coincided with the full negative impact of the global financial and The informal sector includes economic crisis on Nigeria and its financial cooperatives, self-help financial sector. groups, the Rotatory Savings and Credit Associations (ROSCAS), Governor Sanusi has highlighted money lenders and credit unions. poor governance and a lax risk management culture that permeated Source: CBN 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.

PwC 149 Nigeria

Reasons for the financial sector 2. Poor corporate governance 6. Uneven supervision and crisis in Nigeria enforcement The Central Bank concluded that Mr Sanusi took over as Governor governance failed because boards The Governor has stated that the of the Central Bank in June 2009. ignored the unethical practices of Supervision Department at the Following a period of rapid expansion executive management. Central Bank was not structured many of the country’s banks were properly to supervise or enforce overwhelmed by bad debt and 3. Lack of investor and consumer regulations. malpractice. sophistication There was no internal accountability Many people made investments Central Bank audits identified for: with little understanding of the a number of banks that were in inherent risks. Consumers were precarious financial positions. • risk management; subjected to bad advice, poor service and hidden fees. • corporate governance; In published documents Governor Sanusi has identified nine internal • fraud; 4. Inadequate disclosure and lack factors that exacerbated the financial of transparency • money laundering; sector crisis in Nigeria post bank consolidation. The Central Bank has stated that • cross regulatory co-ordination; returns were often inaccurate, • enforcement; or They are as follows: incomplete and late. There is also evidence that banks colluded with • legal prosecution. 1. Capital inflows and macro- other banks to enhance financial Banks frequently ignored the economic instability positions. examiners’ recommendations. Banking system liquidity closely 5. Critical gaps in regulatory matched oil price volatility. 7. Internal weaknesses at the framework and regulations Increases in bank deposits allowed Central Bank lending to expand. In the period The Financial Services Regulatory The internal reporting systems at 2004 to 2009, banking assets grew Co-ordinating Committee the Central Bank were inadequate on average by 76% per annum. (FSRCC), the co-ordinating body and dysfunctional. Corporate for financial regulators, did not governance was described as Because the economy could meet for two years. The excess laissez-faire. not absorb the excess liquidity capital in the banks allowed from oil revenues, funds flowed malpractice and regulatory into the capital markets. Market arbitrage to go unchecked. capitalisation of the NSE increased There was no framework for 5.3 times between 2004 and 2007. consolidated bank examination. The value of bank stocks increased nine times in the same period.

150 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

8. Weaknesses in the broader There are now three types of banks business environment in Nigeria: The primitive business • Commercial banks (broken infrastructure includes a long and into three classes – regional, expensive legal process, a lack of national and international); reliable credit agencies and an inability to conduct effective credit • Merchant banks; and assessments. • Specialised banks: Micro- finance, mortgage, non-interest To prevent a systemic bank crisis (regional and national) the Central Bank removed the and development finance CEOs of the unstable banks and institutions. injected Tier II capital of N620 billion (US$4 billion)into these On the following page are the details banks. of the initiatives carried out to date by the Central Bank alongside its on- 9. Demise of the universal going reform programme. 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.

PwC 151 Nigeria

The Central Bank’s Reform The CBN has set out a four pillar A priority is therefore to improve Programme reform programme for the banking capital market depth and sector. The pillars are as follows; accessibility. Initiatives include developing the corporate bond • enhancing the quality of the market, venture capital, micro- banks; finance, and establishing a private equity environment with government • establishing financial stability; Initiatives by the Central Bank seed capital. • enhancing a healthy financial • Establishment of the Asset sector evolution; and Financial Sector architecture Management Corporation of Nigeria (AMCON); • ensuring the financial sector The Central Bank seeks to foster a contributes to the real economy. healthy financial sector by supporting • Establishment of the Financial a framework of credit bureaux, a Stability Committee (FSC); Bank Quality registrar, AMCON (to handle the • Review of supervisory This programme includes non-performing loan problem) and a procedures/methodology; implementation of risk based greater diversity in the types of banks supervision, regulatory reform, in the marketplace. • Adoption of a common year-end consumer protection and for banks; transformation of the CBN itself. Financial Sector’s contribution to • Restructuring of the Financial the economy Sector Surveillance Directorate; Financial Stability The Central Bank contends that the • Renewed collaboration with The reform plan recognises that banks did not contribute adequately other regulators; the Nigerian economy has under to the development and success of performed. It cites two fundamental the broader economy. Proactive • Review of the Corporate problems, volatility and instability actions by government in the past Governance Code for Banks; due to an over reliance on oil and to establish development finance • Establishment of a N200 poor oil revenue management and institutions for housing, trade finance billion (US$1.32 billion)* secondly an inability in the non- and urban development have failed Commercial Agriculture Credit oil economy to successfully absorb to perform satisfactorily. Scheme (CACS) by the CBN, in investment and debt. The Central collaboration with the Federal Bank will therefore strengthen its The Central Bank envisages Ministry of Agriculture and Financial Stability Committee and the financial sector playing a Water Resources; create a new monetary and macro- complimentary role in development prudential framework. finance, foreign direct investment, • Establishment of a N300 billion venture capital and public private (US$1.97 billion)* Power Associated with this motive is the partnerships (PPP). Development Fund in support of need to develop Nigeria’s Capital Small and Medium Enterprises Markets. The CBN notes that there is (SMEs); insufficient long term lending which • Establishment of a N200 billion reduces long term investment and (US$1.32 billion)* Small and growth. 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

152 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

The rise of non-performing loans AMCON has been established by and the creation of AMCON (Asset the Central Bank in conjunction Management Corporation of with the Ministry of Finance. Its Nigeria) 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.

