Room for growth: Lenders look to serve more of the market

Political stability, strong fundamentals and robust economic expansion have been the underlying drivers of the success of Gabon’s banking sector. The year 2011 saw strong growth in deposits, loans and new accounts, while measures to increase stability reduced the risk of overheating.

Competition increased as new entrants in the market vied for customers with new service offerings and additional branches. Gabon’s low banking penetration rate and its relatively high GDP per capita provide significant room for banks to expand, however. Furthermore, the government’s economic diversification strategy, which is generating investment opportunities and additional jobs, could increase opportunities for banks to participate in financing as well as attract new customers.

MARKET STRUCTURE: Despite Gabon’s relatively small population, the country has 14 financial institutions, most of which are privately owned. Of the 14, nine are banks: Banque Gabonaise de Dé veloppement (BGD) and its subsidiary Banque de l'Habitat du Gabon (BHG), Banque Internationale pour le Commerce et l'Industrie du Gabon (BICIG), BGFIB ank, Citibank, Ecobank, Orabank (formerly known as Financial Bank), Union Gabonaise de Banques (UGB) and United Bank for Africa (UBA).

The five other financial entities in Gabon serve specific purposes. Alios, Finatra and BICI-Bail (a unit of BICIG) are all leasing companies, serving both commercial and retail customers. La Poste, the Gabonese postal service, offers saving accounts to its clients. The Gabonese postal service is in the process of opening a full-service bank, which is expected to be operational by the end of 2012.

The biggest three banks in Gabon – BGFIB ank, BICIG and UGB – are responsible for over 80% of all loans and deposits in the country. According to the Professional Association of Credit Institutions ( Association Professionnelle des Établissements de Crédit, APEC), the largest bank, BGFIB ank, had a market share of 46% of all loans and 47% of all deposits as of March 2012. The second-biggest bank by these measurements, BICIG, has a far larger share of accounts, at 36% compared BGFIB ank’s 8%. BICIG is responsible for 18% of all loans and deposits. UGB, with the largest share of accounts, 41% or 113,220, holds 16% of loans and 14% of deposits. Citibank, Orabank and Ecobank, each account for approximately 5% of loans and deposits.

OWNERSHIP: Of the nine banks in Gabon, two are majority-controlled by the state. The Gabonese state owns a 69% share in BGD, with the Bank of Central African States (Banque des États de l’Afrique Centrale, BEAC) holding a further 10%. The BGD was the first financial institution in Gabon, founded in 1960 with a specific mission to encourage the economic development of the country. BHG, the other government-owned bank, is a subsidiary of BGD and has a mission to provide access to housing for all Gabonese.

Of the predominantly private banks, BGFIB ank’s main shareholders are private investors (39%), regional holding firm Compagnie du Komo (25%) and BGD (7%). The remaining banks’ principle owners are mostly Western or African banking groups. BICIG’s largest shareholder is the French bank BNP Paribas, which holds 47% of the company; private Gabonese investors and the state also hold stakes in the institution. Citibank Gabon, which focuses on corporate banking, is a 100%-owned subsidiary of US-based Citigroup. The bank has also advised the government on transactions, such as Gabon’s 1997 issue of a $1bn eurobond for which it serves as the government’s paying agent. Of the African-owned banks, recent entrants UBA and Ecobank are respectively owned by Nigerian and Economic Community of West African States banking groups. UGB’s majority shareholder is Morocco’s biggest bank, Attijarawafa Bank, which in turn is owned by the Moroccan diversified holding company Société National des Investissements. Attijarawafa Bank acquired its share of UGB when it purchased the African holdings of the French bank Crédit Agricole in 2009. Orabank, which was formerly called Financial Bank, was the subsidiary of a Benin-based African bank but was later to be acquired by Washington-based Emerging Capital Partners, a private equity fund, in 2009.

SECTOR GROWTH: Driven by economic expansion, high oil prices and elevated capital spending by the state, deposits grew by 26% year-on-year to CFA1.53trn (€2.3bn) while net loans grew by 19.8% to CFA958bn (€1.4bn) as of October 2011, according to the latest data available from the National Credit Council (Conseil National du Credit, CNC).

Moreover, this growth can be situated in the context of a relatively healthy banking sector. Non-performing loans rose slightly to CFA65bn (€97.5m), or 6.5% of loans, compared with 6.3% in October 2010. With respect to prudential norms, as of October 31, 2011, all nine banks conformed to regulations pertaining to minimum capital requirements and capital adequacy ratios, according to the CNC.

