P 081006Z APR 09
FM AMEMBASSY ABIDJAN
TO SECSTATE WASHDC PRIORITY 5058
DEPT OF TRANSPORTATION WASHDC PRIORITY
INFO ECOWAS COLLECTIVE PRIORITY

UNCLAS ABIDJAN 000229 
 
 
E.O. 12958: N/A 
TAGS: EFIN ECON IV
SUBJECT: CREDIT HARD TO OBTAIN IN COTE D'IVOIRE 
 
¶1. Summary. The Ivoirian banking sector is made up of 18 
banks, approximately half of which are undercapitalized. 
Banks here play a relatively small role in the economy, even 
when compared with banks in other low-income countries.  The 
lack of credit is an element that impedes the expansion of 
the private sector.  However, the entry of new banks into the 
market will likely result in an increase in banking services 
and a consolidation of the sector over the next 10 years. 
End summary. 
 
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STRUCTURE OF THE BANKING SECTOR 
------------------------------- 
 
¶2. Generally speaking, the larger Ivoirian banks (including 
subsidiaries of France's Societe Generale and BNP Paribas) 
have operated here for decades.  Citibank, the sole U.S. bank 
in the country, has been in Abidjan for over 30 years, 
providing commercial banking but no retail banking.  The 
large, stable banks typically cater to well established 
businesses based in Abidjan, and there seems to be moderately 
strong competition between them in that segment of the 
economy.  Banking services outside Abidjan are limited, 
especially in the central-north-west region, which has not 
been under GOCI control since 2002, when rebel forces took 
over that part of the country. 
 
¶3. In recent years, several African banks--primarily 
Nigeria-based--have moved into the Ivoirian market.  Because 
of high capital requirements imposed by Nigerian regulators, 
Nigerian banks are generally better capitalized than Ivorian 
banks.  In Cote d'Ivoire, investors need only about USD 10 
million to establish a bank; in Nigeria, approximately USD 
200 million is required  The emergence of new banks 
(approximately five in the past five years) indicates a 
relatively open banking regime.  A representative of one of 
the Nigerian banks that recently opened in Abidjan told 
econoff that although he suspected other banks were working 
behind the scenes to keep his bank out of the country, the 
process was simple and it took only 18 months to set up the 
bank. 
 
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LENDING RATES AND PRACTICES 
--------------------------- 
 
¶4. Individuals and businesses, especially small- and 
medium-sized enterprises (SMEs), complain that Ivoirian banks 
charge high interest rates, require too many documents, and 
often refuse to make loans.  There appears to be some truth 
to these claims.  Economist Intelligence Unit (EIU) figures 
indicate that the average real lending interest rate in Cote 
d'Ivoire in 2007 was 7.4 percent, well above the median of 
4.7 percent for countries in the EIU database. 
 
¶5. Bankers retort that businesses rarely have proper 
financial statements and often request loans in unrealistic 
amounts.  Furthermore, bank officials argue that they operate 
in an environment in which it pays to be conservative:  the 
Ivoirian judiciary system is arbitrary, making recovery of 
collateral very difficult; and the GOCI demands pre-payments 
of taxes from bank clients and delays payments to suppliers 
for long periods.  Additionally, some banks must submit loan 
applications for evaluation by bank counterparts in developed 
countries, where Cote d'Ivoire is seen as quite risky. 
 
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HEALTH AND REGULATION OF THE BANKING SECTOR 
------------------------------------------- 
 
¶6. The IMF reports that approximately half of Cote d'Ivoire's 
banks have inadequate capital.  The IMF's three-year Poverty 
Reduction and Growth Facility (PRGF) for Cote d'Ivoire, 
approved March 27, addresses financial-sector reform.  In it, 
the GOCI agrees to recapitalize and/or restructure private 
banks in distress and to restructure the state-owned national 
investment bank (BNI) by restoring its solvency and 
compliance with prudential norms. 
 
¶7. Ivoirian bankers generally respect their regulator, the 
West African Economic and Monetary Union (WAEMU) Banking 
Commission, but say that some of the Commission's norms are 
unrealistic, a fact the Commission tacitly acknowledges by 
failing to enforce them. 
 
¶8. In short, there appear to be three general types of banks 
in Cote d'Ivoire:  large, healthy banks related to European 
or U.S. banks (four banks); healthy African banks that have 
recently entered the market (approximately five); and poor, 
undercapitalized local banks (approximately six, two of which 
are relatively new). 
 
