New horizons: A slowly advancing sector has plenty of room for growth and technological development

The Algerian banking industry remains dominated by six state-owned banks, which account for the majority of market share; however, private institutions, all of which are foreign-backed, are growing rapidly. In contrast to Morocco and Tunisia, the sector is characterised by very high levels of liquidity, which makes for a stable financial system but also points to a lack of intermediation that has constrained wider economic growth. Cash remains king, with the ATM and payment terminal networks still small and an online payments system yet to be activated. Following decades of serious problems in the sector, previously very high non-performing loan (NPL) rates have improved greatly. Although they remain significantly higher in the state-owned sector than in private banks, they have continued to fall in recent years and are largely provisioned. Promising industry segments include leasing, which is growing rapidly and which offers a way around some of the constraints on debt-based financing in the country.

HISTORY & DEVELOPMENT: Under French colonial rule the banking sector consisted primarily of local operations of major French banks and networks of so-called popular banks, primarily involved in financing small-scale trade. Following independence in 1962, the authorities nationalised the local operations of French banks in 1966-67 in order to create three new publicly controlled institutions, each with a specific assigned role within the national economy. They were: the Banque Nationale d’Algérie (BNA), charged with financing agriculture and industrial activity, as well as trade; Crédit Populaire d’Algérie (CPA), created from the popular banks and assigned the role of financing traditional economic activities such as crafts, later expanded to include other industries such as tourism and pharmacies; and the Banque Extérieure d’Algérie (BEA), which was expected to develop international banking relations and in 1970 was put in charge of all foreign banking operations on behalf of major Algerian industrial enterprises.

In the mid-1980s two more public banks were created, namely Banque de l’Agriculture et du Développement Rurale (BADR), which was spun off from the BNA in 1984 and was charged with financing agriculture and agro-industry; and Banque du Développement Local (BDL), which branched off from the CPA in 1985 to finance enterprises under the control of local government.

Important historic non-bank financial institutions created during and around the time of independence include the Caisse d’Equipement et de Dé veloppement d’Algérie, an institution charged with raising funds for and financing local economic development created in 1959 and replaced with the Caisse Algérienne de Développement, which in turn in 1971 became the Banque Algérienne de Développement; and the National Savings and Providence Fund (Caisse Nationale d’Épargne et de Prévoyance, CNEP), which was first set up in 1964 as a retail savings and loans institution before later becoming more involved in financing social housing projects. In 1997 the fund was converted into a bank and in 2012 it again reoriented its activities – this time towards financing large public enterprises (see below).

CENTRAL PLANNING: During the 1960s most financing in the country was provided by the government in the form of non-repayable endowments, with very little coming in from banks. However, in 1971 the authorities made an effort to integrate banks into the country’s centrally planned economy, using them to provide loans to companies under the centralised direction of the Treasury. The system was highly regulated, with, for example, banks limited to their assigned domains of activity and companies obliged to maintain accounts with only one bank. Under the system, state-owned companies became increasingly indebted and bad loans built up on the books of the country’s banks, to the point that by 1990 the proportion of non-performing bank assets stood at 65% of total banking assets, according to the IMF.

REFORM: This centralised system remained in place until the passage of a new banking law in 1986 that saw the partial decentralisation of the system, boosting banks’ control over their loan-making decisions (and in particular their right to refuse to make loans to risky state companies). In 1989 public banks were transformed into joint-stock companies and in 1990 another law obliged banks to follow stricter lending standards, via the imposition of liquidity and other prudential ratios, and opened the sector up to competition, removing regulatory distinctions between public and private and national and foreign banks. The authorities also liberalised interest rates on deposits. This was followed by a change to the investment law in 1994 that allowed foreigners to own banks in the country, though the establishment of private and foreign-owned institutions did not take off until the late 1990s.