This healthy expansion has continued into 2012. According to APEC, deposits reached CFA2.06trn (€3.1bn) as of July 2012, growing 14.9% since the end of 2011. Over the same period, loans grew by 12.4%, reaching CFA1.26trn (€1.9bn). Private companies accounted for the majority of lending, with loans to businesses standing at CFA768bn (€1.2bn) as of July 2012, equivalent to growth of 14.5% since December 2011. Deposits by companies rose as well, but at a slower pace, increasing by 6.9% over this period. While growth in lending outstripped the increase in deposits for companies, the opposite was true for individuals over this seven-month period. Deposits by individuals rose by 4.1%, but outstanding loans to this group dropped by 12.7%, making individual consumers net creditors to the banking system. This highlights a significant challenge with financial intermediation in Gabon: as deposits from individuals increase, loans to them are nonetheless declining.

PENETRATION: Despite the overall rise in deposits and lending since 2010, Gabon still has a relatively low banking penetration rate. Estimates of the percentage of the Gabonese population with a bank account range from 6% to 15%, which is low when compared with countries with a similar GDP per capita. In the past, banks have been hesitant to expand into the interior of the country, where there is comparatively little economic activity.

Furthermore, a reliance on large corporate customers and the state has allowed banks to maintain their profitability without being forced to look for new customers. “The potential market is huge as banking penetration is only around 6% or 7%, and will certainly grow as requirements to open an account are made easier,” Redouane Bennis, the assistant director-general of UGB, told OBG.

In retail banking, an increasing number of customers, including low-income individuals, are looking to open accounts to gain access to financing and credit. This demand will likely increase as new technologies such as mobile banking are introduced into the marketplace. These technologies will lower the costs of entry for banks and for clients while at the same time increasing the breadth of coverage, especially in the interior of the country (see analysis).

In the corporate sector, some large, international companies are relocating to Gabon, lured by the promise of incentives and a reformed business environment that the government is working to develop as part of its economic diversification strategy. “There are great opportunities with investors such as Olam and BHP Billiton, and in sectors such as timber and power generation,” Bennis noted. However, multinationals may not be interested in borrowing from local lenders, as loans can typically be sourced at lower rates in their home countries. Growing government interest in public-private partnerships to fund infrastructure developments could represent another avenue of growth for the sector.

To attract additional clients, banks are opening more branches, both in Libreville and in the interior of the country, as well as expanding the services that they offer to attract new customers (see analysis). Many lenders have already started to expand their service offerings. From wire transfer services and increased access to credit, to services for small- and medium-sized enterprises (SMEs) and insurance products, banks in Gabon have become more responsive to the needs of consumers.

“Banking products have to be democratised, as they are currently seen as luxury products. To encourage saving, the government and banks need to bring themselves closer to clients to foster a savings culture. New products are also needed to draw in clients and get them to open accounts,” Jean-Baptiste Siaté, the general manager of Ecobank, told OBG.

FOREIGN ENTRY: Some of this expansion activity – both in terms of geography covered and products – has come as the result of new entry of foreign players, most notably Ecobank and UBA, both pan-African banking giants headquartered in West Africa that entered the Gabonese market in 2009. In that same year, UGB was acquired by Morocco-based Attijarawafa Bank as part of a larger deal to acquire the African assets of French bank Crédit Agricole.

Headquartered in Togo, Ecobank is present in 33 countries across Africa. “For Ecobank, Gabon was a natural choice. It has one of the highest GDPs in sub-Saharan Africa and is relatively under-banked,” Siaté told OBG. Ecobank already has five branches in Libreville and one in Port-Gentil, and plans to open up more branches before the end of 2012, with two in Libreville under construction. Ecobank is also targeting the interior, with branches planned in Oyem, Franceville and Port-Gentil. Ecobank’s investments have been paying off. Since the beginning of 2011, the lender has opened 13,065 new accounts, only slightly behind the rate for UGB, which has opened 13,346 accounts over the same period.

UBA is a Nigerian-based bank with a presence in 16 African countries as well as offices in London, New York and Paris. In addition to targeting Nigerian expatriates in Gabon, it has also been involved in corporate finance. In collaboration with UBA Capital Africa, the local UBA subsidiary is now working with the Company for the Development of Renewable Energy to finance construction of the FE 2 dam at Okano.

Since being acquired by Attijarawafa Bank, UGB has focused on bolstering its position. The lender has pursued a strategy of expansion, overhauling its IT system in 2011 and expanding its presence both in Libreville and in the interior. They will also be one of the first banks to put a branch at the special economic zone (SEZ) in Nkok when it begins operation. “Our strategy is focused on growing our distribution network, acquiring more retail and corporate clients, and providing new services. In 2012, for example, we plan to set up new branches with a focus on underserved areas,” Bennis told OBG.

