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PwC Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets

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Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets

Contents

Foreword 1

Action points for the CEO 4

Executive summary 7

Countries surveyed:

• Egypt 12

• Francophone West Africa 40 (Sénégal and Côte d’Ivoire)

• Kenya 66

• Nigeria 94

• South Africa 120

Appendices 144

• Background description of the participants based on publicly available information 147

• African countries – a statistical overview 159

• Selected African countries: real GDP, consumer prices and current account balances 161

• Per capita GDP growth for countries included in this report 163

Partners in Success – About PricewaterhouseCoopers 164

PricewaterhouseCoopers contacts 165

PricewaterhouseCoopers has taken all reasonable steps to ensure that the information contained herein has been obtained from reliable sources and that this publication is accurate and authoritative in all respects. However, this publication is not intended to give legal, tax, accounting or other professional advice. No reader should act on the basis of any information contained in this publication without considering and, if necessary, taking appropriate advice upon their own particular circumstances. If such advice or other expert assistance is required, the services of a competent professional person should be sought.

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PwC 

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 1

provide perspectives on how banking in Africa could evolve over the next three years.

Findings of particular interest in this survey include observations on:

pressure on profit performance;

consolidation of banks in Nigeria;

need for further consolidation in the industry in Egypt and Kenya;

increased levels of competition in the various markets; and

need to service the unbanked in the markets surveyed.

Bankers and other readers have indicated that they have found the material in past South African surveys useful and we trust that, with this Africa-wide survey, this remains the case.

I would like to thank:

the chief executive officers and senior executives who participated in this survey for their time, commitment and support in making this publication possible;

partners and staff in the local PricewaterhouseCoopers offices in each of the countries visited and in Johannesburg for their involvement and assistance; and

in particular, Dr Brian Metcalfe for his work in travelling to the various countries and in producing this report.

We look forward to feedback on this survey and on topics to be included in future surveys on the banking industry.

Tom Winterboer Banking and Capital Markets Leader – Southern Africa PricewaterhouseCoopers Inc. Johannesburg February 2007

Foreword

After developing and sponsoring nine surveys on banking in South Africa, this is the first PricewaterhouseCoopers survey, which also covers banking in the rest of Africa, being Egypt, Francophone West Africa (Sénégal and Côte d’Ivoire), Kenya, Nigeria and South Africa.

This survey has been developed by PricewaterhouseCoopers and Dr Brian Metcalfe and is based on those previously conducted in South Africa. Areas covered in the survey include:

background on participants;

intensity of competition in different parts of the market in each country surveyed;

most important developments in the financial markets of each country surveyed, together with participants’ criticisms of the banking industry in those countries;

questions on drivers of change, threats, pressing issues, past successes and importance of specific markets; and

other topics considered of importance to banks.

It goes without saying that the African banking market is complex and, as the title of the survey indicates, these are only “Initial Perspectives”. However, the key objectives of this survey remain to:

raise awareness of strategic and emerging issues in the banking industry in Africa;

establish data on certain industry trends;

understand the thinking of chief executive officers in the banking industry;

encourage timely discussion and debate on the best options for capitalising on trends to enhance and improve the performance of the various banks; and

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets2

Dr Brian Metcalfe is an Associate Professor in the Business School at Brock University, Ontario, Canada. He has a doctorate in financial services marketing and has researched and produced over 20 reports, such as this one, on behalf of PricewaterhouseCoopers in South Africa, Canada, Australia, Japan, China and India.

Previous reports in South Africa have examined strategic and emerging issues in banking, short and long-term insurance, insurance broking and wealth management.

In the past he has been employed by National Westminster Bank, Bank of Ireland and Connecticut Bank & Trust Co. He has consulted for a wide range of organisations, including Royal Bank of Canada, Bank of Nova Scotia, Barclays Bank, Clarica Life Insurance Company, Equitable Life of Canada, and several major consulting firms.

He has also taught an executive management course entitled ‘Financial Services Marketing’ at the Graduate School of Business, University of Cape Town.

About the author

PwC 

This report was researched and written by Dr Brian Metcalfe, Ph.D. Information presented herein, while obtained from sources believed reliable, is not guaranteed as to accuracy or completeness. This report has been commissioned by and distributed through PricewaterhouseCoopers Inc., Johannesburg.

Additional copies of this report can be obtained from Tom Winterboer, Lead Banking and Capital Markets Partner: Financial Services Practice – PricewaterhouseCoopers Inc., 2 Eglin Road, Sunninghill, 2157

Telephone: +27 11 797 5407 Fax: +27 11 209 5407 E-mail: [email protected]

©2007 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member firms of the worldwide PricewaterhouseCoopers organisation. All rights reserved.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 3

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets4

Action points for the CEO

Piecing the Jigsaw: The Future ofFinancial Services

PricewaterhouseCoopers has during 2005 completeda financial services study on “

: . This focused on thefuture of the financial services industry over the nextthree years from then and considered the drivers,risks and opportunities, as well as the impact andresponses for existing and potential players in theindustry.

The study identified five principal drivers that willaffect all financial institutions: Politics,Demographics, the Economic Cycle, Regulation andReporting, and Technology.

Flowing from the survey there were five action pointsfor the CEO: “There is no single, pre-determinedroute to success over the coming years. Yet as theleaders of today's financial institutions think about theshape of tomorrow's leading players, their strategiesshould embrace five key principles:

1. identify and articulate what your institution doesbest;

2. simplify the offering to customers;3. simplify the enterprise itself;4. hone market positioning in line with demographic

trends; and5. don't forget the most important ingredient –

people.”

In completing our survey on five of the key AfricanMarkets, we questioned whether the five “actionpoints for the CEO” should be considered and if theywere appropriate?

With certain of the survey findings listed below, weenclose the actions for consideration by the CEO.

The future of financialservices Piecing the jigsaw”

Q2 Have the banks simplifiedthe offering to customers?

The survey found:• a need to service the unbanked

market:• a perceived lack of transparency on-

pricing in Kenya and on perceived feesand charges in South Africa;

Q1 Have the banks identified andarticulated what their institution doesbest?

The survey found:• there are high levels of competition in

specific

Q3 Have the banks simplified theenterprise itself?

The survey found:

• that significant consolidation occurred in Nigeria;• there is need for further rationalisation of the

number of banks in Egypt and Kenya;• data security is still an issue; and• that profit performance is the most pressing in

Egypt and Nigeria, and second in South Africa andKenya.

Action to consider:

As an institution's corporate identity and productoffering simplify, so will the organisation itself.Technology platforms should be consolidated andintegrated, aided by continued outsourcing to thirdparty providers. Risks should be assessed andmanaged on an enterprise-wide basis. Performancedata should be a panoramic view of the institution.Cost efficiencies will arise as a result. Moreimportantly silos will fade and teams will collaboratemore effectively across the organisation. There willbe little room for hierarchies, whether based onproducts or functions, in tomorrow's leadinginstitution.”

“…. and simplify the enterprise itself.

• a need to change, or deal withcash orientation in markets suchas Nigeria, Egypt andFrancophone West Africa; and

• service quality is the mostpressing issue in FrancophoneWest Africa.

Action to consider:

Whatever its core activity, trust will be anorganisation's most precious asset.Fiercer regulatory scrutiny and a wideningconsumer base mean that complexity isout and simplicity is in. Products should betransparent and easy to understand; risksshould be clearly defined and explicitlyunderstood; and product performanceshould be reported on regularly andobjectively. The interface with thecustomer should be designed to be user-friendly above all else. Customersatisfaction metrics will sit at the heart ofmanagement decision-making processes.”

“Simplify the offering to customers…

markets in the five regionssurveyed;

• that Central banks arebecoming more proactive;and

• that there is a scarcity of humancapital.

Action to consider:

Conglomeratestrategies will lose their remaining lustre.A well-defined corporate identity, in theminds of customers, investors, regulatorsand staff, will be critical. That identitymight be found on traditionaldifferentiators, such as particularcustomer segments or chosen markets.Or it might reflect less conventional ones,such as the distinction betweendistribution and manufacturing,differences in levels of risk appetite orskills in information processing.Whatever an institution's core activity, itshould be at the heart of its strategy.”

“Identify and articulate what yourinstitution does best.

Q5 Did banks rememberthe most importantingredient – people?

Q4 Have the banks honed marketpositioning in line with demographictrends?

The survey found:

• the Mzansi account was started inSouth Africa as an option at thelower end of the market; and

• the need to expand:- “bricks and mortar”- ATM's- branches in rural areas

• a neglect of the SMEsector (most apparent inEgypt and Nigeria).

Action to consider:

“Hone market positioning in line withdemographic trends. Whether seekingto take advantage of the growthpotential of the emergent middle classin developing markets, or targetingfast-expanding sub-populations withincountries through ethnic products andservices, or pursuing life-cyclestrategies aimed at tomorrow'spensioner, successful institutions willput demographic trends at the heart oftheir business plans. To drive growtheffectively, institutions should identify acore of high-potential customers andbuild their offering accordingly.

The survey found:• recruitment of good personnel is a

critical issue in all markets; and• training is of paramount importance.

Action to consider:

The industrylandscape may change but theimportance of people is permanent. Noinstitution can thrive without high-qualityemployees at all levels of theorganisation. What is changeable is the

“Don't forget the most importantingredient – people.

skills base of those employees.The next few years will see twopronounced and convergenttrends in employee capabilities –towards better data analysis and

towards enhanced customer-facingskills. We believe that institutionsshould think very carefully beforeoutsourcing their customer-contactactivities.”

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 5

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets6 Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets6

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 7

Executive summary

Kenya

Francophone West Africa – Sénégal and Côte d’Ivoire

Nigeria

South Africa

Egypt

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets�

This survey looks at the strategic and emerging banking issues in key African markets. The report is based on personal interviews with the Managing Directors, Presidents and senior executives of 52 banks in Africa.

Rather than survey banks in Africa’s 53 different countries, it was decided to select some of the lead countries in the major “regional markets”. As a result, Kenya was selected for East Africa, Nigeria for West Africa, Egypt for North Africa and South Africa for Southern Africa. To further embrace French-speaking West Africa, two countries, namely Sénégal and Côte d’Ivoire, were considered representative of the West African Economic and Monetary Union (WAEMU).

Interviews, based on a 35-question survey, were conducted in Nairobi, Cairo, Lagos, Johannesburg, Dakar and Abidjan. Banks interviewed included both domestic and foreign banks in each country. In some instances the same foreign bank was interviewed in multiple markets. The interviews lasted a minimum of one hour and took place between May and August 2006.

Following further data collection and analysis, the survey was finalised in February 2007.

It should be noted that certain information in respect of South Africa was copied from the 2005 Strategic and Emerging Issues in South African Banking survey, and is highlighted separately in the section that deals with South Africa.

The objective of the report was to identify common themes that span different African markets. At the same time the report sought to provide insight into their unique market characteristics and different stages of banking services evolution and development.

Foreign banks interviewed in more than one market included Citibank (Egypt, Nigeria, Sénégal and South Africa); Barclays Bank (Egypt, Kenya and South Africa); Standard Chartered Bank (Côte d’Ivoire, Kenya, Nigeria and South Africa), Stanbic (Kenya, Nigeria and South Africa), BNP Paribas (Sénégal and Côte d’Ivoire), and Societe Generale (Côte d’Ivoire and Egypt).

Background

With Nigeria almost in the bag, Standard Bank has set its sights on buying another bank in Ghana as it beefs up its operations in Africa outside South Africa.