In addition to these liberalising moves, the authorities also took steps to improve finances at the public banks. In 1992-93 the government took over AD275bn (€2.53bn) worth of public enterprise debt to banks. Against the background of two structural adjustment programmes in 1994 and 1995 and the large-scale restructuring of the economy, public banks were recapitalised and given further autonomy in their lending decisions. Over the course of the early-to-mid 1990s, the authorities also made large payments to banks, both to eliminate debts built up by banks under foreign borrowing on behalf of the state and to recapitalise them, while banks themselves began to restructure outstanding debt owed to them by state enterprises. In 1996 the authorities again made payments to recapitalise most public banks and in 1997 they swapped government bonds for around AD187bn (€1.7bn) worth of bad loans owed by public enterprises.

With the banking system largely stabilised and the sector liberalised, from the late 1990s on foreign banks and private banks began to establish themselves in the country. However, the sector also witnessed a significant blow in the form of the collapse of several local private banks, most prominently Khalifa Bank, the largest private Algerian bank at the time of its close in 2003, following the discovery that around AD3.2bn (€29.4m) on its books was missing, leading to a major fraud trial. Other banks to close included the Banque Commerciale et Industrielle d’Algérie, also amid accusations of illegality. Following the closures the authorities imposed more stringent requirements for the establishment of banks, and all private banks in Algeria are currently foreign owned. In a move to further bolster the stability of the sector, the regulatory authorities quadrupled minimum capital requirements for banks from AD2.5bn (€23m) to AD10bn (€92m) in 2009.

INDUSTRY STRUCTURE: Banque d’Algérie (BoA), the central bank, has licensed 20 banks. Six of these are Algerian state-owned banks, while the remainder are foreign-owned private institutions. There are eight other licensed financial institutions, namely three leasing companies, agricultural mutual Caisse Nationale de Mutalité Agricole (owned by the mutual insurer of the same name), Sofinance (a statebacked non-deposit-taking firm active in lending, leasing and investment), BNP Paribas-owned lender Cetelem, mortgage refinancer Société de Refinancement Hypothéquarie and development institution Fonds National d’Investissment (formerly known as the Banque Algérienne de Développement). The BoA also lists seven foreign banks with local liaison offices.

KEY FIGURES: Banking assets grew by 8.6% in 2012 to AD9.78trn (€92.9bn), according to BoA data; this rose again to AD10.01trn (€95bn) at the end of the first quarter of 2013. The 2012 figure included AD2.05trn (€19.5bn) of lending to public enterprises, AD2.24trn (€21.3bn) of credit to the private sector and AD882bn (€8.11bn) of bank purchases of government bonds. Bank liabilities included AD3.39bn (€32.2m) of demand deposits and AD3.33bn (€31.6m) of fixed-term deposits. Public sector deposits totalled AD2.53trn (€24bn) compared to private sector deposits of AD3.64trn (€34.6bn). According to data from the country’s Association of Banks and Financial Institutions ( Association des Banques et Établissements Financières, ABEF), the number of bank branches is relatively low by regional standards: there is one bank branch for every 28,000 Algerian inhabitants, compared to one per 12,000 for Morocco and one per 9000 for Tunisia.

IMPROVING HEALTH: The banking system appears to be highly stable. In June 2013 the BoA issued a report covering the period from 2009 to 2011 that argued that the international financial crisis had not significantly affected the country’s financial system and that the banking system’s reliance on foreign funding was “very limited” (and is mainly confined to short-term financing needs for foreign banks, which make up a relatively small part of the market), bolstering its stability. The report also noted that banks’ solvability ratios are on the whole well above both the locally required minimums and Basel III requirements, and pointed to the overall profitability of Algeria’s banking system, putting the sector’s average return on capital at more than 24%. The banking system’s capital adequacy ratio stood at 23.7% as of the end of 2011 (22% for public banks and 31.2% for private banks). The state of bank finances has been improving over the last decade or so, in particular as public banks’ balance sheets have been cleaned up, thanks to measures such as the government’s purchase of NPLs, which stood at around 4% of GDP in the early 2000s, due in large part to loans made to loss-making state-owned firms. Improved management at such firms, combined with efforts to rein in lending to unprofitable state enterprises, also helped to reduce the problem. The Treasury continues to purchase NPLs from state banks, with the value of such purchases standing at a combined AD235bn (€2.23bn) over 2011-12. According to the IMF, the country’s ratio of NPLs to total loans stood at 14.4% at the end of 2011, down from 21.1% in 2009. Of all NPLs, 72% were provisioned in 2013; net of provisions, the NPL rate stood at 4%.