10,000 Non-Performing Loans “AMCON is going to assist the (US$ 65.76 b) Performing Loans economy in several ways not just 8,000 by the infusion of liquidity. It will (US$ 65.76 b)

reduce the risk in the industry 6,000 by mopping up toxic assets. The lower the level of risk the 4,000

higher the level of confidence the Naira Billions general public will have in the sector. 2,000

The second way is by taking away 0 the toxic assets from the rescued 2007 Q12007 Q22007 Q32007 Q42008 Q12008 Q22008 Q32008 Q42009 Q12009 Q22009 Q32009 Q42010 Q1 banks, creating an opportunity for new investors.” Source: Central Bank of Nigeria

Phillip Oduoza CEO UBA At the end of 2010 AMCON took over AMCON had planned to replace 1 January 2011. N2.43 trillion (US$15.98 billion)* of N1.03 trillion (US$6.77 billion)* toxic assets. These assets have been worth of consideration bonds exchanged for consideration bonds. issued to 21 lenders in December The plan is that the AMCON-issued 2010 with fully tradeable bonds bonds will later be swapped for FGN by 31 January 2011, but Chief (Federal Government) guaranteed Executive Mustapha Chike-Obi bonds to be issued by AMCON. said the process was taking longer than expected. “We have had to In total, 21 banks have sold toxic delay the bond issue because there assets to AMCON. This figure are a lot of procedural issues. We includes nine of the 10 rescued banks are seeking some waivers from in 2008 and 12 other indigenous the Ministry of Finance... so we banks that were not subject to the have pushed it back to February Central Bank rescue plan. 28,” he told Reuters in a telephone interview. But he said AMCON’s It has been reported that the 12 non timetable -- absorbing bad loans rescued indigenous banks have toxic by the end of March 2011 and assets of N581 billion (US$ 3.82 resolving the banking crisis by the billion)*. end of June 2011 was still on track.

* 1US$ = N152.07 31/12/2010 Exchange-rates.org

PwC 153 Nigeria

Understanding the current make- There are currrently 24 universal banks up of the banking sector in Nigeria as demonstrated in the table below. The table on the next page records banks that required a rescue package.

Universal banks in 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

Source: Central Bank of Nigeria

154 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

Asset stagnation in the banks The following charts highlight the One of the criticisms of the banks stagnation in asset growth for the has been the lack of support for the Nigerian banks from the middle development of infrastructure and the of 2008 to 2010 and the sectoral provision of long term financing. distribution of lending in 2009. The low level of commitment to The total assets of the 24 deposit manufacturing and public utilities is taking banks at April 2010 were apparent in the second chart. N15,056 billion (US$ 99 billion)*.

Total Assets of 24 Banks at April 2010 Rescued banks 16,000 • Afribank 15,500 • Bank PHB 15,000 • Finbank 14,500 14,000 • Intercontinental Bank 13,500 Naira Billions • Oceanic Bank 13,000 • Spring Bank (acquired by Bank 12,500 PHB) 12,000 • Union Bank 11,500

2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1

Source: Central Bank of Nigeria

Sectoral Distribution of Credits 2009 General

Finance & Real Estate

Transport & Communication

General Commerce

Public Utilities

Real Estate & Construction

Manufacturing

Mining & Quarrying

Agriculture Source: Central Bank of Nigeria

* 1US$ = N152.07 31/12/2010 Exchange-rates.org

PwC 155 Nigeria

Banks in Nigeria ranked by equity Total assets plus Equity Deposits and deposits in 2009 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.

156 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

QQWhat are the most important • New banking guidelines. With the The CEOs of the following banks changes/developments taking appointment of Sanusi Limido were charged with financial place in your financial services Sanusi as Governor of the Central crimes: market? Bank there has been a “back to basics” approach. • Oceanic Bank • Huge effort made to recapitalise • Intercontinental Bank the distressed banks and prepare them for sale. • Union Bank • Creation of AMCON (Asset • Afribank Management Corporation of • Finbank Nigeria). • The future buyback plans.

QQDo you have any major concerns • The true health and status of the about the financial sector in banks’ loan portfolios. Nigeria? • 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 Nigerian capital market • The stability of the Nigerian stock was severely impacted by the market (see adjacent box). 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.)