The bank has completed a due diligence study of Nigeria’s IBTC Chartered Bank and is awaiting a recommendation from its board before shareholders can vote on the deal. Regulatory approval was also required, said Standard Bank Africa director Kevin Wingfield.

The bank would consider other opportunities to gain a sizeable presence in Africa’s most populous nation, Wingfield said.

It had also identified an opportunity in Ghana that would give it a stronger foothold in that market. However, he said it was premature to give further details.

At the end of 2005, Standard Bank refocused its African strategy, appointing former head of distribution Craig Bond as CEO of Standard Bank Africa, while a

number of other executives were deployed to head regional operations.

Bond said the bank was under pressure to ensure its African operations made a more meaningful contribution to group earnings.

“The proof of the pudding will be in March 200� when you see 2007’s numbers,” Bond said.

“It’s now time that this division delivers quite a bit more and that’s going to require more than just organic growth.”

Wingfield said the bank had drawn up a “top 10” list of countries it needed to enter or grow its presence in, including countries such as Nigeria and Kenya, where it had existing but small operations.

Bond said the bank was unable to reach the scale it needed in many countries through organic growth. “A lot of our growth strategy has to be acquisitive.”

Last month, Standard Bank said it was in talks with Kenya’s CFC Bank to merge in with Stanbic Bank Kenya. “Broadly we have agreed to the pricing and structure,” Wingfield said. “We commence due diligence at the end of the month.”

Standard Bank was also considering a move into Rwanda, which was recently integrated into the East Africa Community and would complete its east African footprint. Bond said Standard Bank had an advantage over multinational banks doing business on the continent, many of which used “briefcase” banking rather than opening offices and branches in the countries where they conducted business.

“We are finding increasingly that governments and companies in Africa are looking for an African bank that understands Africa,” Bond said.

Source: Ghanaian Chronicle February 2007

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 9

Egypt (15 banks)

Al Watany Bank Arab African International Bank Arab Bank Bank of Alexandria Banque Misr Barclays Bank CIB Citibank EAB Calyon HSBC Industrial Development Bank National Bank of Egypt NSGB Piraeus Bank Suez Canal Bank

Nigeria (11 banks)

Afribank Citibank (Nigeria International Bank) Diamond Bank Ecobank First Bank of Nigeria PLC GTB Stanbic Standard Chartered Bank UBA Union Bank Zenith Bank

Kenya (10 banks)

Barclays Bank CBA CFC Cooperative Bank of Kenya Equity Bank KCB National Bank NIC Stanbic Standard Chartered Bank

South Africa (� banks)

ABSA African Bank Citibank Commerzbank FirstRand Investec Nedbank Standard Bank

French West Africa (� banks)

BNP Paribas (Sénégal) CBAO (Sénégal) Citigroup (Sénégal) SGBS (Sénégal) BIAO (Côte d’Ivoire) BICICI (BNP Paribas) (Côte d’Ivoire) BNI (Côte d’Ivoire) Standard Chartered Bank (Côte d’Ivoire)

Participating banksThe 52 participants were as follows:

Exchange rates US$ Euro

Egyption pound 5.70 7.51 CFA (BCEAO) 497.�0 655.50 Kenya shilling 70.0� 92.27 South African rand 7.0� 9.33 Nigerian Naira 12�.32 16�.96 At 26 February 2007

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets10

The following findings are based on personal interviews with 52 banks who are judged to represent a sound and comprehensive overview of five major African banking markets. These findings are included in this section to help identify some common themes and major contrasts and to set the scene for the more detailed analysis of the five individual markets.

Most important developmentsAlthough each of the markets selected possessed a unique financial services architecture, several common themes were apparent.

For example, the formation of an effective credit bureau was cited in both Egypt and Nigeria, where significant growth is expected in the retail lending sector.

All five markets believe that they are facing increased levels of competition. In markets such as Egypt and South Africa, aggressive competitors have either just entered or increased their market presence. In Nigeria, consolidation and market development have fuelled competition. Indeed government-directed consolidation has been an important development in Nigeria and Egypt. Privatisation is being implemented in Egypt and is work in progress in Kenya.

In all markets there is concern about how best to service the unbanked market. For example in Egypt, Nigeria and Kenya, banking penetration is extremely low and the banks are chronically under-represented outside the major urban centres. South Africa has progressed furthest on this issue as a result of the Financial Sector Charter and the successful launch of new products such as the Mzansi account.

New products are evident in all the markets. While credit cards are being developed in Egypt and Nigeria, South Africa has seen innovative new offerings from foreign entrants such as Virgin Money. A lack of transparency on pricing is an issue in Kenya (e.g. electronic transfers) and South Africa (fees and charges). In all markets the Central Banks are becoming more proactive.

Bankers’ criticisms of the financial systemsThe most universal self-criticism made by the participants was the lack of adequate branch infrastructures. All markets mentioned the need to expand their “bricks and mortar” presence, particularly in rural areas. Several countries mentioned the need to develop more creative distribution structures, including the use of ATMs and hub and spoke branch networks.

Neglect of the SME sector was mentioned and seemed most apparent in Egypt and Nigeria. In French-speaking West Africa several new banks have been created to service this sector.

The cash orientation of markets such as Nigeria, Egypt and French West Africa was mentioned as problematic and a hindrance to the development of new products. The nature of the property lending environment was viewed as a major barrier to development in Nigeria and Egypt.

The need for further rationalisation of the number of banks was mentioned in Kenya and Egypt.

Main findings

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 11

Most Important issuesRecruitment of good personnel is a critical issue across a number of markets. It ranks in first place in French-speaking West Africa, Egypt and Kenya. South Africa places affirmative action, black empowerment and recruitment of good personnel as its top three most important issues, while Nigeria ranks its top three as data security, money laundering and crime levels.

Data security is a very important issue (within the top 3) in all markets except South Africa. Money laundering is in the Top 5 in Nigeria, Kenya and Egypt.

Central Bank independence has a ranking of 7 in Nigeria and South Africa and � in French-speaking West Africa and Egypt. It is however, ranked in third place in Kenya.

Most competitive marketsThe most competitive market within six banking markets (namely, retail banking, home loans, vehicle financing, internet banking, corporate banking and merchant and investment banking) was identified as corporate banking.

Corporate banking was considered the most competitive sector in Nigeria, French-speaking West Africa and Egypt. South Africa considered vehicle financing and merchant and investment banking to be its most competitive markets, while Kenya ranked both retail banking and corporate banking as its most competitive sectors.

Countries that scored retail banking as intensively competitive ranged from Kenya (90%), Nigeria (70%), South Africa (67%), Francophone West Africa (66%) to Egypt (21%).

Drivers of changeTechnology was considered the most important driver of change in three markets; Nigeria, Kenya and French-speaking West Africa. Egypt placed mergers and consolidation in first place, while South Africa (reflecting the Barclays acquisition of a controlling shareholding in ABSA) recorded foreign entrants. South Africa placed technology in second place while Egypt placed it in third position.

Most pressing issuesThe most pressing issue from a list of 32 items on the agenda of bank Managing Directors was profit performance in Egypt and Nigeria (it was in second position in South Africa and Kenya) and improving revenue growth in South Africa and Kenya. French-speaking West Africa recorded service quality as the most important pressing issue.

Layout of this reportThe report is organised on an individual market by market basis. Data or support material related to that particular country is shown at the end of each section. General appendices at the end of the report include Africa-wide data and a background description of the participating banks by country.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt12

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 13

Egypt

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt14

Egypt has a very fragmented banking system, with over 42 different licensed banks, as at September 2006. The government has indicated that it would like to see a reduction in the number of banks to around 25 by 2010.

The government reforms of the system include:

raising the minimum capital requirements;

restructuring the public sector banks;

privatisation of public sector banks and a break up of the joint venture banks; and

improved regulatory supervision.

Egyptian banking is dominated by four state-owned institutions: National Bank of Egypt, Banque Misr, Banque du Caire and Bank of Alexandria. Together they represent approximately half of the Egyptian banking system’s assets.

In October 2006, the Egyptian government agreed to sell �0% of the Bank of Alexandria to the Italian bank San Paolo IMI for $1.46 billion.

The other institutions involved in the final bid for Bank of Alexandria were CIB (Commercial International Bank), a joint venture of Jordan’s Arab Bank and Saudi Arabia’s Arab National Bank, and a consortium of Dubai’s Mashreqbank and the Dubai Investment Group.

The decision to sell Bank of Alexandria is part of a privatisation programme under Prime Minister Ahmed Nazif to consolidate the industry.

Loans Deposits Assets

National Bank of Egypt 22.9% 25% 20.�%

Banque Misr* 12.4% 16.�% 14.4%

Banque du Caire* 9% 7.3% 7.1%

Bank of Alexandria** 5.3% 6.2% 5.9%

Total Big Four 49.6% 55.3% 4�.2%

Note: * To merge, **Sold to San Paolo IMI October 2006

Source: CBE and HSBC June 2004

Participating banks:

Al Watany Bank Arab African International Bank Arab Bank Bank of Alexandria Banque Misr Barclays Bank Commercial Industrial Bank (“CIB”) Citibank EAB Calyon HSBC Industrial Development Bank National Bank of Egypt NSGB Piraeus Bank Suez Canal Bank

Introduction

Big Four banks’ market shares

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 15

Stakes sold by state-owned banks

Bank Seller Acquirer

Cairo Barclays BduC Barclays

NSGB NBE SocGen

MAIB BduC AAIB

ECB BoA Piraeus

SCB NBE Arab Int’l Bank

MIBank BM SocGen

EAB BoA Calyon

CIB NBE Ripplewood

Privatisation of banksThe privatisation of banks was first recorded in the third five-year plan (1992/3 – 1997/�). It commenced with the sale of public sector banks’ shares in joint venture banks that had been established during the Open Door Policy that began in 1974.

For example, the first joint venture bank in Egypt was CIB, a 51%-49% joint venture between the National Bank of Egypt and Chase Manhattan Bank. Other new joint venture banks included Egyptian American Bank (Bank of Alexandria and American Express Bank), National Societe General Bank (National Bank of Egypt and Societe Generale), Cairo Barclays (Banque du Caire and Barclays Banks and finally Misr International Bank (MI Bank) between Banque Misr and a consortium of European banks.

The Unified Banking LawThe Unified Banking Law No. ��/2003 allows full ownership by foreign banks. Although this permits foreign banks to enter Egypt the continuing reluctance by the Central Bank of Egypt (CBE) to grant new licences has meant that entry has only been possible through acquisition of an existing local bank.

The CBE has not granted a new banking licence for more than a decade.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt16

Employment

The fifteen participants currently employ 49,760 people and expect that this number will increase by 13% to 56,295 by 2010. This total, however, masks a number of dramatic changes in employment. Two banks anticipate significant reductions in employment, while four banks expect growth exceeding 100%. Indeed one bank expects a 200% increase and another a 600% increase.

Branches

The fifteen participants currently operate 1,66� branches and plan to add 655 new branches by 2010, bringing their total to 2,323. These banks will add more than 90 new branches over the next four years. Even the banks with a limited number of branches plan an aggressive expansion of their branch network.

ATMs

The 15 participating banks accounted for 1,�00 Automated Teller Machines (“ATMs”) in 2006 and predict that they will operate 3,5�4 by 2010, a 99% increase. Six banks expected to add more than 100 new ATMs in 2007 and three of these banks will introduce more than 250 new ATMs.

Retail customers

Responses from thirteen banks (which include the Big Four domestic banks) indicate a retail customer base of 9.6 million customers rising to 16.75 million by 2010. The addition of 7.2 million new customers represents a 75% increase by 2010.