State banks account for the bulk of NPLs, with the NPL ratio among public institutions standing at 16%, compared to 4% in private banks. However, this rate too has fallen significantly and is down from 23.6% in 2011. The bulk of NPLs are a result of old, rather than recent, loans, further underling improvements in bank finances. The situation may change in 2014, due to the fact that from February 2011 onwards state banks stepped up subsidised loans to young entrepreneurs under the government-backed National Agency for the Support of Youth Employment (Agence Nationale de Soutien à l’Emploi des Jeunes, Ansej) and the National Unemployment Fund (Caisse Nationale de Chomage, CNAC) micro-enterprise creation programmes, after the government removed various restrictions on the lending programmes and increased the available amounts and repayment periods against a background of local unrest and regional political turmoil. Repayment of the principle under the programmes is not due for three years; the NPL rate on new loans made at an increased rate from 2011 onwards will only start to become clear when the first repayments are due in 2014, though the loans are backed by various state guarantees, meaning banks should eventually be reimbursed for any NPLs under the programmes.

STATE SECTOR: Six state-owned banks account for the majority of the sector’s activity, with estimates from the industry ranging as high as 86% of total assets and liabilities. There are also plans under way for the creation of a postal bank, which would also be publicly owned (see analysis).

The largest bank in public ownership and overall in Algeria is the BEA, which operates largely as a commercial bank, providing credit and depository services. BEA recorded assets of AD2.31trn (€22bn), or around 23.6% of total banking assets, in 2012, down from AD2.64trn (€25bn) the previous year. Profits at the bank were up by around 17% to AD35.6bn (€338m). The BEA’s capital, which it plans to raise by AD100bn (€950m) in 2013, stood at AD76bn (€722m) at the end of 2011.

In second place is the BNA, which also operates as a commercial bank, providing loans and insurance products. It has assets of AD2.06trn (€19.6bn), or approximately 21% of total banking assets, up from AD1.62trn (€15.4bn) in 2011, on which it recorded net profits of AD27.2bn (€258.4m), down from AD34.8bn (€330.6m) the previous year.

OTHER PLAYERS: The remaining public banks are much smaller than the BEA and the BNA but still larger than most private banks. BADR recorded assets of AD921bn (€8.75bn) in 2011. BADR operates 293 branches and 39 regional headquarters across the country, making it the largest bank by branch network in Algeria. Around four-fifths of the bank’s lending book is focused on agriculture. In fact, Boualem Djebbar, the chairman and managing director of BADR, told OBG, “Algeria’s progress in offering innovative and accessible agricultural credit lines has been notable.” According to the latest figures, the assets of CPA, which is charged with promoting the development of numerous sectors including construction and health and which has recently taken the lead on financing major public housing construction (see analysis), stood at AD990bn (€9.4bn) in 2011 with capital of AD48bn (€456m).

CNEP, which operates 209 branches and 14 regional headquarters, has an agreement to provide banking services to customers of the national post office, Algérie Poste. CNEP has traditionally been specialised in mortgages and property finance; however, in 2011 the authorities decided to reorient its strategic priorities and in 2012 the bank provided AD343bn (€3.26bn) of investment loans, most of them to large public enterprises, compared to just AD43bn (€408.5m) of housing loans to individuals, underlining the change. (Full details on the bank’s assets are not available.) The Banque de Développement Local (BDL) has a capital of AD15.8bn (€150.1m) and 149 branches, and made a total of AD259.5bn (€2.47bn) worth of loans in 2011.

