Inter-bank cooperation in Gabon addresses funding shortages

Project finance is one of the main drivers of business in the Gabonese banking sector. The IMF describes most local banking activity as “concentrated on large companies financing large-scale projects”. Despite this, some investment-intensive sectors in particular, such as oil and gas and mining, tend to raise financing abroad rather than from local banks. Other sectors also attract lending from abroad. For example, in March 2015 China provided Gabon with a 10-year, CFA4bn (€6m) loan to fund a variety of major government projects, while in April 2014 the African Export-Import Bank (Afreximbank) lent local firm Gabonaise de Tourisme et de l’Hôtellerie €24m for the establishment of a 180-room, five-star hotel, the Décapolis Rapontchombo. A major reason for this is a lack of local capacity. While the Gabonese banking system has traditionally had very high levels of liquidity, the majority of this is in the form of current account deposits that cannot be mobilised as long-term loans necessary to finance major projects.

Addresing Issues

One manner in which local banks work to overcome such constraints is syndicated debt. Indeed, after a drop-off in activity, syndication is once again becoming popular. “Twenty years ago it was common to see pooled loans, but with the rise in liquidity in the sector banks increasingly were able – and preferred – to go it alone,” Christian Gondjout, director of strategy, development and projects at Banque Internationale du Commerce et de l’Industrie Gabon, told OBG. “However, the practice is picking up again in areas such as government finance and construction as many banks are approaching full lending capacity and have to share new opportunities with other institutions.”

However, he also noted that banks sometimes prefer to partner with sister banks in other countries in the region rather than fellow Gabonese banks. Foreign banks also sometimes participate in local syndications. For example, in 2012 BGFIB ank Gabon, Ecobank, Banque de Développement des États de l’Afrique Centrale and Afreximbank provided agribusiness firm Olam Palm Gabon with a $228m loan to fund the development of palm oil plantations.

Furthermore, government efforts to diversify the economy will require large amounts of project financing in years to come, boosting the prospects for growth in the pooled debt market. Given the constraints some banks are facing there is definitely room for more syndication, which could, for example, fund large private investment projects, such as the Nkok investment zone, if they go ahead. The expansion of the segment parallels a rise in syndicated lending across sub-Saharan African in recent years, where pooled debt grew from $11.3bn in 2010 to $27.7bn in 2013, according to figures cited by The Africa Report, driven in large part by infrastructure projects.

New Options

Other forms of financing will also need to be developed if local resources are to be used to fund major projects. Marcel Ondele, secretary-general at the regional capital markets regulator, the Oversight Commission for the Central African Financial Market Supervisory Commission, also known as COSUMAF, argued that the regional stock exchange has an important role to play in funding infrastructure in particular. Ondele said, “At the moment banks cannot finance all infrastructure development because of its longer-term financing requirements.”

Nevertheless, for the time being the regional capital market, based in Libreville, remains under-developed, and banks are set to remain the primary local source of project financing in the coming years.

In order to support funding from banks against the backdrop of the decline in international oil prices, in March 2015 the Bank of Central African States, the central bank for the CEMAC economic bloc, announced that it would raise refinancing limits for banks in the region, increasing Gabonese banks’ ceiling from CFA30bn (€45m) to CFA40bn (€60m).