Nine banks plan to more than double their retail base and three of these expect more than a 300% increase.

Background on participants

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 17

Note: Based on responses from 6 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

17%

67%

16% 16%

67% 17% 16% 100%

17%

17%50%

Minor change

Significant opera-tional and organisational change

Fundamental change in strategy and positioning

No change

Response

Home loansMost participants noted that the home mortgage market had not yet come into existence. They commented on the future potential of mortgages but cited several negative factors that are holding back its development. These include customer ignorance, legal difficulties including title registration, registration fees and no active securitisation mechanism.

Note: Based on responses from 14 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

21% 21%

�% 21% 21% 50%

14% 15% 29%

0%

14% 8% 21% 57% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Q In your view, what is the level of intensity of competition in the following markets, and how do you expect this to affect your competitive response?

Retail bankingThe retail sector was considered to be only moderately competitive. Four banks viewed the competition as light. One participant commented that less than 10% of the population had cheque accounts, while less than 1% have debit or credit cards. However, over half the banks noted that they had made fundamental changes to strategy in the last year.

Market competitionThe following charts illustrate how companies perceive the level of competition in six different segments of their business, and then how they have organisationally responded to that competition.

Where segments have attracted responses from more than 20% of respondents, they have been shaded in grey.

Total

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt1�

Note: Based on responses from 11 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

9% 27% 36%

1�% 9% 54%

10% 10%

28% 27% 9% 36% 100%

1�% 9%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Vehicle financingThe majority of banks believe that vehicle financing is moderately competitive. Once again this sector is recognised as one with enormous potential. There are a small number of companies that specialise in this area. These include the car dealerships. Citibank is one of the most active banks in this segment.

Note: Based on responses from 13 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

�% 15% 23%

15% 23% 31% 69%

�% 8%

23% 23% 8% 46% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Internet bankingThere are around 10 banks licensed to conduct electronic banking in Egypt. The competition was viewed as light although paradoxically almost half the banks have made fundamental changes to strategy in the last year.

Note: Based on responses from 14 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

14% 7% 36% 36% 93%

7% 7%

14% 7% 43% 36% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Corporate bankingThis sector is viewed as the most intensely competitive. The focus of some of the international banks is the provision of interactive products to top end names.

Total

Total

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 19

Note: Based on responses from 12 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

17% �% 25% 58%

9% �% 42%

17% 34% 16% 33% 100%

17% �%

�%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Merchant and investment bankingOver half the participants view investment banking as intensively competitive. One third of the group has made fundamental changes to strategy. One foreign banker commented that the era of suitcase bankers had passed and that the majority of deals were handled by local investment banks.

Total

Overview of the mortgage marketIn Egypt mortgages represent a half per cent of GDP in contrast to the US (over 65%) and in much of Europe (about 45%). The IMF has estimated that the owner occupation rate in Cairo is only 32%.

There are several major obstacles to home mortgages. Many properties are built on unregistered land, and frequently transfers of ownership remain unregistered. There are very high registration fees (they used to be 12%) and because land is not registered it cannot be used as collateral.

The Government has established the Egyptian Mortgage Refinancing Company (“EMRC”) to act as the market maker and provider of long-term funding for banks and mortgage finance companies. It will specialise in refinancing the portfolios of banks and companies, and will provide them with loans of up to 20 years at the real market interest rate. This will provide an important source of long-term funding, and a pricing mechanism for long-term funding.

EMRC has a capital base of LE212 million and is 20 per cent owned by the Central Bank of Egypt, two per cent owned by the Guarantee and Subsidy Fund and the balance by 17 other banks. Taamir and Masrya, the two existing mortgage finance houses are also shareholders, while International Finance Corporation (IFC) has expressed an interest in equity participation.

The company will receive LE213 million in the form of a loan from the World Bank, repayable over 20 years. The company will also be involved in the securitisation process, possibly through the creation of a specialised subsidiary.

In the past property registration was 12 per cent of the value of the property. It was subsequently reduced to six and then three per cent. Today it represents the cost of the service, which is not more than LE 2,000 per property.

Source: Al Ahram August 10-16, 2006 and other sources

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt20

Q What are the most important developments taking place in Egypt’s financial markets at present?

A range of new developments described the reshaping of the banking sector.

ConsolidationThe Central Bank’s plan to consolidate the banking sector has been very successful and will probably achieve its goal of 30 banks by 200�. Related to the consolidation plan, several participants commented on the Central Bank’s desire to meet Basel II requirements. One participant remarked that National Bank of Egypt had hired ING and Banque Misr hired Lloyds Bank to help in their preparations for Basel II.

New banking lawThe new law is much stricter on corporate governance disclosure of information and loan provisioning levels.

Bank privatisationsOne participant commented that privatisation had been discussed for 15 years – but it has now been implemented.

New productsThe restructuring of the sector and involvement of foreign banks is expected to fuel new product development.

Foreign exchange marketOne participant noted that a totally free foreign exchange market had emerged with minor Central Bank interference.

Increased foreign investmentSince 2005 there has been significant inward investment, primarily from the United States but also from Europe and the Gulf.

Other developmentsOther developments noted by participants were:

establishment of a Credit Bureau;

entry of large foreign financial institutions;

monetary reforms; and

future restructuring of the insurance sector.

In 2006 an International Monetary Fund (IMF) mission described the privatisation process as “exceeding expectations”.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 21

Q Can you identify three major criticisms of Egyptian banking at present?

The banks identified the following criticisms:

Under-branchedThe lack of a comprehensive nationwide branch network. Most bank branches are in the major centres with limited presence in country areas.

Scarcity of human capitalBanks raised the scarcity of qualified employees and some also mentioned a brain drain.

Lack of transparencyOne bank indicated that there was a huge non-performing loan (“NPL”) problem and that there was a need to create a separate entity to manage the problem. Although it was acknowledged that there had been improvements they still believed that a number of loans had been packaged and kept hidden.

Neglect of the SME sectorSeveral banks suggested that there was neglect in servicing small and medium-sized businesses.

Competitive pricingOne foreign bank commented that because of the lack of a high-quality deal flow, pricing tended to reflect the competition rather than the inherent risk.

Other criticisms Other criticisms included the strength of the cash economy, bureaucratic and lengthy administrative procedures and the special challenges surrounding the float of the Egyptian pound.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt22

Q Do you believe the banking market in Egypt is overcrowded?

Q Will there be further consolidation?

Q On a scale of 1 to 5, where 5 is very receptive, how receptive is the reformed banking system to the creation of new specialised or niche banks?

Egypt is considered to be an overbanked market by almost all the respondents. This seems contradictory in a market where perhaps 70% of the population remains outside the banking system.

One banker commented that there are around 20 banks in Egypt that are poorly managed and that their departure would improve the market’s efficiency and effectiveness.

All 15 banks provided an estimate of the banks by 2010. The average number was 27 banks with one participant suggesting that there might be as many as 40 banks, while another suggested less than 20 banks.

Fifty per cent or five respondents awarded Egypt a score of 4 out of 5 on receptiveness to the creation of new banks.

One participant noted that while foreign banks have received encouragement, there have been few new licenses issued to domestic players.

Another recognised that Egypt had been one of the first countries to liberalise financial services under the terms of the World Trade Organisation (“WTO”).

Based on responses from 10 banks

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 23

Q How will the needs of the retail customer of 2010 differ from the needs of the customer today?

Q On a scale of 1 to 5, where 5 is very important, how important is consumerism in Egyptian banking?

The Egyptian financial market is expected to begin to move away from a cash-oriented society. The current market was seen as overbanked but under-branched. One banker commented that it has changed dramatically over the last two years.

Although the middle and upper income segment reflects a well developed consumer culture, credit and debit card usage remains very low.

At December 2005, Visa had 1.2 million card holders (a 94% increase since December 2004), while Diners Club had advanced to 25,000 cardholders by 2005.

The card companies recognise that 30% of card usage is for cash advances (Business Today, May 2006).

Some of the observations were as follows:

learning curve for the middle income earners particularly in relation to mortgages;

rising expectations and need for improved service quality;

change in culture in card usage; and

widespread use of technology, mobile banking and ATMs in rural areas.

With just one exception the participants recorded a score of 3 or below on the consumerism scale.

Three banks assigned a score of 1 out of 5 indicating that they strongly believed that the labour market was not consumer oriented.

One bank noted the absence of a credit bureau, although plans are under way to correct this shortcoming. (Estealam has contracted Dun & Bradstreet to develop the country’s first credit bureau.)

Based on responses from 14 banks

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt24

Q What are the major drivers of change in the Egyptian banking industry today?

Q What are the major threats that banking in Egypt is currently facing?

���������������

The most important drivers of change in Egyptian banking are mergers/consolidation, foreign entrants and technology.

The strong score recorded by foreign entrants illustrates the impact the foreign-owned banks are having on the market.

In contrast, new domestic entrants are well down the list of drivers alongside convergence, securitisation and disintermediation.

Legal constraints with fee and service charge erosion are identified as the key threats to Egyptian banking at present.

The sense of an increasingly competitive market is reflected in a third place position for current competition.

Reforms, new entrants from the wider financial services sector and handling the previously unbanked market are all categorised as minor threats.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 25

Q What are the most pressing issues you face?

Can you rate them from 1 to 5?

The most pressing issues currently faced by Egyptian banks are profit performance, growing competition and the need for revenue growth. A further five issues also score above 4 on a 1 to 5 scale. These relate to front-office personnel, quality client focus, foreign bank competition and keeping clients.

Ten issues were deemed to be of limited importance. They included: internet security, liquidity, globalisation, banking the unbanked and bank sector reforms.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt26

Q How successful has your bank been in penetrating the following markets in the last year?

Many banks believe that they have been very successful in penetrating the following markets: treasury, commercial lending, retail lending and deposit taking, vehicle financing, credit cards, foreign exchange, capital markets and micro-lending.

Residential mortgages and commercial property were viewed as very unsuccessful markets.

Similarly, parts of corporate finance such as mergers and acquisitions, privatisations, new listings and structured finance were all considered to have only been moderately successful.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 27

Q Can you score, on a scale of 1 to 5, the importance of each of these markets for your bank over the next three years?

Going forward on future importance the banks assigned high scores to retail banking sectors including lending, credit cards and deposits.

While scores have increased in the corporate finance area they generally fall into the 3 out of 5 range.

Strong scores persist in treasury, commercial lending, capital markets and foreign exchange.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt2�

Q How important is outsourcing at present and will it be in 2010?

Q What will the role of branches be in 2010?

Will “traditional” branches increase?

��������������

The majority of participants consider outsourcing to be of only minor importance in 2006. Only three banks viewed it as significant. While three

banks anticipate that it will be very significant by 2010, half the group predicted it would only be of moderate importance.

The banks anticipate strong growth in the branch network to 2010. Several banks pointed out that branches were needed in an emerging market.

Some suggested that they would be smaller in size and have wider use of electronic facilities. Another bank indicated that their future branches would focus on service delivery and be without a back-office function.

One bank commented that their branches would look very different, commenting that in the past many branches looked like prisons!

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 29

Q What is your estimate of the annual growth in revenues of your business for 2006 and over the next four years?

Strong growth is anticipated by the banks over the next four years. A cluster of four banks expect the 20% growth in revenues achieved in 2006 to continue to 2010.

Only four banks anticipate less than 20% growth in 2006, although one of these expects stagnant growth in 2006 to rebound to 30% over the period to 2010.

One bank anticipated 30% growth in 2006, while another forecast 40%. Both banks expect future annual growth to fall back to around 20% by 2010.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt30

Q Over the last year what have your bank’s profits been, in terms of capital allocated, in each of the following lines of business?