NEW PLANS: In the past there have been various plans to privatise some state banks, but progress on this has been slow. However, local newspaper Tout Sur l’Algérie, citing government sources, reported in September 2013 that the CPA was among firms (alongside insurance company CAAR, mobile phone network operator Mobilis, quarry operator Cosider Carrières and six cement producers) whose partial privatisation the State Holdings Council had greenlighted under government plans to sell off stakes in state-owned companies via the bourse to boost the development of the country’s financial markets (see Capital Markets chapter). Previous statements made by Finance Minister Karim Djoudi suggest the stakes to be sold in such firms will not exceed 20%. According to the same report, the authorities are planning a second wave of privatisations, under which they will sell off a stake in a public bank, likely to be either the BNA or the BDL, in addition to other companies.

Despite a history of centralised management by the authorities and criticism of the bureaucratic manner in which some state-owned firms are run, local observers say management at the public banks has improved and that they resemble the private banks operating in the country in some important respects, such as staffing.

PRIVATE BANKS: All private banks currently operating in the country are foreign-backed. The first foreign banks to receive a licence to operate in Algeria were Citibank and the Arab Banking Corporation Algeria (ABCA, backed by Bahrain’s Arab Banking Corporation), which both opened their doors locally in 1998. The following year saw the launch of the first French bank to offer full banking operations in the country, Natixis. The most recent foreign entrant to the market is HSBC, which opened for business in 2008. Other foreign-owned banks operating in the country are Islamic banks Al Baraka, owned by Bahrain’s Al Baraka Banking Group, and Al Salam Bank (backed by a mix of Middle Eastern and Algerian investors); the Housing Bank for Trade and Finance and Arab Bank Algeria, respectively owned by the Jordanian banks of the same names; the Kuwait-backed Gulf Bank; Trust Bank Algeria, which is owned by a mix of predominantly Middle Eastern investors; the Lebanese-owned Fransabank; and the French-owned Société Génerale, BNP Paribas and Calyon. Private banks tend to have smaller branch networks than state-owned institutions and many concentrate primarily or exclusively on the corporate rather than the retail market, particularly on activities such as trade finance, a line of business which is supported by regulations requiring importers to have documentary credit. Nadir Idir, deputy CEO of ABCA, told OBG that 90% of the bank’s business, in terms of the revenue contribution, is from corporate clients, while Citibank is not active in the retail segment at all. As regards trade finance, which is the bread and butter of many private banks, it is said to be performing particularly well for car imports, even though the ban on consumer finance means they have to be purchased with cash, due to factors such as backdated pay-rises in the public sector, a lack of public transport and the fact that second-hand cars cost nearly as much as new ones in Algeria.

Although the government continues to play a central role in the economy, the private banks tend to work mostly with the private sector, in large part due to preferential banking requirements for public sector agencies. “We used to work quite a lot with the government; however, the state doesn’t borrow much now because of its solid financial position, and since 2008 state-owned firms have had to deposit cash in state-owned banks,” Ramz Hamzaoui, managing director of Citibank Algeria, told OBG.

Industry figures also say that private banks have largely not participated in government-backed loan programmes. “Private banks are not really following the authorities’ invitations to be exposed to more medium- and long-term loans; capital expenditure is mainly being financed by the state-owned banks. One option would be to allocate Treasury savings to banks with balance sheets that reflect a fair share of investment plans,” said Adel Si-Bouekaz, director of local investment bank Nomad Capital. Nevertheless, the sector is growing quickly and private banks have ambitious goals. For example, Idir told OBG that ABCA aims to double the size of its loan portfolio in the coming three years.

No new private players have launched operations in Algeria since HSBC in 2008; however, many international banks are thought to be considering entering the country. The apparent freeze on banking licences, though not an official policy, appears to stem from the global financial crisis of 2008-09, which gave rise to fears amongst the authorities over the potential for systemic instability, as well as their belief that the country is sufficiently well banked.