* 1US$ = N152.07 31/12/2010 Exchange-rates.org

PwC 157 Nigeria

QQWhat are the strengths and Strengths weaknesses of the financial • Global network. services sector? • 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 The foreign banks recognised that 10 the level of development of Nigeria is the most developed financial the financial services sector in services market in West Africa. They Nigeria relative to other markets also acknowledge that the size and in West Africa? (10 = maximum scope of Nigeria positions it ahead of development.) 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.

158 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

QQWhat developments are needed The participants highlighted the to move the financial services following areas for development. market forward? • 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 “While few policy changes market.One bank believed this are anticipated at the outset, would be helped by reducing taxes on corporate banks. Deposits are this raises the possibility placed for very short periods and of a more interventionist the long term market needs to be developed. regulator, looking to boost • Development of an infrastructure lending to strategic sectors asset class through PPP (Public such as power and industry, Private Partnerships). One participant argued that a and to fulfil broader significant amount of capital was financial inclusion aims.” trapped in pension funds.

Razia Khan, Regional Head of Research, Africa, at Standard Chartered Bank, UK

PwC 159 Nigeria

QQIn your view, what is the level Retail banking Retail banking of intensity of competition in Retail banking is considered to be the following markets; and how intensely competitive and all the Intense 75% 25% will this affect your competitive participants have made significant response? or fundamental changes to their Moderate strategy in the last year. The following charts illustrate Light how the banks perceive the level of competition in three None Competition different markets; retail banking, Response corporate banking and micro- No Minor Significant Fundamental change change operational change in finance. and or - strategy ganisational and change positioning

Note: Based on responses from 4 banks Corporate banking Corporate banking In similarity to retail banking, corporate banking was also viewed Intense 25% 75% as intensely competitive. Three banks suggested they had made significant Moderate changes to strategy. Light

None Competition Response No Minor Significant Fundamental change change operational change in and or - strategy ganisational and change positioning

Note: Based on responses from 4 banks

Investment banking Investment banking Although the banks have made little change to their investment banking Intense 25% 25% strategy, they still consider it to be very competitive. Moderate 25% 25%

In addition to competition from Light domestic banks, they must also compete with teams of bankers from None Competition outside the market. Response No Minor Significant Fundamental change change operational change in and or - strategy ganisational and change positioning

Note: Based on responses from 4 banks

160 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

Micro-finance In 2010 the Central Bank and the NDIC examined the micro- finance banking sector in Nigeria. The review exposed a high level of non-performing Micro-finance loans, gross under-capitalisation, Micro-finance poor corporate governance, According to the publication Micro- incompetent boards and insider finance Nigeria 74% of the adult Intense related credits. As a result the population has never banked, 85% of Moderate Central Bank revoked the licenses adult females are unbanked and 73% of 224 of the countries 820 micro- of adult Nigerians are financially Light finance banks. excluded (that is have no formal 100% access to finance). None

Subsequently the Central Bank Competition granted provisional approval Stanbic IBTC’s product called e.susu Response No Minor Significant Fundamental for new licenses to 121 of attempts to address this sector by change change operational change in and or - strategy the 224 micro-finance banks allowing small traders to make ganisational and subject to them meeting certain financial transactions and transfers. change positioning

requirements. Depositors can deposit cash at points Note: Based on responses from 4 banks of collection (POC) and then make Source: Financial Stability Report, Central withdrawals from ATMs. Bank June 2010.

QQDo you believe that the financial The participants were split 50/50 on services market is overcrowded? the issue of market overcrowding. Although the market is considered highly competitive, there is still a large portion that remains under-serviced.

QQWhich category of institutions Four participants unanimously agreed will present the most significant that the greatest competitive threat to competitive threat to your the banks was established broad based organisation over the next three financial institutions already active in years? the market.

This confirms that start-ups, niche players and new competitors are of minor importance, banks already present represent the main competitive challenge.

PwC 161 Nigeria

QQWhat are the major drivers of The major drivers of change in the change in the financial services Nigerian financial services industry industry today? Please rank the were identified as “top 5” in order of importance. • 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.

Mergers/Consolidation

Governance

Performance of domestic economy

Foreign exchange control

Recession

Regulation and reporting

Global economic downturn

Opportunities in the rest of Africa

Liquidity

Politics

Technology

Disintermediation

Capital markets

Consumerism

Government intervention

0 5 10 Score Based on responses from 4 banks

162 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

QQDo you anticipate further The participants unanimously agreed demands on the need for that there would be further demands increased transparency on the need for greater transparency on pricing and product on pricing and product comparisons. comparisons?

QQHave you completed a merger or The participants indicated that they an acquisition in the last year had not made any acquisitions in Ecobank acquired AIB (Africa and are any planned for next the last year and two of the banks International Bank )in November year? suggested that acquisitions may occur 2008 after the collapse of an in 2011. acquisition bid by Diamond Bank.

Standard Bank acquired a controlling interest in IBTC in 2007.

QQWill there be an entrance of the The participants unanimously agreed new financial services players that new financial services players into Nigeria in the next three would be entering Nigeria in the next years? 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.