A broad range of profit performance was found across the various banks.

In some areas such as home loans or internet banking, the participants were largely only marginally profitable.

In contrast, treasury was considered to be extremely profitable by a further four participants.

At least four banks recorded strong profitability in the following business lines: retail banking, vehicle financing, credit cards, corporate banking and investment banking.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 31

Q Will your business model change over the next three years?

If yes, what are the drivers of that change?

The three key drivers of change in relation to the Egyptian banks’ business model reflected marketplace developments in terms of increased customer demands, increased competition and new products.

Almost all the banks believe that they will need to change their business model over the next three years.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt32

Q Over the next three years the foreign banks’ market share relative to the big domestic banks will…

The Egyptian banks almost unanimously agree that the foreign-owned banks will increase their market share relative to the domestically-owned banks.

None of the banks foresee a decline in market share.

The same results were recorded for both the merchant and investment banking sector and the retail banking sector.

Commenting on the investment banking sector, the banks believed that the publicly-owned banks would lose market share to the foreign-owned banks.

Investment banks

Retail banksIn the retail banking sector it was felt that the overall retail market will grow and the foreign banks will increase their market share because of the new products they are expected to introduce and because of an improved level of service quality.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 33

Q How would you rate your bank’s level of preparedness for changes resulting from Basel II? (Where 5 is fully prepared)

����������������

�����������������

Several banks that responded to this question indicate that they had only made minimal progress in preparation for Basel II.

At the same time a handful of foreign-owned banks, following the direction of their parents, considered themselves to be “very prepared”.

As a result there is a clear dichotomy in the market between banks at the opposite ends of the preparedness scale.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt34

1 2 3 4 5

Corporate Banking CIB NSGB Barclays Bank Citibank/HSBC

Investment banking EFG Hermes HSBC CIB CitibankBarclays/

HC Securities

Foreign Exchange Trading CIB Arab Africa Citibank HSBC NBE

Money Markets CIB NBE Arab African NSGB Banque Misr/EAB

Retail Asset Management - Unit trusts

EFG Hermes CIB Banque Misr NSGB Citibank/HSBC

Retail Lending and Deposits NSGB HSBC Citibank CIB NBE

Retail Mortgages – Home Loans

Housing & Development Bank

Other banks mentioned included NSGB, EAB and NBE

Commercial Property Finance Banks mentioned included NBE, NSGB, CIB, Banque Misr, Citibank and HSBC

Vehicle Financing EAB NSGB CIB Contact Citibank/HSBC

Internet Banking HSBC Citibank NSGB CIB Barclays

Private Banking Barclays Bank HSBC Citibank EAB NSGB

Private Equity Investments EFG Hermes Citibank NBE HSBC CIB

Micro Lending Banque du Caire NBD NBE Banque Misr Al Watany

Egypt peer review

Q Can you name the top three banks in terms of success (performance, presence, momentum, etc.) across a variety of different markets?

A simple scoring method awarded 3 points to first place, 2 points to second place and 1 point to third place. This allowed the banks to be ranked based on a total score.

Banks were asked not to record an opinion unless they were active in that segment and were comfortable in providing an accurate ranking in terms of success (performance, presence and momentum) as opposed to mere size.

They were not permitted to rank their own institution. Often banks chose just to indicate first or second place.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 35

Source: Central Bank of Egypt

Total Assets USD Most recent year

National Bank of Egypt 21,276,�3� Dec-04

Banque Misr SAE 14,71�,510 Jun-04

Banque du Caire SAE 7,�40,4�� Jun-05

Bank of Alexandria 6,652,962 Jun-05

Commercial International Bank (Egypt) SAE 5,2�3,017 Dec-05

Arab International Bank 3,651,600 Jun-05

Egyptian Arab Land Bank 3,209,�5� Jun-04

National Societe Generale Bank SAE 2,902,3�7 Dec-05

MIBank-MISR International Bank SAE 2,�14,300 Dec-05

Principal Bank for Development and Agriculture 2,6�4,955 Jun-04

Faisal Islamic Bank of Egypt 2,546,�60 Dec-04

HSBC Bank Egypt SAE 2,334,05� Dec-05

Suez Canal Bank 2,239,227 Sep-05

Arab African International Bank 1,766,600 Dec-04

Egyptian American Bank 1,733,69� Jun-05

Misr Exterior Bank SAE 1,466,�29 Dec-00

National Bank for Development 1,3�3,673 Dec-04

Mohandes Bank 1,194,2�9 Dec-02

Al Watany Bank of Egypt 1,139,651 Dec-04

United Bank of Egypt 962,�22 Dec-02

Barclays Bank - Egypt SAE 950,954 Dec-04

Islamic International Bank for Investment & Development 794,�64 Dec-9�

Egyptian Saudi Finance Bank 732,735 Dec-04

BLOM Bank Egypt SAE 649,144 Dec-04

Calyon Bank Egypt SAE 627,940 Dec-04

The following table has been constructed from available data. Subsequent mergers and continuing consolidation will affect the size and ranking of these financial institutions.

Major banks in EgyptEgyptian banks ranked by asset size

Name of Bank Type of transaction and date of licensing

National Societe Generale Bank FonaBank (Nov 2002), Internet Banking Dec 2003)

Egyptian Gulf Bank Internet Banking (Dec 2002)

Arab Bank PLC Egypt Mobile - Phone Banking , Internet Banking (Dec 2002)

Commercial International Bank Phone Banking, E-CIB (Feb 2003), Internet Banking (Dec 2003)

Egyptian American Bank Phone Plus (Feb 2003), Smart Card (Dec 2004), Internet Banking (June 2005)

HSBC - Egypt Internet Banking, Phone Banking

Citibank Citi connect , Citi direct , Citibank On Line

Faisal Islamic Bank of Egypt Internet Banking (Mar 2004)

BNP Paribas le Caire Internet Banking (May 2004)

Misr International Bank Mobile Banking (Aug 2004)

e banks registered with the Central Bank of Egypt

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt36

‡‡

‡‡

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 37

Commercial banks: A) Public sector banks:

Banque Misr

Banque Du Caire

National Bank of Egypt

B) Private banks:

Bank of Alexandria

Commercial International Bank (Egypt) S.A.E.

Misr International Bank

Egyptian American Bank

Blom Bank Egypt *

BNP Paribas Le Caire

The Nile Bank

Suez Canal Bank

Piraeus Bank – Egypt **

Cairo Far East Bank

Delta International Bank

Faisal Islamic Bank of Egypt

Egyptian Saudi Finance Bank

Al Watany Bank of Egypt

National Bank For Development

United Bank of Egypt (U.B.E.)

Alexandria Commercial and Maritime Bank

Societe’ de Banque Port Said***

Egyptian Gulf Bank

HSBC Bank Egypt S.A.E.

Egyptian Workers Bank

1.

2.

3.

1.

2.

3.

4.

5.

6.

7.

�.

9.

10.

11.

12.

13.

14.

15.

16.

17.

1�.

19.

20.

21.

Key:

* Previously known, Misr Romania Bank. ** Previously known, Egypha Commercial Bank *** Previously known, Port Said National Bank for Development.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt3�

Non-commercial banks:

A) Public sector banks:

Specialised Banks:

Real Estate Banks: • Egyptian Arab Land Bank

Industrial Banks: • Industrial Development Bank of Egypt

Agricultural Banks: • Principal Bank for Development and Agricultural Credit • Bank for Development and Agricultural Credit for Upper Egypt • Bank for Development and Agricultural Credit for Lower Egypt

B) Private banks:

Business & Investment Banks: • Misr Iran Development Bank • Barclays Bank - Egypt S.A.E**** • Societe Arabe Internationale De Banque • Calyon Bank - Egypt S.A.E • National Societe Generale Bank • Federal Arab Bank For Development & Investment • Housing and Development Bank • Islamic International Bank for Investment and Development • Arab African International Bank • Arab Banking Corporation – Egypt (S.A.E) • Export Development Bank of Egypt

Branches of Foreign Banks: • Branches Dealing in Local & Foreign Currencies: • National Bank of Abu Dhabi • Citibank N.A. - Egypt • Arab Bank PLC • The Bank of Nova Scotia • Mashreq Bank PLC • National Bank of Greece • National Bank of Oman SAOG

1.

2.

3.

1.

2.

Branches ceased operations:

Bank of America National Association

Bank Saderat Iran

Lloyds Bank PLC

Credit Suisse First Boston

Middle East Bank Ltd.

BNP Paribas

1.

2.

3.

4.

5.

6.

Key:

**** Previously known, Bank Cairo Barclays.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Egypt 39

The following banks were removed from the CBE records :

Banca Intesa Spa on 1�/5/2004.

Misr Exterior Bank after merging into in Banque Misr on 16/9/2004.

The branch of Credit Lyonnais Bank after being merged on �/3/2005

Credit Agricole Indosuez – Egypt whose name was changed to Calyon Bank – Egypt on 3/4/2005.

The branch of American Express Bank after merging into the Egyptian American Bank (EAB ) on 2�/6/2005.

The Rafidain Bank – Cairo on 12/7/2005.

Jammal Trust Bank and the National Bank of Sudan on 2/�/2005.

Misr American International Bank after merging into the Arab African International Bank on 13/9/2005.

The Mohandes Bank after merging into the National Bank of Egypt on 5/10/2005.

Bank of Commerce and Development “AL Tigaryoon “ after merging into the National Bank of Egypt on 29/12/2005.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa4040 Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 41

Francophone West Africa(Sénégal and Côte d’Ivoire)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa42

The Central Bank of West African States (BCEAO) supervises and regulates approximately 70 banks in French-speaking Africa.

Almost half of this total is made up of banks in Sénégal and Côte d’Ivoire.

To conduct an examination of banking in French-speaking West Africa, a decision was taken to interview banks in both Sénégal and Côte d’Ivoire.

As a result, the findings in this section are based on interviews with eight banks; four based in Dakar, Sénégal and four based in Abidjan, Côte d’Ivoire. Where appropriate, responses have been separated to show those that are specific to either Sénégal or Côte d’Ivoire.

Member countries of the eight-country West African Economic and Monetary Union (WAEMU) have a common currency, the CFA Franc, which is issued by the BCEAO and is pegged to the Euro (see appendices).

Banking in SénégalThe banking sector dominates the Sénégalese financial system. The system is highly concentrated, with the top four institutions controlling over �0% of the market. There is a high level of foreign ownership, particularly by large French financial institutions.

There is government ownership in several large banks, including Banque internationale pour le commerce et l’industrie du Sénégal (BICIS) and Compagnie bancaire de l’Afrique occidentale (CBAO), and a majority shareholder in the agricultural bank Caisse Nationale de Credit Agricole du Sénégal (CNCAS), and Credit National du Sénégal.

According to the U.S. Department of Commerce, “A few French-owned banks with conservative lending guidelines and high interest and collateral requirements dominate bank lending.

The system is characterised by the over-liquidity of banks and their hesitancy to lend for medium and long-term loans”.

Banking in Côte d’IvoireThe Economist Intelligence Unit has said that banks have been closed since the start of the civil war in areas controlled by the rebels.

However, the U.S. Department of Commerce has noted that the financial system remains functional.

The government of Côte d’Ivoire maintains small minority stakes in several larger banks, but has divested its interest in many smaller banks.

Similarly to Sénégal, French financial institutions have a major presence in Côte d’Ivoire.