“The central bank thinks the market is well covered and wants existing banks to deepen their presence, diversify products and expand their branch networks,” said Si-Bouekaz.

LENDING: The Algerian financial sector is characterised by a very high degree of liquidity, which is unusual in North Africa. “Because the market is overliquid, banks place their excess funds with the BoA,” Hamzaoui told OBG, estimating such placements at around $20bn. “This is partly a reflection of the country’s large foreign exchange reserves.”

Other reasons for this include: a conservative approach on the part of public banks against a historical backdrop of bad loans to loss-making state enterprises and the fact that public bank employees can be held personally responsible for bad loans; the ability of the government to directly finance public firms and spending from its large reserves; difficulties on the part of all banks in assessing loan applicants’ credit worthiness largely due to a lack of credit history and the absence of a credit register covering small loans to individuals; the fact that the private sector remains in a fairly early stage of development, limiting the number of bankable commercial projects; and the ban on consumer credit, which was instituted in order to limit imports and improve the non-oil trade balance. As a result, firms can face difficulties obtaining loans – a scenario that is common in virtually all emerging markets in the Middle East and Africa. Respondents to the World Economic Forum’s “2012-13 Global Competitiveness Report” ranked access to financing as the second-biggest problem for doing business in Algeria. The country’s oil and gas industry is another contributing factor. “The structural excess liquidity of Algerian banks is a trend that has emerged over the past dozen years. This liquidity comes from the large deposits of the hydrocarbons sector,” said Hamzaoui.

However, the situation is improving and lending to the economy has been growing for several years. Total lending to the economy expanded by 15.3% in 2012 to AD4.3trn (€40.85bn) and credit to the private sector grew by 23% in 2012, slightly higher than in previous years, to AD2.24trn (€21.3bn). Plans for a new credit risk register could also help banks’ ability to assess lending risks (see analysis). Much of the increase in lending is coming from the public sector, in part thanks to government-subsidised programmes launched in 2011 aimed at helping young entrepreneurs establish businesses and at boosting employment. “The authorities want banks to increase intermediation, and state-owned banks are now lending more,” said Hamzaoui. “However, there is a need for more bankable projects and the informal sector, which is hard to lend to, remains large,” he told OBG. Nevertheless, he also said the situation was improving. “The private sector is only 15 years old so there are challenges, but things are gradually moving in the right direction.”

CREDIT: Indeed, while more lending goes towards financing imports than towards productive investments, credit expansion has nonetheless helped to drive some industrial growth, industry figures say. “State-owned banks supporting investment have given rise to real diversification in the economy,” said Si-Bouekaz. In June 2013, state banks agreed to decentralise decision-making at their branches in the south of the country, in particular as regards small loans to entrepreneurs under the Ansej and CNAC programmes. The move is aimed at facilitating lending to help boost the local economy and create jobs, following a call to do so by Djoudi.

RETAIL CREDIT: Retail intermediation levels are low by regional standards: 6.88% of loans went to households in 2012, per BoA figures, and only 1% of Algerians took out a loan from a financial institution in 2011, according to the World Bank’s Findex database, compared to 4% in Morocco and 3% in Tunisia. Informal borrowing is much more common: 25% of Algerians borrowed money from family and friends during the year. The ban on consumer credit reduces opportunities for lending in the retail market, restricting it largely to mortgages. However, some other retail credit products are available and are witnessing growth. “In the retail segment, property refurbishment loans are one of the products that are working best for us,” said Nadir, explaining that the product is a relatively new one, having been approved by the BoA around two years ago. The loans are disbursed to the company carrying out the refurbishment, rather than to the homeowner, and without a mortgage being taken out on the property.

As of the end of 2011, there were a total of 1327 bank branches in the country. BADR had the largest network, at 290 branches, while the largest private bank by number of branches was Société Générale, with 70. As noted previously, bank branch density is low by regional standards. Branches tend to be concentrated in the northern coastal region of the country, which is also by far the most densely populated area, and in particular in the capital, Algiers.