PwC 163 Nigeria

QQOn which strategic areas does Based on responses from just three your organisation spend more banks the most important strategic time? 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.

QQWhat is your estimate of annual As the chart indicates the banks expect growth in revenue for your revenue growth to pick up over the business for 2010 and over the next three years. They expect revenue next three years? growth of 20% to 30% by 2013.

100

90

80

70

60

50

40

30 Expected annual growth rate in 2010 Expected annual growth 20

10

0 0 10 20 30 40 50 60 70 80 90 100

Expected annual growth rate in 2013

164 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

QQWhat is your institution’s The participants unanimously agreed Primary method of growth primary method of growth? that their primary method of growth was organic. However, several mentioned that they would also be interested in future acquisitions.

Organic growth

QQDo you support the concept of All of the participants support the Support for Deposit Insurance deposit insurance? 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)*. Yes 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.

* 1US$ = N152.07 31/12/2010 Exchange-rates.org

PwC 165 Nigeria

QQDo you see the intensity of Two respondents believe Intensity of Regulation regulation of the financial that regulations will increase services industry increasing or substantially over the next three decreasing over the next three years. 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. Stay the same Increase slightly Increase substantially

QQDo you plan increased The majority of participants expect to Plan to increase compliance compliance spending over the increase their compliance spending spending next three years? 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

QQDo you believe financial services The participants do not believe that Risk management systems robust organisations’ risk management the local banks have robust risk systems are sufficiently robust? 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’ No management.

166 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

QQHas your organisation ever All the banks surveyed have Performed liquidity stress testing performed liquidity stress testing performed liquidity stress testing simulations simulations? simulations.

Yes

PwC 167 Nigeria

In which areas are you currently The top three areas of skills shortages experiencing the greatest shortage were identified as: of skills? (1 is low, 5 is high) • risk management; • capital management; and • compliance. They were followed by the shortage of skills in executive directors, financial reporting and information technology.

Risk management

Capital management

Compliance

Executive directors

Financial reporting

Information technology (IT)

Administration

Audit committee

Internal audit

Non-executive directors

0 5 10 15 20

168 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

QQHas your organisation adopted Only two of the participants indicated IFRS (International Financial that they had adopted IFRS in Reporting Standards)? Nigeria.

QQDo you think that the adoption Participants unanimously agreed that of IFRS will enhance market the adoption of IFRS would enhance reporting? 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.

Three of the banks were somewhat QQ How confident are you that Confidence in adopting IFRS you have a full understanding confident in their adoption of IFRS of the impact of IFRS on your in Nigeria, one bank said it was very organisation? 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 Somewhat confident the Nigerian Generally Accepted Very confident 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.

PwC 169 Nigeria

QQDo you envisage any IT platform Only two banks envisage IT platform changes in the short term changes in the short term. One bank (administration platforms, indicated that its proprietary IT general ledgers, business process banking platform needs to be changed management, human resource constantly to meet the requests of the systems or business intelligence)? Central Bank.

QQDo you currently use a Two banks said they were satisfied CRM (Client Relationship with their client relationship Management) system? management systems and recorded a satisfaction level of four out of five. One bank is in the process of building a CRM system.

QQ Identify three major technology The technological weaknesses in Challenges to the weaknesses in the financial Nigeria were recorded by participants electronic payments and services industry? as follows: settlements system • the inability of industry • A weak infrastructure; participants to share technology. • High transaction costs; There have been problems with the ATM InterSwitch system. This • High dependence on cash adds to individual bank costs. (In transactions; January 2011 a private equity • A high incidence of poverty and group Helios Investment Partners ignorance; acquired a majority stake in InterSwitch. InterSwitch accepts • A high level of illiteracy; the chip and pin Verve Card which • A low level of Internet access; is currently issued by 16 of the 24 banks); • Inadequate inter-operability and inter-connectivity; • weak communications both within Nigeria and internationally. One • The high cost of deploying bank mentioned that a major and maintaining the payments satellite link had been down for infrastructure; two months and this affected their • A low level of public awareness global access; of the existence of some • a lack of technology specialists; non-cash payment products, and resulting in under-utilisation of e-payments solutions; and • telecom was considered expensive and unreliable and there were • The concentration of bandwidth limitations. e-payment facilities in urban centres.

Source: Central Bank of Nigeria

170 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

QQWhat do you believe will be the The future areas of technology In November 2010, the Central top three areas of technology application were as follows: Bank approved eTranzact’s application in financial services Mobile Money solution. The new by 2013? • mobile banking; and mobile money platform works • platform computing. on GSM networks and PTO platforms. Four Nigerian banks A parallel provider to InterSwitch are partnering in this service with mentioned on the previous page is eTranzact, First Bank, Skye Bank, Valucard (Vpay) which is owned by United Bank for African and Visa Inc. and a consortium of Nigerian Wema Bank. banks. eTranzact allows funds transfer eTranzact (see adjacent box) has to a mobile phone which can be recently received approval for its then withdrawn from an ATM Mobile Money product. 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.