MARKET FEATURES: These foreign lenders have been attracted to Gabon for a number of reasons, including a strong economic outlook and the government’s ambitious economic diversification plan, Emerging Gabon. Investment in industries like palm oil and rubber, in addition to expansion of the mining industry, should create an opportunity to win new corporate and retail clients. The SEZs that are currently being constructed in Libreville and Port-Gentil will also encourage the development of new industry and jobs. In total, about 20,000 to 30,000 new jobs in the formal economy are forecast to be created over the next few years by the SEZs alone, which will create demand for banking services. Finally, Gabon’s comparatively rich economy has long been a magnet for expatriate workers from West and Central Africa. A significant part of the strategy of some of the foreign banks in Gabon is to target the lucrative international money transfer market.

With knowledge of and dedication to the African market, these foreign banks have pursued an aggressive strategy of expansion. “In the short term there is a race in the banking sector to capture clients. Banking penetration is 15% – much better than Chad, for instance, where it has reached only 8% – but the structure of the Gabonese market stands to improve from increased competition and penetration,” Siaté told OBG. Indeed, the benefit to current and potential customers seems clear, with foreign banks offering new services to corporate and retail clients alike. “The arrival of new banks in Gabon has been a positive development,” Alain Fazili Bula, the vice-president of global markets at Citibank, told OBG. “Before, each bank had 50 to 100 preferred major customers who they could rely on. Now banks are aggressively competing for customers, forcing them to offer more and develop more productive relationships,” he added.

The introduction of Visa and MasterCard payment services by UGB and Ecobank, respectively, is one new development. Banks are also looking to provide insurance and consumer credit to their clients. In certain cases, such as money transfers, foreign banks provide these services at lower prices. International money transfers within the Ecobank system, for example, are significantly cheaper than Western Union’s rates.

But for international banks evaluating the Gabonese market, challenges remain. As Michel Dubois, the president of BICIG, told OBG, “There is real potential in Gabon, but it is a small market, meaning that having 12 to 13 banks is far too many. New entrants to the market will find the environment difficult, especially since mergers are unlikely and because capital levels are quite high.”

REGULATORY FRAMEWORK: Gabon is a member of the Central African Economic and Monetary Union (Communauté Économique et Monétairee l'Afrique Centrale, CEMAC), which is responsible for monitoring regional and national banks. Consequently, Gabon’s banks are regulated by the Central African Banking Commission (Commission Bancaire de l’Afrique Centrale, COBAC). COBAC implements and enforces banking regulation and is responsible for assuring the stability of the sector throughout the CEMAC region, including setting minimum capital requirements and supervising their implementation. In 2011 COBAC relocated to Libreville, reflecting the city’s status as a regional financial centre.

In April 2009, the COBAC issued a directive to progressively raise minimum capital levels for banks in the region as part of the organisation’s plan to adopt standards in line with Basel II. In June 2010, the minimum requirement for a bank in the CEMAC region was increased to CFA5bn (€7.5m) and will be raised again in 2014 to CFA10bn (€15m).

Other financial institutions, for example leasing companies, will be required to maintain a minimum capital level of CFA2bn (€3m). Meanwhile, the minimum risk-adjusted capital adequacy ratio is 8% for banks in the CEMAC region. The sector average is far above this minimum. According to a 2011 IMF report, the ratio of regulatory capital to risk-weighted assets for Gabon’s lenders stood at 22.6% in 2010.

While the country’s banks are well capitalised, the creation of a regional deposit insurance fund, which came into place in February 2011, is an additional safeguard against bank failures and should encourage more participation in the banking sector while assuring additional security. The Deposit Guarantee Fund (Fond de Garanties de Dépôt, FOGADAC) is funded by a 0.15% levy on all bank deposits and is managed by the BEAC. While the fund is generally seen as a positive development, there have been some criticisms, including the fact that, while banks pay based on all of their deposits, including those from the government, the fund covers only retail deposits. “The development of a deposit insurance scheme is an important step in assuring the stability of banking systems throughout the CEMAC region. There have been some criticisms, however, of the way in which the insurance scheme was implemented. For example, a charge is taken from all deposits, but not all deposits are guaranteed by the fund,” Pierre-Marie Ntoko, the director-general of APEC, told OBG.

Other recent regulatory developments include the BEAC’s move to establish a low-cost regional payment system that aims to reduce the amount of cash in circulation as well as improve the interbank system throughout the region. However, progress has been slowed by political disagreements on where a new organisation, the Société Monétique de l’Afrique Centrale (SMAC), should be located. SMAC, an affiliate of the BEAC launched in 2005, is charged with supporting the expansion of electronic withdrawal and payment services, in particular banking cards, ATMs and electronic pay points in shops.