Participating banks:

BNP Paribas (Sénégal)

CBAO (Sénégal)

Citigroup (Sénégal)

SGBS (Sénégal)

BIAO (Côte d’Ivoire)

BICICI (BNP Paribas) (Côte d’Ivoire)

BNI (Côte d’Ivoire)

Standard Chartered Bank (Côte d’Ivoire)

Introduction

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 43

Economic crisis in Côte d’IvoireCôte d’Ivoire has suffered an economic breakdown since the civil war broke out in September 2002. Prior to the war, the country had benefited from relative economic prosperity due to its cocoa production, the largest in the world. But as international prices for cocoa fell and the war progressed, the economy began a rapid decline.

By 2004, the government had defaulted on loan repayments to institutions such as the World Bank, The International Monetary Fund and the African Development Bank.

These institutions consequently put a hold on all additional funding until the country implemented economic reforms. Côte d’Ivoire’s arrears to the World Bank total nearly $200 million. (UN Website August 2006).

Background on participants

Employment

The eight participant banks employ 2,�34 people. The four banks in Sénégal employ 1,592 and this will increase by 10% to 1,752 by 2010. The four banks in Côte d’Ivoire employ 1,242 and this will increase by 9% to 1,355 by 2010. The largest bank in Sénégal employs 750 people while the largest bank interviewed in Côte d’Ivoire employs just over 500 people.

Branches

The eight banks surveyed branch total was 152 increasing to 206 by 2010. Sénégal’s banks expect a 35% increase from 96 branches to 130 branches by 2010 while Côte d’Ivoire predicts an identical percentage increase of 35% from 56 branches to 76 branches.

ATMs

Sénégal expects its ATM base for the four participants to expand by 42% from 99 to 141 while Côte d’Ivoire expects an �4% increase from 62 to 114 ATMs by 2010.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa44

Q In your view, what is the level of intensity of competition in the following markets, and how do you expect this to affect your competitive response?

Note: Based on responses from 6 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

33% 33% 34% 100%

33% 33% 34% 100%

Minor change

Significant opera-tional and organisational change

Fundamental change in strategy and positioning

No change

Response

Home loansThis sector is considered to be moderately competitive.

It appears to be relatively static in terms of strategic change, since two thirds of the banks acknowledge that they have made minor or no changes.

Note: Based on responses from 6 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

33% 33% 66%

17% 17% 34

50% 50% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Retail bankingThe retail sector is considered to be very competitive and the respondents have made significant or fundamental changes to strategy.

Market competitionThe following charts illustrate how companies perceive the level of competition in six different segments of their business, and then how they have organisationally responded to that competition.

Where segments have attracted responses from more than 20% of respondents, they have been shaded in grey.

Total

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 45

Note: Based on responses from 5 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

20% 20% 40%

20% 40% 60%

20% 40% 20% 20% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Vehicle financingWhile two respondents consider vehicle financing to be intensively competitive and both have made major changes, the remaining three banks view competition as light and have made minor or no change.

Note: Based on responses from 7 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

14% 43% 57%

14% 29% 43%

14% 14% 72% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Internet bankingThe chart indicates that the internet banking market is intensively competitive and 72% of banks have made fundamental changes over the last year.

Corporate bankingCorporate banking is considered the most competitive market segment of the business segments examined. Despite the competitive environment, most banks have made minor or no change to strategy.

Total

Total

Note: Based on responses from � banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

13% 3�% 75%

13% 13%

12% 12%

14% 38% 38% 100%

14%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa46

Merchant and investment bankingThis sector is viewed as being only moderately competitive and no banks have made fundamental changes in the last year. Three banks have made no changes to strategy while a similar number have made significant changes.

Note: Based on responses from 7 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

15% 14% 29%

2�% 29% 57%

14% 14%

42% 15% 43% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 47

Q What are the most important developments taking place in French West Africa’s financial market?

Sénégal

Increased competition

The entrance of more foreign banks and new competitors in segments such as micro finance has made the market very competitive. However, one participant estimated that only 7% of Sénégalese have a bank account.

High bank liquidity

Although there is high liquidity in the market, banks interest rates are also very high.

Côte d’Ivoire

New banks

A number of new African-owned banks have emerged in the last couple of years and this has created greater competition in the corporate and retail sectors.

Competitive market

The addition of several new banks combined with the economic constraints means that it is a very tight market.

Oil resource developments

One participant commented that as a result of the discovery of significant reserves, oil will become as important in the future economy of Côte d’Ivoire as cocoa (the government remains optimistic that ongoing exploration of offshore oil reserves will result in significant production increases that could lift crude oil output from around 33,000 barrels per day (b/d) to over 200,000 b/d by the end of the decade).

Civil war

Several participants commented that the country is “at war” and as a result no important developments will take place until the current political crisis is resolved. When this occurs there will be new opportunities in agriculture (mainly coffee and cocoa) and public works (reconstruction and new housing developments).

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa4�

Q Can you identify three major criticisms of French West African banking at present?

Sénégal

Urban locations

Banks are located in the major cities but non-existent in the rural areas.

Low savings rates

As a result of the low savings rate most people are unable to purchase a house or car through savings.

High interest rates

Borrowing rates are considered to be high.

Côte d’Ivoire

Foreign management

Many of the banks are foreign-owned and consequently apply “head office” policies and procedures, which may not be appropriate to West Africa.

Limited risk taking

Banks require too many guarantees. There is very little risk taking by the banks. Most sectors of the economy are not financed by the banks.

Small and medium-sized businesses

The banks inadequately service the SME sector. Some of the recently created banks have focused their attention on the SME sector.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 49

Sénégal

In Sénégal the feeling was that there would be further consolidation among existing banks, but that new players will continue to enter.

Côte d’Ivoire

Opinion was split on consolidation in Côte d’Ivoire.

One bank pointed out that the presence of the “Big Three” French banks made this difficult, although one bank predicted that by 2010 there would be 10 to 12 banks.

Sénégal

In Sénégal there are 12 banks and all four participants said the market was overcrowded.

In Sénégal one bank commented that the presence of specialised banks in agriculture and housing added to the degree of competition in these specific markets. Another Sénégalese bank commented that new banking entrants had arrived from Côte d’Ivoire, Morocco and Malaysia.

Côte d’Ivoire

With 16 banks in Côte d’Ivoire, three of the four participants said the market was overcrowded.

Q Do you believe the banking market in Francophone West Africa is overcrowded?

Q Will there be further consolidation?

Q On a scale of 1 to 5, where 5 is very receptive, how receptive is the reformed banking system to the creation of new specialised or niche banks?

No

Yes

Based on responses from 8 banks

No

Yes

Based on responses from 5 banks

Sénégal

In Sénégal opinions were mixed on the creation of new banks; they ranged from 2 to 5.

Côte d’Ivoire

In Côte d’Ivoire the market was viewed as very receptive. One bank commented that the economy needs a lift and none of the sectors are fully financed.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa50

Q How will the needs of the retail customer of 2010 differ from the needs of the customer today?

Q On a scale of 1 to 5, where 5 is very important, how important is consumerism in Francophone West Africa banking?

Sénégal

One Sénégalese bank commented that the profile of the customer will be very different in 2010. They said that only 7% of the population currently have bank accounts and the goal was to increase that to 15%.

Côte d’Ivoire

In Côte d’Ivoire respondents commented that it was hard to predict what might happen in three months let alone three years.

But if 2010 was deemed to be postwar there would be great need for small business services and significant individual/consumer demand for financial services. Credit cards and pension funds would be two areas of future growth.

Sénégal

Opinions tended toward the low end of the scale in Sénégal. One bank commented on the high margins in Sénégal.

Côte d’Ivoire

Côte d’Ivoire banks expressed similar views, although one bank rated it 4 out of 5.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 51

Q What are the major drivers of change in the Francophone West Africa banking industry today?

Q What are the major threats that banking in Francophone West Africa is currently facing?

0

10

20

30

40

50

Conve

rgenc

e

Commod

itisati

on

Mergers

/Con

solid

ation

Globali

satio

n

Securi

tisati

on

Econo

mies of

Sca

le

Capita

l Mark

ets

Disinte

rmed

iation

Foreign

Entr

ants

New D

omes

tic E

ntran

ts

Tech

nolog

y

Based on responses from 8 banks

0 1 2 3 4 5 6 7 8 9 10Brain Drain

Labour laws

AIDS

Exchange controls

New entrants from other parts of the financial services industry

Banking sector reformsPreviously unbanked market

Face of technological changeCrime

Fee and service chare erosionCurrent competition

Legal constraints

Compliance and regulatory constraintsEconomic downturn

Number of banks

Technology is considered the most important driver of change in the banking sector, followed by the arrival of both domestic and foreign entrants.

Most of the other drivers of change such as mergers and consolidation are considered to be of limited significance.

An economic downturn is the most recognised threat to banks, followed by five equally scored secondary threats, which include compliance and

regulatory constraints, legal constraints, competition, fee and service charge erosion and crime.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa52

Q What are the most pressing issues you face?

Can you rate them from 1 to 5?

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Consumer Credit Legislation (if applicable)Rogue trader

Banking sector reforms

InsuranceLiquidity of banksUnderstanding complex productsGlobalisationMarket volatilityBusiness continuation

Increasing competition from non banksConsolidation of financial services industryHigh dependence on new technologyIncreasing competition from foreign banksBanking for the previously unbankedBasel II

Operational risk management

Introducing New Information TechnologyLegal risks

Quality of loan books (credit risk)Internet Security risks

Building a customer baseAppropriate staff incentive schemes

Lack of adequate financial disclosure by bank's clientsAddressing new compliance & regulations

Economic downturnRetaining existing clients

Increasing competition from domestic banksProfit performance

Client focusIncreased competition

Recruiting/training front office staffImproving revenue growth

Service quality

Based on responses from 8 companies unless noted

increasing importance-1.5

The top three most important pressing issues are service quality, improving revenue growth and recruiting and training front-office staff. Profit performance is in joint fifth position.

At the other end of the scale the banks are under no immediate pressure from banking sector reforms, liquidity or globalisation.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 53

Q How successful has your bank been in penetrating the following markets in the last year?

1

2

3

4Micro lending (2)

Vehicle financing (4)

Structured products (5)

Insurance - short-term (2)

Insurance - life (2)

Stock Brokerage (1)

Foreign Exchange (6)

Private Banking (4)

Asset Management (4)

Capital Markets (5)

e Banking (7)Unit trusts (1)

Mortgages - home loans (4)

Retail Deposit Taking (6)

Credit Cards (6)

Retail Lending (6)

Commercial Lending (6)

Treasury (6)

Property Finance- Commercial property (5)

Structured Finance- Projects (2)

Structured Finance- Tax (3)

Corporate Finance-Privatisations (2)

Corporate Finance- Listings (2)

Corporate Finance- M&A (2)

Two market segments where the banks have enjoyed success are treasury and foreign exchange.

On the retail side they also recognise success in retail lending and deposit taking and e-banking, although credit cards have underperformed.

Structured finance has been a successful area for a small number of banks and commercial lending received a positive score from six banks.

Micro lending received a very low score based on a response from just two banks.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa54

Q Can you score, on a scale of 1 to 5, the importance of each of these markets for your bank over the next three years?

1

2

3

4Structured products (5)

Insurance - Short-term (5)

Insurance - Life (5)

Stock Brokerage (3)

Foreign Exchange (7)

Trust Services (2)

Private Banking (5)

Asset Management (4)

Capital Markets (5)

Unit Trusts (3)

Mortgages - Home Loans (5)

Retail Deposit Taking (6)

e banking (7)Micro-lending (5)

Vehicle Financing (6)

Credit Cards (6)

Retail Lending (6)

Commercial Lending (6)

Treasury (7)

Property Finance- Commercial property (6)

Structured Finance- Projects (4)

Structured finance - Tax (3)

Corporate finance- Privatisations (4)

Corporate finance - Listings (4)

Corporate finance- M&A (3)

Areas that will be more important in the next three years are commercial lending, credit cards and mortgages-home loans.

