How digital currencies fuel financial competition in Côte d’Ivoire

Côte d’Ivoire’s banking sector has played a key role in the country’s post-2012 economic recovery and growth, financing large-scale infrastructure projects, private sector industrial expansion, agricultural activity and the services industry. Sector players have remained largely unchanged during this time, with 29 banks and two financial institutions operating in the country, according to the Central Bank of West African States (Banque Centrale des Etats de l’Afrique de l’Ouest, BCEAO). Traditionally, the sector has been dominated by large entities – typically subsidiaries of French and Moroccan banks – but emerging local and pan-African banks have been gaining market share.

The banking landscape is therefore competitive, and the importance of the capital, Abidjan, as a regional financial centre is growing. With around 40% of UEMOA’s total money supply, the Ivorian banking sector is the largest in the region. The banking penetration rate has been on an upward trajectory, reaching 32.6% when account holders at microfinance institutions are included. This makes Côte d’Ivoire one of the most-improved countries in Africa on this metric. Meanwhile, the total number of bank branches more than doubled from 324 in 2010 to 725 in 2019, the latest year for which data is available.

Despite these developments, financial inclusion remains a challenge. Cash continues to be the primary mode of payment in the country, and high operating costs and low demand have weighed on commercial banks’ efforts to extend their branch networks to rural areas with limited formal economic activity. While access to finance can be a hurdle, especially for small and medium-sized enterprises (SMEs), the emergence and adoption of mobile and digital money services – as well as the development of a robust microfinance environment – are helping to bridge this gap.

Structure & Oversight 

Côte d’Ivoire’s banking sector continues to be dominated by large players, with five banks accounting for more than 50% of the market. Their position has broadly remained stable. In 2021 Société Générale de Banques en Côte d’Ivoire, a subsidiary of France’s Société Générale, kept its leading position with CFA3trn ($5.2bn) in assets and 17% in market share, up from 15% in 2020. Togo-headquartered Bank Atlantique Côte d’Ivoire remained the second largest, with 10% market share and CFA1.9trn ($3.3bn) in assets, followed by pan-African Ecobank, with 9% and CFA1.69trn ($2.9bn); local player NSIA Banque, with 9% and CFA1.65trn ($2.8bn); and Société Ivoirienne de Banque, a subsidiary of Morocco’s Attijariwafa Bank, with 7% and CFA1.3trn ($2.2bn).

Although the leader board has held steady in recent years, the banking industry has seen several local and pan-African banks – including Ecobank, Burkina Faso’s Coris Bank International and Togo’s Bank Oragroup – emerge and gain market share. This trend, seen elsewhere on the African continent, has partially resulted from the withdrawal and scaling back of French banks in the region. In 2019 BNP Paribas pared back its operations, maintaining its presence only in Morocco, Senegal and Côte d’Ivoire.

In a similar vein, increased competition in the African and Ivorian banking sectors from pan-African banking groups has been a key factor behind European banks’ departure from the continent. Attijariwafa Bank, Coris Bank International and local players like NSIA Banque, among others, have been gaining market share from more established banks in Côte d’Ivoire and across the greater region. The relatively low profitability and high operating margins of African subsidiaries – often above 60% – the slowdown in African economies, and strategic refocussing on the local, US and Asian markets are also important drivers of the exit of European banks. In parallel, the growing adoption of mobile banking and e-wallet solutions has led to lower demand for traditional banking products.

Performance

The banking sector recorded a growth rate of 15% in 2021, with total assets reaching CFA17trn ($29.2bn), up from CFA14.7trn ($25.2bn) in 2020. This performance can be partially attributed to Ivorian banks’ involvement in large-scale investments made during this period, particularly for infrastructure projects and the financing of Covid-19 pandemic recovery efforts. By end-2021 the sector’s combined assets had reached CFA18.1trn ($31bn), posting a growth rate of 13% and crossing the symbolic threshold of CFA18trn ($30.9bn). At the same time, the Ivorian interbank market recorded an increase of 45% to hit CFA2.8trn ($4.8bn), while the consumer market expanded by 10% to CFA9.5trn ($16.3bn).

Reflecting global developments, inflation is expected to rise to 5.5% in 2022, continuing its upward trend from 2.4% in 2020 and 4.2% in 2021, after a low and steady rate of 0.6% between 2016 and 2019. Meanwhile, the ratio of non-performing loans to total gross loans remained largely stable, at around 8.5%, between March 2020 and March 2021, partially as a result of the loan repayment moratorium that was imposed. During the same period, the ratio of liquid assets to total assets experienced a slight decrease from 29.6% to 26.7%, while credit in the private sector remained strong, expanding by 8.7% year-on-year.