QQVolume and value of ePayment The Central Bank has reported that ATMs are by far the most popular transactions at the end of 2009 ATM volume increased by 81.5% electronic channel. They accounted based on Central Bank data between 2008 and 2009 with the for 95.3% of volume and 85% of number of transactions growing from value at the end of 2009. 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.

Volume of e transactions 2009 Value of e transactions 2009

Internet Internet

Mobile phone Mobile phone

POS POS

ATMs ATMs

* 1US$ = N152.07 31/12/2010 Exchange-rates.org

PwC 171 Nigeria

QQDoes your organisation have All of the banks interviewed reported Documented IT governance a documented IT governance that they had a documented IT framework framework approved by the audit governance framework approved by committee? the audit committee.

Yes

QQHave you implemented a The banks interviewed have Privacy principles plan programme to ensure compliance implemented a programme to comply protection of personal information with internationally recognised with internationally recognised privacy principles and/or principles regarding protection of legislation that deals with personal information. the protection of personal information?

Yes

QQHave you implemented a All the participants have implemented Payment Card Industry programme to ensure ongoing a programme to comply with DSS. Data Security Standard Plan compliance with Payment Card Industry (PCI) and Data Security Standard (DSS) requirements?

Yes

172 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

QQDo you agree or disagree with the Our organisation will undergo Joint ventures and partnerships will be following statements? significant M&A over the next three key to our expansion plans years

Neither Neither Agree Agree Disagree Disagree

The banks interviewed remained The participants were split on whether noncommittal on whether they might they would seek joint ventures in their be involved in M&A activity. expansion.

Our organisation will undergo a Our organisation is already structured significant business disposal over the in the way we want next three years

Neither Neither Agree Agree Disagree Disagree

As expected none of the participants Only one participant believed that plan to dispose of any business lines they were not currently structured in over the next three years. their desired form.

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

Neither Agree Disagree

There was no interest in seeking a domestic partner over the next three years.

PwC 173 Nigeria

QQWhat is the level of commitment Four foreign banks provided an of your parent institution in assessment of the level of commitment Nigeria when compared to of their parent bank to the Nigerian similar operations in other market. Three of them scored 10 out of parts of Africa (on a scale of 1 10 while one scored 9 out of 10. to 10 where 10 is the maximum commitment) 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.

QQCan you suggest three product The following product areas are areas that will become expected to become increasingly increasingly important over the important over the next three years: next three years? Retail banking Corporate banking • consumer lending; • derivatives; • vehicle and asset financing; • developing the corporate bond offerings; • mortgages (underdeveloped market at the moment where many loans • financial advisory services remain unsecured); (investment banking); • high costs associated with arranging • trade financing; and mortgages; • infrastructure financing. • electronic payments (both debit and credit); and • asset management.

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.

174 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Nigeria

QQOver the last year can you classify The limited sample size impacts on your organisations’ profits in the validity of this response but it terms of capital allocated in each does suggest that the participants find of the following categories? the Nigerian market to be profitable particularly in corporate and investment banking.

Loss <0% Marginally Profitable Very 30% or profitable 10 – 20% profitable more 0 -10% 20 – 30% Retail banking R Home loans

Vehicle financing Corporate banking R R Merchant & investment RR banking Treasury R R Internet banking R

PwC 175 Nigeria

Peer Review

QQCan you name the top three A simple scoring method awarded The following Peer Review is based banks in terms of success 3 points to first place, 2 points to on the opinions of five foreign banks. (performance, presence, second and 1 point to third place. This As a result it should be interpreted momentum, etc.) across a allowed the banks to be ranked based as a rudimentary assessment of the variety of different markets? on a total score. activities of the banks mentioned.

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

Nigeria Peer Review 1 2 3 Corporate banking GT Bank Zenith Bank First Bank Retail banking First Bank GT Bank UBA