Foreign exchange, treasury, structured products, e banking, retail lending and retail deposit taking will continue to be very important segments.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 55

Q How important is outsourcing at present and will it be in 2010?

Q What will the role of branches be in 2010?

Will “traditional” branches increase?

0

1

2

3

4

5

6

2010

2006

Very S

ignific

ant

Signific

ant

Modera

teMino

rNon

e

��������������

The number of branches will increase by 2010. They will be operated more as sales outlets and they will continue to be important as a source of low cost funding.

One bank in the Côte d’Ivoire indicated that some of their branches may be relocated.

Outsourcing will increase in importance by 2010. Two banks predict it will be very significant by 2010.

Furthermore, three banks that believe it is of minor importance today, upgraded their response to moderate importance by 2010.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa56

Q What is your estimate of the annual growth in revenues of your business for 2006 and over the next four years?

0 5 10 15 20 25 30 35 40 45 500

5

10

15

20

25

30

35

40

45

50

Expected annual growth rate in 2010

Exp

ecte

d an

nual

gro

wth

rate

in 2

006

Most of the banks in both Sénégal and Côte d’Ivoire anticipate annual growth rates of below 20% in both 2006 and 2010.

Two Côte d’Ivoire banks deviated from the group. Both anticipate 50% growth in 2006 and strong growth will continue for one of these banks in 2010.

Two Sénégalese banks project less than 10% revenue growth in both 2006 and 2010.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 57

Q Over the last year what have your bank’s profits been, in terms of capital allocated, in each of the following lines of business?

Retail banking

Loss <0% Marginallyprofitable

0-10%

Profitable10-20%

VeryProfitable20-30%

ExtremelyProfitable

>30%

Home loans

Vehicle financing

Credit cards

Corporate banking

Merchant and investment banking

Treasury

Internet banking

Individual banks

Private banking

Asset management &unit trusts

Life insurance

Commercial property financing

Microlending

Brokerage

There are no market segments that stand out in terms of profit performance.

Retail banking has three banks that indicated they were very profitable, but ten business lines have banks that are only marginally profitable.

One bank indicted that its corporate banking activity was not profitable, while two banks said it was very profitable and one bank recorded extremely profitable.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa5�

Q Will your business model change over the next three years?

If yes, what are the drivers of that change?

No

Yes

Based on responses from 8 banks

0 1 2 3 4 5 6IT costs

Development of the outsourcing market

Parent bank strategy changes

Regulatory change

State of the economy

Product changes

Increasing Customer Demands

Increasing competition

Number of banks

Only three of the eight respondents said their business model would not change over the next three years. This included one bank in Sénégal and two banks in Côte d’Ivoire.

The sense of growing competition allied with increasing customer demands and product changes mean that banks would be required to amend their business model over the next three years.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 59

Q Over the next three years the foreign banks’ market share relative to the big domestic banks will…

Q How would you rate your bank’s level of preparedness for changes resulting from Basel II? (Where 5 is fully prepared)

Investment banks

Retail banks

The respondents were divided on their prediction of foreign banks’ market share in the investment banking sector. Three banks forecast it would remain the same, while three thought that it would increase and one believed it would decrease.

Three banks suggested that market share of the foreign banks in the retail banking sector would remain the same over the next three years, while two banks indicated an increase and two banks indicated a decrease.

Strategic Issues

VeryUnprepared Prepared

VeryPrepared�

Credit risk management

Operational riskmanagement

Regulatory review

Market discipline

NA1 2 3 4 5

Many of the respondents indicated that they warranted a score of 4 out of 5 on the Basel II preparedness scale.

However, at least one bank was less positive and recorded a score of just 1 out of 5 on the Regulatory Review scale.

The areas where the banks suggested they were best prepared were Strategic Issues and Credit Risk Management.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa60

1 2 3

Corporate Banking Société Générale BS CBAOCredit Lyonnais & BICIS

Investment banking NA

Foreign Exchange Trading CBAO Société Générale BS Credit Lyonnais

Money Markets NA

Retail Asset Management - Unit trusts

NA

Retail Lending and Deposits Société Générale BS CBAO Credit Lyonnais

Retail Mortgages – Home Loans

BHS Société Générale BS CBAO

Commercial Property Finance CBAO BHS BICIS

Vehicle Financing Société Générale BS CBAO BHS

Internet Banking Société Générale BS BICIS CBAO

Private Banking Société Générale BS CBAO

Micro Lending CMS PAMECAS UNACOIS

Sénégal and Côte d’Ivoire peer review

Sénégal

Q Can you name the top three banks in terms of success (performance, presence, momentum, etc.) across a variety of different markets?

A simple scoring method awarded 3 points to first place, 2 points to second place and 1 point to third place. This allowed the banks to be ranked based on a total score.

Banks were asked not to record an opinion unless they were active in that segment and were comfortable in providing an accurate ranking in terms of success (performance, presence and momentum) as opposed to mere size.

They were not permitted to rank their own institution. Often banks chose just to indicate first or second place.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 61

1 2 3

Corporate Banking Société Générale BNP and BICICI Ecobank

Investment banking Société Générale BICICI Ecobank

Foreign Exchange Trading Société Générale BICICI Ecobank & Citibank

Money Markets Société Générale Citibank & BICICI Ecobank & BIAO

Retail Asset Management - Unit trusts

NA

Retail Lending and Deposits Société Générale Citibank & BICICI Ecobank & BIAO

Retail Mortgages – Home Loans

Société Générale SIB BIAO & BICICI

Commercial Property Finance Société Générale BICICI SIB

Vehicle Financing BICICISociété Générale & SAFCA

Safbail

Internet Banking BNP ParibasBICICI & Société Générale

Ecobank & SIB

Private Banking Société Générale BOA (Bank of Africa)BICICI, BNP Paribas & SIB

Micro Lending BRS COOPEC

Key to bank names in Sénégal and Côte d’Ivoire

Sénégal

Société Générale de Banques au Sénégal (SGBS)

Banque d’Habitat du Sénégal (BHS)

Banque Internationale pour le Commerce et L’Industrie du Sénégal (BICIS), (BNP Paribas)

Compagnie bancaire de l’afrique Occidentale (CBAO)

Credit Mutual of Sénégal (CMS)

Union of Partnership of Mutuals for Mobilisation of Credit in Sénégal (PAMECAS)

Credit Lyonnais (CL)

Union of Partnership of Mutuals Credit (UNACOIS)

Côte d’Ivoire

Banque Internationale pour l’Afrique Occidentale (Belgolaise du Group Fortis) BIAO

Banque Internationale pour le Commerce et l’Industrie en Côte d’Ivoire (BICICI–BNP Paribas)

Banque Regionale de Solidarite (BRS)

Societe Africaine de Credit Bail (Safbail) (Safca 55%; Renault Credit 20%)

Societe Ivoirienne de Banque (SIB) (Credit Lyonnais)

Coopérative d’Épargne et de Crédit (COOPEC)

Côte d’Ivoire

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa62

2004 Cfa Millions

* Capital * Total Assets

Société Générale De Banques Au Sénégal (S.g.b.s) 4,52� 376,45�

Compagnie Bancaire De L’afrique Occidentale (C.b.a.o) 9,000 331,0�0

Banque Internationale Pour Le Commerce Et L’industrie Du Sénégal (B.i.c.i.s) (Bnp Paribas)

5,000 221,709

Banque De L’habitat Du Sénégal (B.h.s) 1,650 155,4�2

Credit Lyonnais - Sénégalais (C.l.s) 2,000 116,193

Banque Sénégalo - Tunisienne (B.st) 4,200 92,377

Caisse Nationale De Credit Agricole Du Sénégal (C.n.c.a.-s) 2,300 ��,233

Citibank - Sénégal 2,262 62,330

Ecobank - Sénégal 2,413 51,966

Banque Islamique Du Sénégal (B.i.s) 2,706 42,702

Bank Of Africa - Sénégal (B.o.a -sénégal) 2,000 30,157

Banque Sahelo-saharienne Pour L’investissement Et Le Commerce (B.s.i.c)

2,000 4,353

* Source BCEAO Website And Individual Bank Results

Banks in Sénégal 2004

Banks in Côte d’Ivoire 2004

2004 Cfa Millions

* Capital * Total Assets

Société Générale De Banques En Côte D’ivoire (S.g.b.c.i) 15,556 412,420

Banque Internationale Pour Le Commerce Et L’industrie De Côte D’ivoire (B.i.c.i.c.i) (Bnp Paribas)

16,667 276,433

Banque Nationale D’investissement (B.n.i) 20,500 269,663

Biao - Côte D’ivoire (B.i.a.o-ci) 10,000 1�5,952

Societe Ivoirienne De Banque (S.i.b) 4,000 141,520

Ecobank - Côte D’ivoire 3,226 132,395

Bank Of Africa - Côte D’ivoire (B.o.a- Côte D’ivoire) 2,500 105,912

Citibank -côte D’ivoire (Citibank-ci) 6,565 96,419

Standard Chartered Bank - Côte D’ivoire 15,300 �1,353

Banque Atlantique - Côte D’ivoire (B.a.ci) 7,000 63,�93

Versus Bank 3,000 51,733

Omnifinance 2,4�� 42,397

Compagnie Bancaire De L’atlantique - Côte D’ivoire (Co.b.a.c.i) 3,002 35,260

Banque De L’habitat De Côte D’ivoire (B.h.ci) 1,755 35,017

Banque Pour Le Financement De L’agricultutre (B.f.a) 2,000 15,7��

Cofipa Investment Bank - Côte D’ivoire (C.i.b.c.i) 3,000 9,61�

* Source BCEAO Website And Individual Bank Results

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 63

The Central Bank of West African States (BCEAO) oversees banks and financial institutions conducting activities in the member States of the West African Economic and Monetary Union (WAEMU).

These relations mainly fall within the scope of the functions performed by BCEAO as far as the supervision of the banking sector and the control and distribution of credit are concerned.

Composition of the WAEMU Eight groups dominate the WAEMU banking system through 25 establishments with relatively wide national networks. They are:

the affiliated branches of the “Société Générale”, based in Sénégal and Côte d’Ivoire;

the partners of the Banque Nationale de Paris (BNP), based in Burkina, Côte d’Ivoire, Mali, Sénégal and Togo;

the branches of the “Crédit Lyonnais”, established in Benin, Côte d’Ivoire, Mali and Sénégal;

the branches of Citibank-NA, based in Côte d’Ivoire and Sénégal;

the banks of the group Bank of Africa (BOA), established in Benin, Burkina Faso, Côte d’Ivoire, Mali and Niger;

the Ecobank group, which has four entities in Benin, Burkina, Côte d’Ivoire, Mali and Togo;

the banks created in partnership with Libya, in Burkina, Mali, Niger and Togo; and

affiliated bank of the Financial B.C. Group in Benin.

Banking LawThe Banking Law provides a definition of banks and financial institutions, and of the credit and investment activities they offer. It specifies the conditions of entry and determines the obligations that must be met by banks and financial institutions in the execution of their operations. The Banking Law defines the scope of the control exerted by the Central Bank and the Banking Commission, and spells out the rules governing the Monetary Union and the sanctions applicable in case these rules are not respected.

