Rules and takeovers: Regulatory changes and privatisations are drawing foreign investors

As larger banking groups expand their reach within the West African Economic and Monetary Union (Union Economique et Monétaire Ouest-Africaine, UEMOA), authorities at the region’s central bank have recently implemented a number of significant changes. First, they have raised capital requirements to enhance lenders’ scale. Second, they have begun allowing banks with licences in one jurisdiction to open branches in another. Last, the central bank has begun calculating banks’ solvency and liquidity ratios based on their operations in UEMOA as a whole, instead of by individual country.

Regional Regulation

Over the past decade, the Central Bank of West African States (Banque Centrale des États de l'Afrique de l'Ouest, BCEAO) has revised capital, solvency and liquidity ratios to strengthen banks’ balance sheets. The headline reform was a doubling of minimum capital requirements to CFA10bn (€15m) for new banks from 2008, and for all lenders from 2012 – far below the requirement in Nigeria (€112.5m) and Ghana (€36.8m). Capital adequacy ratios (CARs), meanwhile, were kept at 8%.

In another key change, in 2013 the BCEAO opened a “window” to support regional banking groups by allowing banks licensed in one member country to open branches in another. This has “opened a new regulatory battlefront,” said Ecobank in November 2013, “because the capital adequacy will now not be based on the amount of risks [a bank] holds in its country of domicile but rather on the whole of its cross-border operations.” Though the BCEAO has yet to announce new region-wide banking licences with higher capital requirements, it has stepped up its oversight functions through the Banking Commission. “We are reinforcing our banking supervision with more on-site visits,” BCEAO Governor Tiemoko Koné told OBG. “We have also established an integrated financial supervisor to oversee all sectors – from banks to insurers to pension funds – to ensure the resilience of our financial markets.”

Uneven Compliance

By the end of 2012, the average CAR for UEMOA banks was 12.8%, according to Ecobank, though the BCEAO made known that eight banks fell short of capital requirements and seven remained below the 8% CAR floor. Banks newly under the Banking Commission’s administration included state-owned ones like Versus Bank; Caisse Nationale des Caisses d’Epargne; Banque pour le Financement de l’Agriculture (BFA), which was liquidated in September 2014; Banque Régionale de Solidarité (BRS), which was bought by Orabank in April 2014; and Banque pour l’Habitat en Côte d’Ivoire; as well as small private corporate banks like Cofipa and Banque Atlantique.

Many of these have significant holdings of Ivorian government debt, according to the IMF. Versus Bank, for example, held 10.3% of its outstanding loans as government credits as of November 2013, while BFA held another 11%, according to the country’s insurance association, Association des Sociétés d'Assurance en Côte d'Ivoire. While the BCEAO has not set a deadline for non-confirming lenders to meet the requirements, the number of complying banks has steadily increased as new investors took equity stakes.

New Equity

Despite financial straits, these banks have begun to draw investors. In October 2012 Togo-based Orabank announced its acquisition of 51% of BRS, a deal in which its balance sheet was recapitalised by the West African Development Bank, UEMOA member states and private equity investors, including France’s Proparco and Emerging Capital Partners. The cost of the transaction, which swelled Orabank’s network from six West African markets to 12, was not made public.

In June 2012 Morocco’s second-largest lender, Banque Centrale Populaire, acquired 50% of Atlantique Financial Group, which controls subsidiaries in Côte d’Ivoire and six other UEMOA markets, for €1bn and took the reins. Cofipa was still looking for new equity investment in 2014. For the other non-conforming banks, the state announced an ambitious privatisation programme in December 2013 and included some CFA50bn (€75m) in the 2014 Budget for the bank restructuring plan, though at the time of writing details had not emerged.