The authorities are reportedly pushing private banks to open more branches in the less densely populated interior of the country, and in 2012 media reported that they were restricting private banks from opening more branches in the capital until they expanded their networks elsewhere as well. Some bankers argue in response, however, that there are not enough business clients outside of major cities to make banking profitable.

NEW TECHNOLOGIES: Technology-based retail services such as mobile and internet banking are not well developed by Western standards. Local industry figures have blamed factors such as banks’ lack of reliable telecommunications infrastructure for this. However, some banks offer some basic mobile services; for example, Société Générale offers a service called Messagi that provides customers with regular text updates on their account balance and the option of receiving alerts when their balance, for example, falls below a set limit. The bank also provides an e-banking service that allows customers to check their accounts and make bank transfers. Public banks are also starting to offer e-banking services; BDL has provided customers with an internet banking service since 2011, and CPA launched its service in April 2013. Furthermore, the planned launch of 3G (see Telecoms & IT chapter) is likely to provide the development of mobile and internet banking services with a major boost, by increasing the general internet penetration rate and allowing for mobile broadband internet use.

CARDS & PAYMENT: Card penetration rates and card usage are comparatively low: only 14% of Algerians had a debit card in 2011, according to Findex, versus 22% and 21% in Morocco and Tunisia respectively. As of May 2013, 1m interbank cards were in circulation, compared to around 15m bank accounts in existence. Furthermore, only 94,268 cards had actually been used to make a transaction. There were 531 ATMs and 2887 electronic payment terminals (EPT) installed in the country, according to SATIM, which manages the local interbank card system. However, Queiroz Assia Benchabla, the technical and commercial director of SATIM, told OBG only around 300 or 400 of the EPTs are actually in use.

It is widely believed that part of the reason for their low uptake is due to resistance on the part of shopkeepers for fear that the devices will increase transparency, forcing them to declare sales to the tax authorities. Speaking to OBG, Newel Benkritly, the general manager of SATIM, pointed to a few other factors that limit their use as well. “The explanation lies in the persistence of the cash culture, the limited use of the banking system and the lack of confidence in electronic payment,” she said. Cultural factors also play a role too. “Algerians are used to using cash and don’t use cheques much either. People even buy cars in cash,” Benchabla told OBG.

Among the obstacles to the wider use of ATMs is the fact that private banks’ networks are for the most part small, while the purchasing systems of the public banks tend to be slow, said Benchabla, adding that there are also only a few suppliers in the market, and according to the public banks’ procurement rules, tenders are automatically cancelled if only one firm bids for them. She noted that another obstacle to more widespread card use has been the reliance of banks on old IT systems, but said that this is now changing. “Many banks could not engage in real-time transactions because of their IT systems, which was a real problem as, for example, overdraughts are illegal and real-time checks as to whether a customer had enough money in his account to fund a transaction were impossible. However, all banks are now updating their systems and six are connected with us online, which allows for real-time balance checks.”

RECENT IMPROVEMENTS: The number of ATMs also appears set to rise significantly. “Around 800 new ATMs should come on-line in 2013,” said Benchabla, noting that the Algerian post office alone had plans to install 460 over the course of the year. Some industry players also believe the country’s reluctance to reduce the use of cash can be overcome. “The majority of the population is very young and young people accept change; they are not married to the culture of cash,” said Abdelhamid Benyoucef, CEO of local ITC firm HB Technologies, which makes smartcards for banks and telecoms cards.

Other forms of interbank and electronic payment are also being developed. An online payment system has been ready since 2009; however, the lack of regulations on distance selling is blocking its implementation. In addition, SATIM is currently working on a project that would allow people to pay bills and charge their mobile phones via ATMs, which is due to be piloted in Algiers in September 2013. “After that, the roll-out of the system will depend on the banks, as the ATMs belong to them. However, in general they are open to the service, which could be profitable for them,” Benchabla told OBG. “Utilities firms are also open to it, especially as some have significant problems recovering outstanding payments.”