Banks and financial institutions must be authorised and registered on the list of banks and financial institutions to be able to operate. This authorisation is granted by the Minister of Finance after BCEAO has examined the application and the WAEMU Banking Commission has certified its conformity with applicable laws.

The conditions of approval are mainly based on :

the name;

the legal status of the establishment;

the minimum capital, which stands at CFA 1 billion for banks throughout the States, whereas that of financial institutions is CFA 300 million in Côte d’Ivoire and Sénégal, and CFA 100 million in the other States;

the adequacy between the resources and objectives of the establishment to be created;

the quality of shareholders;

the worthiness and experience of managers; and

an activity programme showing the viability of the operation.

Central Bank of West African States(BCEAO)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa64

In order to enable all banks and financial institutions of the Union to have access to the banking market of each member State, in optimal competition conditions, the Council of Ministers of the Union decided, at its meeting held on 3rd July 1997, to adopt the principle of unique approval. Thus, as from 1st January 1999, any bank or financial institution duly authorised by a State of the Union, may carry out a banking or financial activity in the other States of the Union, and provide services of the same nature in any other area in the Union, without having to request new authorisations.

Source: BCEAO and WAEMU

Banks Financial Institutions

Benin 9 2

Burkina Faso � 5

Côte d’Ivoire 16 2

Guinea-Bissau 2 0

Mali 10 4

Niger � 1

Sénégal 12 3

Togo 7 4

WAEMU Total 72 21

Source: BCEAO

Banks in WAEMU December 2004

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Francophone West Africa 65

Countries: Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Sénégal and Togo. Two countries – Côte d’Ivoire and Sénégal – dominate the economy, accounting for over half of GDP and most of the internal trade. The UEMOA region has a population somewhat smaller than the East Africa Community (76 million in 2003), and a GDP slightly larger ($37 billion in 2003).

BackgroundPatterned after the European Union, with a Commission located in Ouagadougou in Burkina Faso financed by a share of a one percent levy on all imports into UEMOA. The Commission is leading efforts to establish a customs union, harmonise investment incentives, public financial management procedures, and taxation, and monitor key macro-economic convergence criteria – including fiscal deficits, inflation, public sector wages, and government arrears.

A common currency – the CFA FrancThe West African CFA franc (XOF) , known in French as the Franc CFA, where CFA stands for Communauté financière d’Afrique (“Financial Community of Africa”). It is issued by the BCEAO (Banque Centrale des États de l’Afrique de l’Ouest, - “Central Bank of the West African States”), located in Dakar, Sénégal, for the eight countries of the UEMOA.

The CFA franc has a fixed exchange rate with the euro (1 euro = 655.9� XOF), and is guaranteed by the French Treasury.

WAEMU institutions include:

a common central bank – BCEAO;

a Regional Banking Commission, and regional Stock Exchange since 199�, and a partially functioning Securities Exchange Commission;

BOAD (Banque Ouest Africaine de Développement) which is considered an independent, specialised institution under the UEMOA treaty; and

institutions also include a Court of Justice, a General Accounting Office, regional Chamber of Commerce, and, eventually, a Parliament, none of which is fully functioning.

The Commission consists of a President (always from Sénégal) and eight commissioners (one from each country), three dealing with macro policy (public finance, trade, macro-economics) and five others dealing with sectoral policies.

A future West African Monetary Zone may lead to further expansionThe English speaking states of Gambia, Ghana, Nigeria, and Sierra Leone, and the francophone state of Guinea, have formed the West African Monetary Zone (WAMZ) and plan to introduce a common currency, the ECO, on 1 December 2009. Liberia is also expected to join this monetary zone, and the ultimate goal is to unite the UEMOA and the WAMZ to form a single West African monetary zone.

However, the five WAMZ countries were unable to meet the convergence criteria at the July 2005 deadline.

WAEMU-West African Economic and

Monetary Union (UEMOA)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya6666 Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya 67

Kenya

Morocco

Algeria

unisia

EgyptLibya

MauritaniaMali

Senegal

Guinea

Gha

na

SudanNigerChad

Nigeria

BurkinaFaso

Togo

Ben

in

Sierra Leone

Guinea Bissau

Cameroon

Ethiopia

Somalia

CentralAfrican Republic

Gabon Congo

DemocraticRepublicof Congo

Uganda

Kenya

Tanzania

AngolaZambia

Malawi

Moz

ambi

que

ZimbabweNamibia

Botswana

SouthAfrica

Lesotho

Swaziland

Liberia

Mauritius

Rwanda

Burundi

EritreaDjibouti

Equitorial Guinea

Gambia

Cape Verde

ComoresMayotte

Mad

agas

car

T

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya6�

There are 45 banks in Kenya in June 2006. Most banks are small to medium-sized and locally owned. The industry is, however dominated by three large banks, two of which are foreign-owned (Barclays Bank and Standard Chartered Bank). Seven of the major banks are listed on the Nairobi Stock Exchange. Several of the foreign banks also have partial local ownership.

The commercial banks and non-bank financial institutions offer corporate, commercial and retail banking services, although several large banks also provide investment banking services.

The Economic Recovery Strategy developed by the new government (2003) seeks to generate economic recovery and provide sustainable growth. It has indicated that financial sector reform is crucial through the privatisation of the banks and an improved lending environment.

The World Bank has assisted Kenya with a Financial Sector Reform Credit (FINSRC), the objective of which is to:

increase the soundness and resilience of the Kenyan financial system;

improve the governance of the financial system;

improve the depth, breadth and efficiency of the system; and

reduce opportunities for the large

Introduction

Participating banks:Barclays Bank

CBA

CFC

Cooperative Bank of Kenya

Equity Bank

Kenya Commercial Bank

National Bank

NIC

Stanbic

Standard Chartered Bank

scale misallocation of financial resources.

Specifically the World Bank has committed $30m (KSh 2.1billion) to help the Kenyan government privatise the National Bank of Kenya (NBK) (70.5% government owned) and the Consolidated Bank of Kenya (wholly owned by government) by the end of 2006. The Kenyan government is NBK’s major debtor, with total debt of KSh. 16.6bn

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya 69

Kenyan banks regional expansion plans

In 2006 Kenya’s largest retail bank Kenya Commercial Bank (KCB) opened branches in Juba and Rumbek in southern Sudan and announced plans to open several additional branches. KCB is also exploring the possibility of establishing subsidiaries in Uganda, Rwanda and Burundi. Added to their existing operation in Tanzania the bank believes these moves will increase its footprint in Greater East Africa. KCB has said publicly that its initial focus in southern Sudan would be transactional banking, including foreign exchange and cash management.

“Achievements, Challenges and Policy Directions for the Banking Sector in Kenya”“I see three main pillars which constitute the vision for our banking sector in Kenya:

the achievement of a sound legal framework for the banking sector;

the achievement of an efficient and stable financial sector; and

increased access to financial services.

We do recognise the shortcomings in our legal framework and are embarking on a full review of our banking law with a view to addressing the gaps, inconsistencies and deficiencies in our legislation. With regard to efficiency, we aim to achieve a more competitive financial sector. The publication of bank charges and fees which we have been doing will continue to be our preferred mode of empowering the bank customers to make informed choices on which institutions they bank with. We believe continued publication of charges and fees will enhance competition in the provision of products and services. And in order to provide for a steady increase to access in financial services, we shall be working with stakeholders in the microfinance sector to develop appropriate methods of financial services delivery as well as regulation appropriate for supporting this effort.”

Central Bank of Kenya

1.

2.

3.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya70

The Kenyan banking sector is in a period of transition as it progresses toward increased competition, improved efficiency, greater stability, more transparency, wider access and market consolidation.

In its 2005 Annual Supervision report the Central Bank stated that:

“In order to harmonise the Banking Act with recent developments in the banking sector and to keep abreast with international best practices, a comprehensive review of the Banking Act will be undertaken with technical assistance from Financial and Legal Sectors Technical Assistance Project (FLSTAP) under the auspices of the World Bank. The revision process is expected to be conducted in the year 2006.”

Employment

Nine of the ten banks provided employment data. In total the banks employed �,�50 people in 2006 and this will increase marginally to 9,041 by 2010. One bank envisaged a 20% decline in employment, while three others predicted a zero increase.

Two banks predicted buoyant growth – one growing by 66% and the other by 10% over the next three years.

Branches

The ten participating banks have 356 branches at present and predict

that this will expand by 27% to 452 branches by 2010. Two banks within this group plan to add over twenty new branches by 2010. In addition one smaller bank forecasted a 150% increase to 20 branches by 2010. All ten banks envisaged the addition of new branches.

ATMs

Eight of the ten banks provided data on ATMs. Together the banks account for 349 ATMs and this is expected to increase by 59% to 556 ATMs by 2010.

Retail customers

Nine banks provided information on retail customers. They expect the current base of 1.7 million customers to more than double in size to 3.64 million by 2010. Many of the participants anticipated significant growth, the percentage increases ranged from 33% to 400%. In the investor briefing associated with its listing on the Nairobi Stock Exchange, Equity Bank stated that it forecast growth in customer numbers from 751,000 in June 2006 to 1 million by December 2006. It noted that it was acquiring customers at the rate of 30,000 monthly.

Background

In February 2007 Barclays Bank announced plans to increase the number of branches from 62 to 101 and add �4 new ATMs in 2007.

Source: Reuters

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya 71

Q In your view, what is the level of intensity of competition in the following markets, and how do you expect this to affect your competitive response?

Market competitionThe following charts illustrate how companies perceive the level of competition in six different segments of their business, and then how they have organisationally responded to that competition.

Where segments have attracted responses from more than 20% of respondents, they have been shaded in grey.

Retail bankingThe retail sector is considered to be intensely competitive.

Two banks have made fundamental changes to their strategy in the last year while the remaining eight banks have made significant changes.

Home loansMost banks view the home loan market to be moderately competitive although two banks viewed the competition to be light.

Three of the eight responding banks said they had made minor or no change to strategy.

Note: Based on responses from � banks

Intensive

Moderate

Light

None

Total Com

pet

ition

25% 75%

25%

24% 13% 38% 25% 100%

3�%12%

13%12%

Minor change

Significant opera-tional and organisational change

Fundamental change in strategy and positioning

No change

Response

Note: Based on responses from 10 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

70% 20% 90%

10% 10%

80% 20% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Total

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya72

Vehicle financingMost banks consider the vehicle financing market to be moderately competitive. The stability of the market is indicated by only one bank that has made a fundamental change to strategy.

Note: Based on responses from � banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

12% 12%

50% 12% 13% 75%

13% 13%

50% 37% 13% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Note: Based on responses from 10 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

10% 10% 20%

10% 10%

10% 20% 40% 70%

10% 30% 50% 10% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Note: Based on responses from 10 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

10% 60% 20% 90%

10%

20% 60% 20% 100%

10%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Total

Total

Total

Internet bankingSeven of the ten respondents believe internet banking to reflect light competition.

However, half the banks have made significant changes over the last year.

Corporate bankingCorporate banking, together with retail banking, represents the most competitive market sectors. Nine banks viewed them as intensively competitive and eight banks have made significant or fundamental changes.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya 73

Merchant and investment bankingMerchant and investment banking is considered intensively competitive by four banks, while two banks have made fundamental changes.

Note: Based on responses from 10 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

20% 20% 40%

40%

10% 20%

10% 30% 40% 20% 100%

20% 20%

10%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya74

Q What are the most important developments taking place in Kenya’s financial markets at present?

New business areasThere has been expansion into previously undeveloped market segments such as SMEs and micro lending. There has been much more emphasis on automation with new ATMs and the introduction of Visa-branded cards.