Standard Chartered Foreign Exchange Trading Citibank/First Bank Bank

Standard Chartered Trade finance Zenith Bank GT Bank Bank

176 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Appendices

PwC 177 Appendices

Changes in economic fundamentals impacting longer-term growth in Africa

Factor Expected trends in Africa Channels of Impact on "trend" transmission to growth (potential growth) Financial markets Credit conditions on Over the medium term, Lower investment through Negative international markets access of Africa's EMEs lower access to credit - direct and FMEs will be lower than impact on EMEs and spillover before the crisis, due to effects to others. investors’ increased risk- averseness. Development of housing Likely to develop further in Increased domestic Positive, but relatively markets in Africa's EMEs and EMEs (North Africa, South demand (higher demand for small FMEs Africa); start in some other complements). countries (Ghana). Commodity prices Oil prices Global demand set to rise For oil importers, higher Negative on balance, as relative to global supply. prices for inputs (transfer, costs to importers likely to power). For oil exporters, increase higher revenues. Food prices Global demand set to rise Inflationary pressures. Negative relative to global supply. Demographics Population growth in Africa High population growth likely If growth picks up, additional Ambiguous, but likely to continue. labour supply is useful. more negative after the Otherwise (more likely) large crisis than before social pressures will arise. Population growth in China Slowing population growth in Lower population growth in Positive, provided that China. China will increase wages Africa is ready to seize and create opportunities for this opportunity (through African manufacturing to enabling environment, etc.) expand. Other factors Structural reform They have been always Slower improvements Negative lagging, and there is a in the business climate risk that crisis will lower and governance, slower the appetite of African technology adoption. constituencies for further structural reform. Regional integration Likely to increase after the Increased regional demand Positive, but significant crisis as countries are looking and diversified risks. progress will take time for ways to rebalance sources Efficiency gains through of growth and demand. integration (easier movement of production factors) will kick in. Increased protectionism/ Likely to increase after the Lower demand for African Negative slower dismantling of barriers crisis as countries most exports among advanced to trade and capital flows integrated to the global economies; slower progress economy were also the with regional integration. hardest hit by the crisis. Climate change (relevant over Physical impact of climate In the long term, yields and Minimal over the shorter the long term) change is unlikely to be area of arable land will be term and ambiguous over substantial in the short reduced. Short term, more the longer term, depends term (before 2015), but will frequent and intense natural on countries' mitigation increase afterwards. hazards. and adaptation.

Source: African Development Bank, adapted from Asian Development Bank (2010).

178 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Appendices

Examples of African responses to the global financial crisis

Time frame/objective Policy options Country examples Comments

Short term Counteract shortages of trade National governments, IFIs Ghana, Nigeria AFDB and partners mobilised finance and others stepped in. AFDB US$1.2 million trade finance to established US$1bn Trade support Ghana's cocoa sector; Finance Initiative United Bank of Africa Plc (UBA in Nigeria received US$150 million) Liquidity support to the banking Bank recapitlisation Nigeria, Tanzania In Nigeria, government responded sector 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 Raise monetary targets while Tanzania, Uganda, Kenya monetarypolicy increasing fiscal expenditures New sources of budget financing Infrastructure bonds Kenya Exchange rate policies Minimising ER volatility Zambia, Sierra Leone Openness measures Trade protectionism (trade and NTBs) Imposing capital controls 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 Increased monitoring of NPLs Zambia, Sierra Leone reforms Openness measures Introducing FDI exemptions Sierra Leone New tax incentives introduced to attract FDI Regional integration and co- Progress with regional integration East African Economic Community Increased regional co-operation operation Co-ordination of banking West African Economic and MOU on cross-border supervision supervisions and regulation of Monetary Union cross-banking financial flows

Source: African Development Bank

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GDP and population estimates and projections

Angola

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.

DRC

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

180 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Appendices

GDP and population estimates and projections (continued)

DRC (continued)

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

Nigeria

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 a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Official estimate.

Source: Economist Intelligence Unit , IMF, International Financial Statistics.

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GDP and population estimates and projections (continued)

Ghana

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 and income 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

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Source: Economist Intelligence Unit, IMF, International Financial Statistics.

Cote d’Ivoire

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 and income 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

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Source: Economist Intelligence Unit , IMF, International Financial Statistics.

182 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Appendices

Extract from ‘Doing Business 2011’ published by the World Bank and the International Finance Corporation

Angola

Ease of doing business (rank) 163 Sub-Saharan Africa: Lower middle GNI per capita (US$) 3,490 income Population (m) 18.5 Starting a business (rank) 164 Getting credit (rank) 116 v Trading across borders (rank) 166 Procedures (number) 8 Strength of legal rights index (0-10) 4 Documents to export (number) 11 Time (days) 68 Depth of credit information index (0-6) 3 Time to export (days) 52 Cost (% of income per capita) 163.0 Public registry coverage (% of adults) 2.4 Cost to export (US$ per container) 1,850 Minimum capital (% of income per 28.7 Private bureau coverage (% of adults) 0.0 Documents to import (number) 8 capita) Time to import (days) 49 Dealing with construction permits 128 Protecting investors (rank) 59 Cost to import (US$ per container) 2,840 (rank) 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 5.7 Time (days) 1,011 (0-10) 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

Source: Doing Business 2011, 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.