According to the latest data available at the time of writing, the sector’s profitability was on the rise, with return on assets net of tax standing at 1.7% and return on equity net of tax at 20.2% as of the end of 2019, compared to 1.3% and 16.5%, respectively, in 2018.

Lending & Deposits

In June 2022 the BCEAO increased the minimum interest rate on submission and the interest rate at the marginal loan window by 25 basis points, to 2.25% and 4.25%, respectively. Within the sector’s client operations, term loans saw a 13% increase in 2021, reaching CFA2.1trn ($3.6bn). This follows robust growth of 14% in 2019 and 10% in 2020. Bank deposits, meanwhile, expanded to CFA13.7trn ($23.6bn) at the end of 2021, an improvement from CFA11.5trn ($19.8bn) in 2020. According to statistics from the Association of Banks and Financial Establishments in Côte d’Ivoire, deposit growth remained on an upward trajectory, posting respective increases of 11% and 10% in 2019 and 2020, up from CFA8.4trn ($14.4bn) and CFA9.5trn ($16.3bn) one year prior.

The sector breakdown of loans granted largely mirrors the country’s growth trends and the government’s objectives outlined in the National Development Plan (Plan National de Développement, PND) 2021-25. Accounting for 32% of total loans granted, commerce – which includes the tourism and hospitality industries – received the lion’s share of loans granted by the sector through to June 2020, according to the latest data published by the IMF, followed by manufacturing industries, with 18.7%. The insurance, real estate and business services category and the transport, storage and communications grouping each accounted for 11.3% of the total. Other large recipient sectors included electricity, gas and water utilities; and agriculture, forestry and fisheries.

Banking Penetration

While relatively low by international standards, banking penetration in Côte d’Ivoire has been trending upwards thanks to measures implemented to strengthen financial inclusion. According to the BCEAO, in December 2021 some 32.5% of Ivorians had a bank account. This figure, up from 30.7% at end-2020, included adults with accounts at traditional banks, postal services, national savings banks and the Treasury, as well as microfinance institutions. Among the challenges to be addressed to unlock greater penetration are inefficient services, long wait times, low branch network coverage, delays in credit and debit card issuance, scarcity of point-ofsale machines and difficulties obtaining loans.

Although traditional banking has grown at a moderate pace in recent years, the mobile money services segment has made substantial gains. According to the Telecommunications/ICT Regulation Authority of Côte d’Ivoire, around 20.8m Ivorians used mobile money services in 2021, equivalent to 83% of the population, compared to 30% in 2016 and 54% in 2018. This change reflects the broader consumer trends that are being observed across West Africa.

In rural areas – where there tends to be lower financial literacy levels, a relative scarcity of bank branches and ATMs, and limited working hours – mobile money services are starting to bridge the gap. In addition to their practicality and availability, mobile money service providers attract customers by providing short-term micro-loans with low fees. To compete with newly established players, many traditional banks are introducing mobile money services of their own, along with user-friendly apps and cross-border payment solutions. In line with this trend, banks are seeking partnerships with technology and telecommunications companies to develop or offer similar solutions.

Another way commercial banks are adapting to current market conditions is by lowering expenses. “Opening a brick-and-mortar branch can cost north of €100,000,” Oloufemi Cédrick Montetcho, investment manager at Oiko Credit, told OBG. “By digitalising their operational desk and products, Ivorian banks are making progress towards bringing their operating ratio below the regulatory cap of 65%,” he added.

Financial Inclusion

Achieving meaningful financial inclusion is key to the government’s national development plans and other targets set for 2030. According the World Bank, Côte d’Ivoire’s financial services sector grants three to four times less credit than its counterparts in middle-income countries on the continent, and two out of three companies name access to credit as a major constraint to development. While the growth of digital money services and microfinance institutions is helping to address this, financial inclusion remains a challenge, particularly for women, youth and those in rural areas of the country.

As such, the authorities have taken steps to enhance the provision of financial services for low-income populations and SMEs. As outlined in the PND 2021-25, promoting and encouraging the transition from the informal to the formal sector remains a priority in this regard. Tax incentives, financial literacy programmes, the development of microfinance institutions and mobile money, the digitalisation of government services and the expansion of branch networks in rural areas are all positive steps in this transition.