SME FINANCING: Small and medium-sized enterprises (SMEs) face problems in obtaining credit, in part because many are family-owned with limited capacity in terms of accounting and transparency and little credit history, making banks unwilling to lend to them. However, there are promising signs that banks, including private institutions, are taking a greater interest in the segment. “There is enormous potential for the growth of SMEs in Algeria,” said Idir of ABCA, which is putting in place a new SME lending policy using a special credit scoring system separate from the kind of risk analysis it carries out for corporate clients. In an interview with local media in June, Abderazzak Trabelsi, ABEF’s general delegate, said there was a need for products better suited to very small firms and that a programme piloting new such products was being run in two banks, Al Baraka and CNEP. Chedly Zaoun, the chairman of the board of Maghreb Leasing Algérie (MLA), told OBG leasing might play a key role here. “The development of leasing will strengthen and diversify SME financing tools, although all segments could benefit from this.”

LEASING: Three dedicated leasing companies are currently licensed by the BoA, namely MLA, Arab Leasing Corporation (ALC) and Société de Leasing. Several banks and other institutions such as Sofinance also offer leasing services. “Leasing is a very promising sector and lots of banks are now entering the market,” said Riadh Dekhli, the manager of the Algeria team at Africinvest Group, which holds a stake in MLA. Reasons supporting the positive outlook for the segment include its flexibility in comparison to traditional bank loans. “Leasing is a way of providing finance that gets around some of the problems that exist in the country, such as customers whose credit is difficult to evaluate, because in leasing you [the leasing company or bank] own the asset,” said Hamzaoui. But there are some serious challenges as well. “Despite a long presence in the MENA region, the leasing industry remains generally underdeveloped by international standards and there is a lot of potential for further growth, but only if institutional constraints are readjusted,” ALC’s general manager, Abdenour Houaoui, told OBG.

Abdelhakim Djebarni, deputy CEO of ALC, told OBG that the leasing segment was growing by 20-25% a year. He said that banks, especially public banks, are increasingly entering the sector, but that excessive competition remains far from being a problem. “The Algerian market is big; it could host as many as 30 companies and there are currently fewer than 10,” he told OBG. “Tunisia, which is a much smaller market, already has around 12 leasing firms, so there is still lots of room for everyone.”

The chief constraint on growth is not demand, but financial capacity. “The main problem for leasing firms is funding,” said Djebarni. “Leasing firms cannot take deposits, the financial market is not well developed and if you go to a bank, they ask you for guarantees. In the past we issued bonds, but the Commission for Stock Market Organisation and Supervision is also seeking guarantees for bond issues now, which effectively makes issuing bonds similar to obtaining bank loans.”

Zaoun echoed concerns that constraints on financing are impeding the development of the segment. He said, “The leasing market currently represents around AD30bn (€276m) worth of financing, or less than 1% of private financing in Algeria, when the potential size of the market is around AD100bn (€920m). For the market to reach its potential there is a need for adequate financing mechanisms, in particular bonds without guarantees; the only real guarantees are the solvency and profitability of financial establishments and the size of the market’s potential.” Much leasing activity is focused on public works, and although one of the largest public works projects – the East-West Highway – is now completed, there will be plenty of other work to keep firms busy. Djebarni said, “There are other projects under way or in the pipeline, such as the High Plateaux Highway and new airports. Algeria is underdeveloped in terms of infrastructure in some areas, so there is still a lot to do and there will be ample projects for the sector to supply in coming years.”

OUTLOOK: There remains plenty of room for growth in the banking sector. The country is under-banked and the market remains far from being saturated, meaning competition remains limited. The speed with which lending continues to grow will depend on factors such as whether the ban on consumer credit remains in place and how long it will take to get the new credit registry up and running. Banks are set to remain profitable thanks to limited competition and income from other revenue streams.