PwC 183 Appendices

World Bank rankings and selected statistics relating to the “Ease of Doing Business” in each of the markets covered in this report

Cote d’Ivoire

Ease of doing business (rank) 169 Sub-Saharan Africa: Lower middle GNI per capita (US$) 1,060 income Population (m) 21.1 Starting a business (rank) 172 Getting credit (rank) 152 Trading across borders (rank) 160 Procedures (number) 10 Strength of legal rights index (0-10) 3 Documents to export (number) 10 Time (days) 40 Depth of credit information index (0-6) 1 Time to export (days) 25 Cost (% of income per capita) 133.0 Public registry coverage (% of adults) 0.2 Cost to export (US$ per container) 1,969 Minimum capital (% of income per 202.9 Private bureau coverage (% of adults) 0.0 Documents to import (number) 9 capita) Time to import (days) 36 Dealing with construction permits 165 Protecting investors (rank) 154 Cost to import (US$ per container) 2,577 (rank) Procedures (number) 21 Extent of disclosure index (0-10) 6

Time (days) 592 Extent of director liability index (0-10) 1 Enforcing contracts (rank) 126 Cost (% of income per capita) 227.6 Ease of shareholder suits index (0-10) 3 Procedures (number) 33 Strength of investor protection index 3.3 Time (days) 770 (0-10) Registering property (rank) 151 Cost (% of claim) 41.7 Procedures (number) 6 Paying taxes (rank) 153 Time (days) 62 Payments (number per year) 64 Closing a business (rank) 76 Cost (% of property value) 13.9 Time (hours per year) 270 Time (years) 2.2 Total tax rate (% of profit) 44.4 Cost (% of estate) 18 Recovery rate (cents on the dollar) 32.8 Source: Doing Business 2011, The World Bank and The International Finance Corporation

184 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Appendices

World Bank rankings and selected statistics relating to the “Ease of Doing Business” in each of the markets covered in this report (continued)

Democratic Republic of Congo

Ease of doing business (rank) 175 Sub-Saharan Africa: Low income GNI per capita (US$) 160 Population (m) 66.0 Starting a business (rank) 146 Getting credit (rank) 168 Trading across borders (rank) 172 Procedures (number) 10 Strength of legal rights index (0-10) 3 Documents to export (number) 8 Time (days) 84 Depth of credit information index (0-6) 0 Time to export (days) 44 Cost (% of income per capita) 735.1 Public registry coverage (% of adults) 0.0 Cost to export (US$ per container) 3,505 Minimum capital (% of income per 0.0 Private bureau coverage (% of adults) 0.0 Documents to import (number) 9 capita) Time to import (days) 63 Dealing with construction permits 81 Protecting investors (rank) 154 Cost to import (US$ per container) 3,735 (rank) Procedures (number) 14 Extent of disclosure index (0-10) 3 Time (days) 128 Extent of director liability index (0-10) 3 Enforcing contracts (rank) 172 Cost (% of income per capita) 2,692.2 Ease of shareholder suits index (0-10) 4 Procedures (number) 43 Strength of investor protection index 3.3 Time (days) 625 (0-10) Registering property (rank) 118 Cost (% of claim) 151.8 Procedures (number) 6 Paying taxes (rank) 163 Time (days) 54 Payments (number per year) 32 Closing a business (rank) 155 Cost (% of property value) 7.0 Time (hours per year) 336 Time (years) 5.2 Total tax rate (% of profit) 339.7 Cost (% of estate) 29 Recovery rate (cents on the dollar) 1.1

Source: Doing Business 2011, The World Bank and The International Finance Corporation

PwC 185 Appendices

World Bank rankings and selected statistics relating to the “Ease of Doing Business” in each of the markets covered in this report (continued)

Ghana

Ease of doing business (rank) 67 Sub-Saharan Africa: Low income GNI per capita (US$) 700 Population (m) 23.8 Starting a business (rank) 99 Getting credit (rank) 46 Trading across borders (rank) 89 Procedures (number) 7 Strength of legal rights index (0-10) 8 Documents to export (number) 6 Time (days) 12 Depth of credit information index (0-6) 3 Time to export (days) 19 Cost (% of income per capita) 20.3 Public registry coverage (% of adults) 0.0 Cost to export (US$ per 1,013 container) Minimum capital (% of income per 11.0 Private bureau coverage (% of adults) 10.3 Documents to import (number) 7 capita) Time to import (days) 29 Dealing with construction permits 151 Protecting investors (rank) 44 Cost to import (US$ per 1,203 (rank) container) Procedures (number) 18 Extent of disclosure index (0-10) 7 Time (days) 220 Extent of director liability index (0-10) 5 Enforcing contracts (rank) 45 Cost (% of income per capita) 1,017.7 Ease of shareholder suits index (0-10) 6 Procedures (number) 36 Strength of investor protection index 6.0 Time (days) 487 (0-10) Registering property (rank) 36 Cost (% of claim) 23.0 Procedures (number) 5 Paying taxes (rank) 78 Time (days) 34 Payments (number per year) 33 Closing a business (rank) 109 Cost (% of property value) 1.0 Time (hours per year) 224 Time (years) 1.9 Total tax rate (% of profit) 32.7 Cost (% of estate) 22 Recovery rate (cents on the 23.7 dollar)

Source: Doing Business 2011, The World Bank and The International Finance Corporation

186 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Appendices

World Bank rankings and selected statistics relating to the “Ease of Doing Business” in each of the markets covered in this report (continued)