Despite these regulatory efforts, the interbank system remains underdeveloped, according to market participants. “The interbank system isn’t fully operational and must be affiliated to Visa to work properly. Few other credit cards are accepted in Gabon. However, most of these regulations and technology gaps directly rely on the implementation of reforms from the BEAC,” Roger Owono Mba, the director-general of BGD, told OBG.

IMPACT OF GLOBAL MARKET: The IMF authored a paper in 2009 on the impact of the international financial crisis on the CEMAC region. The paper noted that the financial crisis itself had a relatively small effect on the region, as local banks have limited connections to the global market and had little exposure to the financial instruments that precipitated the crisis. Similarly, Gabon’s relatively isolated banking sector has not been adversely affected by the crisis in Europe, and few of the banks have significant exposure to European sovereign debt.

Nonetheless, in a broader sense, the slowdown in the eurozone may well have an impact on the local economy, which in turn could affect the banking sector. Indeed, challenges in the eurozone might affect access to capital by the many French and other European companies that operate in Gabon, as most of them currently arrange financing abroad. However, long as oil prices stay high, Gabon’s outlook remains relatively positive, as crude oil exports still account for a large part of the economy. Furthermore, the country’s increasing focus on the emerging markets of Asia should help mitigate any risk of contagion from the eurozone debt crisis and a potential recession in Europe.

LOANS: Banks in Gabon are often criticised for their conservative approach to lending. As of March 2012, the value of all loans was equivalent to 67% of deposits, according to APEC. While banks have boosted their lending activity – in April 2011 the ratio was only 54% – the time frame of the majority of loans remains short. Indeed, loans structured in a long-term format amounted to just CFA108bn (€164.9m), or about 8% of the total value of loans at that time.

Banks have traditionally claimed that their ability to finance long-term projects is constrained by a lack of long-term deposits. In March 2012, the ratio of sight deposits to total deposits was 60.03%. However, despite the fact that the majority of deposits are technically short term, these deposits often remain in banks for many years. “Accounts in Gabon are often structurally long term despite the fact that they are classified as short-term deposits. The Gabonese banks need to work with regulators to find new ways to be able to use this stable but technically short-term capital as longer-term funding,” Bula of Citibank told OBG.

Meanwhile, on the demand side, there remains a perceived absence of projects to finance. Many SMEs do not have the proper structure to qualify for bank financing, and multinationals source their financing in their home markets. “The increase in deposits is outstripping local loan growth because there is a lack of credible projects, as SMEs are not organised or structured well enough. There is therefore no mechanism to compel banks to finance them, and the banks remain cautious. Furthermore, many projects are financed externally, especially those undertaken by large multinationals,” Bennis told OBG.

SMES: As in many African countries, SMEs in Gabon struggle to obtain the financing that they need to grow and prosper. “The lack of SMEs in Gabon is a historical problem, due in part to the limited size of the domestic market. There are, however, some very successful SMEs in the service sector that have overcome the structural limitations of the market and been able to prosper,” Dubois told OBG.

One challenge for local lenders is that smaller businesses often lack the proper credit histories or documentation to obtain bank financing. “The support and development of SMEs is necessary to properly satisfy local content requirements. Local SMEs need help to create a business plan and market their projects. Institutions like Promo Gabon and the Chamber of Commerce should provide more support to the SMEs and help them convey their ideas with proper figures, forecasts and solid market research,” Owono Mba, the director-general of BGD, told OBG. Credit information would help as well. “The banking sector would benefit from centralised information on credit risks, such as a list of bad clients who have been barred from other banks,” Mamoudou Kane, the general director of Orabank, told OBG.

However, lenders are starting to focus more on this market. State-owned BGD has specifically targeted SME lending in recent years, despite the challenges in financing smaller businesses, and in 2011 it was able to deploy all of the CFA3bn (€4.5m) that it had allocated towards funding SMEs. Meanwhile, the African Development Bank (AfDB) is working to launch a programme that would help create a line of credit for SMEs to be administered through local banks. Other lenders are looking at alternative methods to serve SMEs. For example, Ecobank has started lending to SMEs if they provide a contract with a larger corporation as a guarantee for the loan.

CONSUMER CREDIT & LEASING: There are three specialised consumer credit and leasing companies. Finatra and BICIG Bail are majority-owned by BGFIB ank and BIGIC, respectively. Alios Finance Gabon is controlled by the Alios Finance Group, which is in turned owned by a variety of groups, including the Tunisian private equity group Africinvest, a Finnish investment fund Finnfund and OPTORG, a group created in the 1950s by Renault.