¶9. Although many Ivoirian banks are subsidiaries or otherwise 
have relationships with foreign banks, bankers in Cote 
d'Ivoire claim that their banks are "self-contained," i.e., 
they engage in little inter-bank lending.  Their portfolios 
are typically separate from those of their parent banks--a 
factor that has limited Ivoirian banks, exposure to the 
world financial crisis.  However, Ivoirian bankers also note 
that they are beginning to see the impact of the global 
recession, as the revenues of some of their 
commodity-exporting clients have fallen. 
 
---------------------------- 
MEASURES OF LENDING ACTIVITY 
---------------------------- 
 
¶10. Various measures show that the banking sector plays a 
relatively small role in the Ivoirian economy.  World 
Development Indicators (WDI) show that domestic credit to the 
private sector equaled 14.3 percent of GDP in 2006.  As one 
might anticipate, Cote d'Ivoire's ratio falls well below that 
of high-income countries (161.3 percent).  However, Cote 
d'Ivoire's ratio is also significantly lower than the average 
for low-income countries (24.8 percent). 
 
¶11. Similarly, WDI figures for 2006 show that credit provided 
by the Ivoirian banking sector equaled 18.1 percent of GDP. 
For high-income countries, the ratio was 193.5 percent; for 
low-income countries it was 30.0 percent. 
 
¶12. The World Bank's Doing Business 2009 report ranks Cote 
d'Ivoire number 145 of 181 countries (ranking countries from 
best to worst) in terms of firms, ability to get credit. 
Among sub-Saharan African countries, Cote d'Ivoire ranks 27th 
of 45. 
 
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REASONS FOR LOW LEVELS OF BANKING ACTIVITY 
------------------------------------------ 
 
¶13. While the relatively low level of economic development 
and high poverty rates are likely important factors in the 
limited level of financial deepening in Cote d'Ivoire, these 
factors alone do not seem to explain the low level of bank 
activity in the economy.  Additionally, it is difficult to 
explain this lack of financial deepening as the result of bad 
monetary policy or bank instability.  Since 1980, average 
annual inflation in Cote d'Ivoire has exceeded 10 percent in 
only two years.  From 1996 through 2007, the average annual 
inflation rate never exceeded 5 percent.  Furthermore, bank 
accounts have never been frozen, and there have never been 
large-scale runs on banks here. 
 
¶14. One of the reasons for the low level of bank activity is 
the lack of data on credit worthiness of potential borrowers. 
 The 2007 WDI gives Cote d'Ivoire a rating of "one" on a 
scale of zero to six in terms of credit information 
availability (with zero representing less information and six 
representing more information). 
 
¶15. Cultural factors also seem to play a role in the low 
level of financial deepening.  For example, Ivoirians whose 
employers deposit their salaries directly into bank accounts 
often withdraw the cash right away--in part to distribute the 
cash to members of their extended family who rely on them for 
support.  Educational levels also seem to be a factor.  West 
African bankers relate anecdotes about wealthy but uneducated 
businesspeople who withdraw cash, sometimes huge amounts, 
from their bank accounts just to make sure it is still "in 
the bank" or to hand it over to a business partner as part of 
a deal.  Another factor is Cote d'Ivoire's lack of a reliable 
system for dealing with bad checks, making acceptance of 
checks a risky--and therefore unusual--practice. 
 
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FUTURE PROSPECTS 
---------------- 
 
¶16. Banks that have recently entered the market bring new 
competition to the financial sector.  They will likely find 
it difficult to break into the market for the large corporate 
accounts, for which there is already a relatively healthy 
level of competition.  However, given the relatively small 
role banks currently play in the economy, there seems to be 
room for some of the newer, perhaps more aggressive banks to 
gain ground with individuals and SMEs.  This is a market that 
remains underserved. 
 
¶17. The introduction of new products indicates that 
competition is underway.  Banque Atlantique - Cote d'Ivoire 
has introduced a Visa credit card that clients can pre-load 
with euros or U.S. dollars to use on trips abroad.  BICICI, a 
subsidiary of BNP Paribas of France, has teamed up with 
Orange, a French cell-phone service provider, to allow Orange 
customers to make utility payments, effect money transfers, 
and carry out other transactions via text messages. 
Additionally, many employers now give each employee a card to 
use to withdraw his or her salary from the employer's account 
at automatic teller machines, even if the employee does not 
have a bank account. 
 
¶18. As Ivoirians' contact with banks increases and as 
technology makes banking easier, it seems likely Ivoirians 
will increase their use of bank services.  It also seems 
likely that there will be a consolidation of banks in the 
country over the coming years.  It is hard to conceive of all 
18 banks continuing to operate in a market the size of Cote 
d'Ivoire's over the medium or long term. 
 
 
NESBITT