Nigeria

Ease of doing business (rank) 137 Sub-Saharan Africa: Lower middle GNI per capita (US$) 1,140 income Population (m) 154.7 Starting a business (rank) 110 Getting credit (rank) 89 Trading across borders (rank) 146 Procedures (number) 8 Strength of legal rights index (0-10) 8 Documents to export (number) 10 Time (days) 31 Depth of credit information index (0-6) 0 Time to export (days) 24 Cost (% of income per capita) 78.9 Public registry coverage (% of adults) 0.0 Cost to export (US$ per 1,263 container) Minimum capital (% of income per 0.0 Private bureau coverage (% of adults) 0.0 Documents to import (number) 9 capita) Time to import (days) 39 Dealing with construction permits 167 Protecting investors (rank) 59 Cost to import (US$ per 1,440 (rank) container) Procedures (number) 18 Extent of disclosure index (0-10) 5 Time (days) 350 Extent of director liability index (0-10) 7 Enforcing contracts (rank) 97 Cost (% of income per capita) 597.5 Ease of shareholder suits index (0-10) 5 Procedures (number) 40 Strength of investor protection index 5.7 Time (days) 457 (0-10) Registering property (rank) 179 Cost (% of claim) 32.0 Procedures (number) 13 Paying taxes (rank) 134 Time (days) 82 Payments (number per year) 35 Closing a business (rank) 99 Cost (% of property value) 20.9 Time (hours per year) 938 Time (years) 2.0 Total tax rate (% of profit) 32.2 Cost (% of estate) 22 Recovery rate (cents on the 26.8 dollar)

Source: Doing Business 2011, The World Bank and The International Finance Corporation

PwC 187 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

188 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Appendices

Contacts

West Africa

Côte d’Ivoire Ghana Nigeria 01 BP 1361 PMB CT42 PO Box 2419 Abidjan 01 Cantonments Lagos Nigeria Côte d’Ivoire Accra Tel: +234 1 320 3100 Tel: +225 20 31 54 00 Ghana Fax: +234 1 320 3101 Fax: +225 20 31 5461/62 Tel: +233 21 761 500 Contact: Gabriel Ukpeh Contact: Didier N’guessan Fax: +233 21 761 544 Contact: Vish Ashiagbor

Central Africa

Cameroon Democratic Republic of Gabon Congo BP 5689 366, Rue Alfred-Marche Douala – Akwa BP 10195 Libreville BP 2164 Republic of Cameroon Kinshasa 1 Tel : +241 76 23 71 Tel: +237 33 43 24 43/44/45/46 DRC Fax : +241 74 43 25 Fax: +237 33 42 86 09 Tel: +243 998 396 271 Contact: Christophe Courtin Contact: Douty Fadiga Fax: +243 812 616 010 Contact: Benjamin Nzailu Congo 32 Avenue du Général de Gaulle Pointe Noire Tel: +242 94 30 28 Fax: +242 94 23 34 Contact: Prosper Bizitou

East Africa

Kenya Tanzania Uganda PO Box 43963 – 00100 PO Box 45 PO Box 882 Nairobi 00100 Dar-es-Salaam Kampala Kenya Tanzania Uganda Tel: +254 20 285 5000 Tel: +255 22 213 3100 Tel: +256 41 236 018 Fax: +254 20 285 5001 Fax: +255 22 213 3200 Fax: +256 41 230 153 Contact: Richard Njoroge Contact: Leonard Mususa Contact: Uthman Mayanja

PwC 189 Appendices

Contacts (continued)

Southern Africa

South Africa Malawi Swaziland Johannesburg Blantyre Mbabane PO Box 1147/1064 PO Box 569 Private Bag X36 Blantyre Mbabane Sunninghill Tel +265 620 322 Tel +268 404 2861 2157 Fax +265 621 215 Fax +268 404 5015 Tel +27 11 797 4000 Contact: Tinashe Rwodzi Contact: Paul Lewis Fax +27 11 797 5819 Contact: Tom Winterboer Mauritius Fax +267 397 3901 Contact: Rudi Binedell Cape Town 18 CyberCity, Ebène Republic of Mauritius PO Box 2799 Zimbabwe Tel: +230 404 5000 Cape Town Fax: +230 404 5088/89 Harare 8000 Contact: Mushtaq Oosman PO Box 453 Tel +27 21 529 2000 Harare Fax +27 21 529 3300 Mozambique Tel +263 4 307 213 19 Contact: Hennie Nel Fax +263 4 332 495 Maputo Contact: Tinashe Rwodzi Botswana PO Box 2583 Maputo Gaborone Tel +258 1 307 620 PO Box 1453 Fax +258 1 307 621 Gaborone Contact: José Azevedo Tel +267 395 2011

Madagascar Namibia Windhoek Rue Rajakoba Augustin PO Box 1571 Ankadivato Windhoek Antananarivo 101 Tel +264 61 284 1000 Madagascar Fax +264 61 284 1001 Tel: +261 20 22 217 63 Contact: Louis van der Riet Fax: +261 20 22 338 64 Contact: Liliane Raserijaona

190 Perspectives on Strategic and Emerging Issues in Africa West Coast banking Appendices

PwC 191 www.pwc.com/za

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