Consumer credit is generally offered to salaried employees, while local leasing companies also offer various types of credit to businesses. “We see our major growth opportunity with Gabonese companies that are looking to expand their operations or with foreign firms that do not want to own equipment while they operate here,” Hygin Ankama, the associate director-general of Finatra, told OBG. Despite the increasing competition, the market looks promising. For example, leasing represents about 1% to 2% of all credit in Gabon, whereas in Morocco, leasing represents about 15% of all credit.

MORTGAGES: The development of a mortgage market in Gabon has been hindered by inability of many companies and private individuals to obtain formal land titles. It can sometimes take up to ten years to obtain a formal land title, if possible at all. Without a formal title, banks and other lenders are unwilling to offer mortgages. Consequently, people often start building before they have their formal title, financing construction with cash. Not only does this limit banks’ access to a potentially lucrative market, it is barrier for many to owning housing and has contributed to the housing shortage across Gabon.

Although this segment of the market remains relatively underdeveloped, some banks, including BGFIB ank, do offer mortgages to customers in Gabon. The finance companies have expressed interest in entering this part of the market, but challenges remain. “We are definitely interested in developing mortgage products, but without a more efficient land title system we can’t do it,” Ankama of Finatra told OBG. Others in the country feel similarly. “If available real estate and the land registry are not managed effectively, it is difficult to enisage property leasing and other similar services,” Faissal Chahrour, the general director of Alios Finance, told OBG. The regulatory hurdles could be soon overcome, however, with the government working to overhaul the administration of land titles, and some market participants are optimistic. “There has been an effort to facilitate access to land titles, with laws and regulations modified, but it will take some time before the implementation will be effective,” Bruno Otah Ondounda, the director-general of BHG, told OBG.

TECHNOLOGICAL DEVELOPMENTS: Investments in new technology are changing the face of local banking. “Gabon is a leader in terms of organisation and technology in Central Africa,” Siaté of Ecobank told OBG. Mobile banking has recently been introduced in Gabon, for example. Airtel Money, in partnership with BGFIB ank, has introduced a mobile payments system that should facilitate payments and help reach previously unbanked Gabonese. BICIG will be rolling out a similar service in the near future.

Other new developments include the offering of payment cards branded by MasterCard and Visa. UGB has partnered with Visa to offer interbank services and prepaid Visa cards to clients. The BEAC’s move to improve the interbank system throughout the region could help to facilitate the increased use of both credit and debit cards.

MICROFINANCE: COBAC established microfinance regulations in 2002, but it was not until 2005 that the first microfinance institution – Financière Africaine de Microprojets, which began operation with a capital of CFA500m (€750,000) – was established. Currently there are 19 microfinance organisations operating in Gabon, including Loxia EMF, which is owned by BGFIB ank, and Gabon Microfinance (Association Gabonaise de la Microfinance, GAMIFI), which established in 2009 with capital provided by BICIG, Total Gabon, Petro Gabon, French insurance company Axa and others.

Loans from GAMIFI can range in size from CFA50,000 (€75) to CFA4m (€6000) and target micro-entrepreneurs such as shopkeepers and tradespeople. Interest rates begin high, at up to 4.13% a month but are reduced over time as the client demonstrates his or her ability to repay loans promptly. “While in the beginning it was difficult for our clients to understand the needs of a commercial bank, we have had a great deal of success with most of our accounts. We are now planning on expanding our service offerings to include micro-consumption loans for travel or school and to introduce banking cards for our clients,” Flore-Martine Ngningone Obame, the director-general of GAMIFI, told OBG. Loxia is also planning an expansion of services targeting the interior of the country. BGFI plans to turn the microfinance institution into a fully functional commercial bank by the end of 2012.

OUTLOOK: Solid fundamentals combined with high oil prices and strong economic expansion will drive growth in the sector. The diversification strategy being implemented by the government is increasing foreign direct investment as well as creating jobs, two factors that should benefit banks. Emerging Gabon will also generate opportunities to finance planned infrastructure projects. While the level of competition is increasing, the country’s low banking penetration rate and strong economic prospects should provide enough room for all players. Consolidation in the market remains a possibility, with smaller players potential targets for the larger firms.

The major challenge for the sector will be to increase its role in Gabon’s economic diversification process. The government will not be able to maintain elevated levels of capital spending indefinitely and thus will look to the banks to play a greater role in financing long-term investment. This will require banks to become comfortable with a greater level of risk and develop strategies to make more productive use of their short-term deposits. If this growth and innovation is managed well, it could transform the banking system as well as the local economy.