Highlighting its commitment to the issue, in May 2019 the government adopted the National Financial Inclusion Strategy 2019-24. This followed the creation of the Agency for the Promotion of Financial Inclusion the year prior. Structured around five key pillars, the strategy is geared towards physical infrastructure, taxation frameworks, and consumer protection regulations and safeguards to extend financial services to vulnerable and excluded populations. In addition, it targets establishing a healthier microfinance sector and a well-developed payment systems. These last goals are especially pertinent in the Ivorian context, given that increased adoption of services offered by non-bank financial institutions has been the primary growth driver of financial inclusion in recent years.

“Financial inclusion does not have to be fuelled by traditional banks. It is perhaps unrealistic for them alone to promote financial inclusion in Côte d’Ivoire,” Victorine Attia, head of client coverage at Stanbic Bank, told OBG. “Given Basel III, conditions can hinder banks from financing certain categories of economic operators. Microfinance institutions and other non-traditional players will therefore drive financial inclusion. Many people still need financial services, particularly in rural areas, most of which cannot be under the umbrella of universal banks,” she added.

Innovation

Like their peers in West Africa, financial technology (fintech) companies in Côte d’Ivoire are catalysts of financial inclusion, offering convenient and affordable products and services. The Ivorian ecosystem consisted of 37 fintechs and 13 e-money institutions, with 20.4m individuals holding 27.7m electronic money accounts at the end of 2020. The combined activity of digital financial services reached 687m transactions at a total value of CFA13.9trn ($23.9bn) that year, compared to 642m transactions and CFA10.7trn ($18.4bn) in 2019. Digital financial infrastructure supporting this activity also increased in 2020, with the number of service points and central accounting systems reaching 286,000.

The government appears increasingly focused on fintech and mobile money services, with the regulatory framework being updated to meet the needs of Côte d’Ivoire’s rapidly changing environment. In April 2022 the BCEAO announced the creation of the Fintech Supervision Bureau (Bureau de Connaissance et de Suivi des FinTech, BCSF) to promote financial innovation, initiatives and start-ups. Through the BCSF, the BCEAO aims to coordinate regulatory bodies and fintech players in order to boost financial inclusion across West Africa. The BCSF will function as a onestop shop for collecting and processing information, and completing other duties connected to technological innovation and financial services sector regulation. Eventually, the bureau may also consider issuing new taxation guidelines for the broader fintech segment.

While the bulk of Ivorian fintechs operate in the domain of payments and money transfers, players offering services in the realm of micro-loans and savings and investments are emerging with solutions to target a variety of customer bases.

SycaPay, Julaya, CinetPay and HUB2 are among the top payment and money transfer solutions providers in Côte d’Ivoire, offering innovative digital finance services, particularly for smaller traders and SMEs. Another key player, QuickCash, provides regional money transfer services aimed at low- and middle-income farmers, while PayQin offers virtual payment cards targeted at young entrepreneurs.

Although Côte d’Ivoire’s burgeoning banking sector and its key players have experienced substantial growth in recent years, the industry has reached a more advanced stage of development in large regional markets such as Nigeria, Kenya and South Africa. While this can be attributed in part to Côte d’Ivoire’s own funding constraints, there are other areas with room for improvement that could make the Ivorian market more competitive, including underlying business models, innovation, the level of experience of management teams and scaling capacity – all of which are important elements to the investment attractiveness of fintechs.

At the same time, the activity of Ivorian angel investors, impact investors, venture capitalists and private equity funds is at an early stage for now, particularly as regards fintech start-ups, and the country does not yet have an investment tool targeted directly at fintechs. “There is a lot of homogeneity when it comes to Ivorian fintechs: most are SMEs focused on developing payment technology applications,” Montetcho told OBG. “To scale up, they could consider emulating their peers in English-speaking markets by attracting family offices, venture capitalists and private equity funds, in addition to regulated banks,” he added.

Outlook

The landscape of Côte d’Ivoire’s banking sector is expected to remain competitive in the short term, with both traditional banks and non-bank players increasing their product offerings in an effort to attract customers. Given the enabling regulatory framework in the country, the accelerating adoption of digital and mobile money services could see fintechs and non-bank financial institutions expand further into micro-loans, while traditional banks will likely continue to scale down their operational costs, particularly branch networks.

At the policy level, the sector is central to the PND 2021-25, which targets public and private investment as a driver of economic formalisation. Global inflation and monetary policy tightening are expected to impact banks’ lending capacity and consumers’ ability to repay their loans due to ongoing disruptions in economic activity and lower disposable incomes. As a result of these factors, growth in credit is likely to moderate somewhat in the coming years, contingent on the regional and global macroeconomic outlook.