Consumer focusThere has been a shift of focus on the consumer with the introduction of some new retail products. There has been a major expansion of lending to individuals in employment through mortages and consumer loans.

Retail bankingThere has been an aggressive expansion into the retail banking sector by several banks not previously active, such as KCB, Cooperative Bank and Equity Bank. Banks are expanding their branch networks to capture lower cost retail deposits.

Nairobi Stock ExchangeThe market has become much more active with the addition of new shareholders through Initial Public Offerings (“IPOs”) such as Eveready East Africa, KenGen (Kenya Electricity Generating Company) and the Mumias Sugar Company. There are more IPOs in the pipeline with KenGen2 expected. Individual investors are taking much greater interest in investment opportunities.

ConsolidationThere has been a tendency to consolidate, particularly among the second-tier banks.

There are rumours of mergers between larger banks and a suggestion that a foreign bank may make an acquisition.

Improvements in governance and the legal and regulatory environmentSeveral banks (including foreign banks) are looking at public sector lending because of recent improvements in the level of governance.

The establishment of commercial courts over the last three years has improved the lending environment and reduced the time taken to resolve cases of default.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya 75

Q Can you identify three major criticisms of Kenyan banking at present?

Too many banksParticipants believe that there are too many for Kenya and that the barriers to entry are too low. On a more positive note, several banks observed that some larger banks were now well capitalised.

Unbanked marketOne bank acknowledged that there was a concentration of banks in the urban areas and that the rural areas were under-served. Another noted that the banks had not attempted to mobilize the unbanked market majority. There has been a reluctance to lend to SMEs (small and medium-sized enterprises).

Industry fragmentationIt was felt that the banks do not work closely together in the Kenya Banker Association and have in the past not been fully open with each other.

Limited market informationThere has been a lack of regulation around credit reference bureaus which has made it difficult for banks to share information.

Asset lendingThere has been an over-emphasis on the use of collateral. Historically banks have placed a major emphasis on physical security. On the corporate side they have often overlooked cash flows and the viability of projects. This is changing with a growth in unsecured lending.

Lack of transparency on pricingBanks have not provided transparent pricing. Comparisons have been difficult to make and they have often adopted a homogeneous approach.

Regulatory uncertaintyThere continues to be a lack of clarity on the bank application of Section 44 of the Bank Act relating to bank charges and the implications of the induplum rule. It is felt that the government needs to take bold steps to remove this uncertainty.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya76

No

Yes

Based on responses from 10 banks

No

Yes

Based on responses from 9 banks

Q Do you believe the banking market in Kenya is overcrowded?

Q Will there be further consolidation?

Q On a scale of 1 to 5, where 5 is very receptive, how receptive is the reformed banking system to the creation of new specialised or niche banks?

Seventy percent of respondents believe the banking market is overcrowded. While most banks expect consolidation, one bank pointed out that the banked population is around 2 million within a country population of 32 million.

One banker estimated that the top ten banks compete for over �0% of the market, while the remaining group share 20% of the market.

A large majority of participants anticipate a reduction in the number of banks to around 30. One bank,

however, thought it may be possible to have 60 banks with expansion in the rural areas. Another bank expressed pessimism on consolidation progress unless the Central Bank adopted a more proactive role. The range of possible banks by 2010 was as follows: 60 (1), 50 (1), 40 (2), 30 (2), 20 (2), 15 (1).

All the respondents scored 3 or above on a 1 to 5 scale, where 5 is very receptive to the creation of new niche banks. There have been few new additions to the market, a new Islamic Bank, adhering to Sharia law, has

commenced operations.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya 77

Q How will the needs of the retail customer of 2010 differ from the needs of the customer today?

Q On a scale of 1 to 5, where 5 is very important, how important is consumerism in Kenyan banking?

The general consensus was that by 2010 the banks would be dealing with a much more demanding and better informed retail customer.

Respondents indicated that the market was changing very rapidly as commercial banks turned toward the retail sector.

One bank commented that the high level of fees charged was not sustainable.

Some of the observations by the respondents were as follows:

there will be less use of cash;

a need for more service points;

better pricing;

more mobile and internet usage;

more automation; and

more solutions-based services.

Consumerism is not yet seen to be very important in the Kenyan market.

The majority of banks (7�%) scored it as either two or three, while only two banks recorded a 4 out of 5 on the scale.

This suggests that the Kenyan banks will have to make major changes over the next few years.

The previous question indicated that there were rising customer expectations, but this response suggests that the banks, by their own admission, have a long way to go to satisfy these growing demands.

Economic growth in the rural areas has meant increased wealth for farmers and pastoralists and this has encouraged the banks to expand their service offerings and branch networks.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya7�

0

10

20

30

40

50

Other

Securi

tisati

on

Commod

itisati

on

Mergers

/Con

solid

ation

Conve

rgenc

e

New D

omes

tic E

ntran

ts

Capita

l Mark

ets

Disinte

rmed

iation

Foreign

Entr

ants

Globali

satio

n

Econo

mies of

Sca

le

Tech

nolog

y

Based on responses from 10 banks

0 1 2 3 4 5 6 7 8 9 10

Labour laws

Crime

Previously unbanked market

Economic downturn

Banking sector reforms

Pace of technological change

Legal constraints

New entrants from other parts of the financial services industry

Current competition

Compliance and regulatory constraints

Fee and service charges erosion

Number of banks

Q What are the major drivers of change in the Kenyan banking industry today?

Q What are the major threats that banking in Kenya is currently facing?

Fee and service charge erosion is seen as the greatest threat to banking at present.

This is followed by compliance and regulatory constraints and increased competition.

Only one bank recorded threats from crime, labour laws or the previously unbanked market.

The two most important drivers of change in Kenyan banking are technology and economies of scale.

External drivers of change such as globalisation and foreign entrants are of less importance.

New domestic entrants are not considered to be a significant driver of change.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya 79

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Consumer Credit Legislation InsuranceIncreasing competition from foreign banks

Banking for the previously unbanked

Consolidation of financial services industryLiquidity of banksIncreasing competition from non banksBanking sector reformsLack of adequate financial disclosure by bank's clientsGlobalisation

Rogue traderUnderstanding complex products

Internet Security risksEconomic downturn

Appropriate staff incentive schemesIncreasing competition from domestic banks

Market volatilityLegal risks

Business continuationBasel II

Building a customer baseOperational risk management

High dependence on new technologyQuality of loan books (credit risk)

Addressing new compliance & regulationsOther

Recruiting/training front office staffIncreased competition

Service quality

Client focusIntroducing New Information Technology

Retaining existing clientsProfit performance

Improving revenue growth

Based on responses from 10 companies unless noted

increasing importance

Q What are the most pressing issues you face?

Can you rate them from 1 to 5?

The three most pressing issues in Kenya are:

improving revenue growth;

profit performance; and

retaining existing clients.

This is very similar to the response of bankers in other markets.

It is also instructive to look at the non-pressing issues such as:

consumer credit legislation;

banking the previously unbanked; and

foreign bank competition; all of which are assigned much greater importance in the other markets surveyed.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya�0

1

2

3

4Micro lending (5)Vehicle financing (9)

Structured products (9)

Insurance - Short term (4)

Insurance - life (4)

Stock Brokerage (2)

Foreign Exchange (9)

Private Banking (5)

Asset Management (5)

Capital Markets (8)e Banking (8)

Unit trusts (6)Mortgages - home loans (9)

Retail Deposit Taking (10)

Credit Cards (8)

Retail Lending (10)

Commercial Lending (10)

Treasury (10)

Commercial Property Finance (7)

Structured FinanceProjects (8)

Structured Finance-Tax (4)

Corporate Finance-Privatisations (5)

Corporate Finance-Listings (5)

Corporate Finance-M&A (4)

1

2

3

4

Commercial Lending (10)

Structured products (10)

Insurance-Short term (9)

Insurance-Life (9)

Stock Brokerage (7)

Foreign Exchange (10)

Trust Services (9)

Private Banking (8)

Asset Management (7)

Capital Markets (10)

Unit Trusts (8)

Mortgages-Home Loans (10)

Retail Deposit Taking (10)

e banking (10)

Micro-lending (8)

Vehicle Financing (10)Credit Cards (10)

Retail Lending (10)

Treasury (10)

Property Finance-Commercial property (10)

Structured Finance-Projects (10)

Structured finance-Tax (8)

Corporate finance-Privatisations (10)

Corporate finance-Listings (10)

Corporate finance-M&A (10)

Q How successful has your bank been in penetrating the following markets in the last year?

Q Can you score on a scale of 1 to 5 the importance of each of these markets for your bank over the next three years?

The most successful markets for Kenyan banks have been treasury, commercial lending and foreign exchange.

Low levels of success were recorded for corporate finance, insurance, micro lending and unit trusts.

The banks attached high importance scores to areas in which they have already been successful such as treasury, commercial lending and foreign exchange.

Over the next three years, they assigned very strong scores to a number of retail areas including deposit taking, e-banking, consumer lending, mortgages and credit cards. While corporate finance will continue to be of little importance, a high score was assigned to structured products.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya �1

0

1

2

3

4

5

6

7

8

9

10

2010

2006

Very Significant

SignificantModerateMinorNone

��������������

No

Yes

Based on responses from 8 banks

Outsourcing is of limited importance to the Kenyan banks at present. Only two of the ten reporting banks recorded it as significant and four banks said it was only of minor importance.

While there is expected to be an increase in this area by 2010 only one bank ventured that it would be very significant by 2010.

Many of the banks relate outsourcing to non-core banking functions such as security, printing, cash movement, ATM management, janitorial services etc.

However, at least one bank referred to outsourcing in the context of new product development outside Kenya and back-office processing for services such as credit cards.

The banks were evenly split when it came to the role of branches in 2010.

Half believed that traditional “bricks and mortar” branches will increase.

Those that predicated a decline in traditional branches qualified their view by indicating that there would be a higher level of sales and service at the branches accompanied by increased levels of electronic delivery.

One bank predicted a 50% increase in distribution outlets.

As noted earlier, Kenya has only a limited number of ATMs relative to its population size. The Central Bank of Kenya reported a “rapid increase” in the number of ATMs in Kenya in 2005 as Kenswitch (owned by 16 member banks) doubled the number of ATMs in the market to 32, while Pesa Point, a private ATM service provider, installed 41 ATMs.

Q How important is outsourcing at present and will it be in 2010?

Q What will the role of branches be in 2010?

Will “traditional” branches increase?

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya�2

0 5 10 15 20 25 30 35 40 45 500

5

10

15

20

25

30

35

40

45

50

Expected annual growth rate in 2010 (%)

Exp

ecte

d an

nual

gro

wth

rate

in 2

006

(%)

75/35

Q What is your estimate of the annual growth in revenues of your business for 2006 and over the next four years?

Bank chargesThe Minister has attempted in the past to narrow the interest rate spread and to control bank charges.

This has included enforcing Section 44 of the Bank Act and the introduction of the in duplum rule.

However, these initiatives have been ineffective. In the 2006 Budget the Minister adopted an indirect approach to encouraging competition by encouraging banks to experiment with new products and supporting intermediation.

The Minister announced plans to exempt from income tax the interest earned from listed bonds to infrastructure and asset backed securities.

Source: Looking Forward 2006, www.pwc.com/ke

Projected growth for the participant banks ranged from 5% to 75% in 2006 and from 12.5% to 35% in 2010.

Three banks are clustered in the 15% to 20% range for 2006 and 2010.

One bank, as noted above, anticipates 75% growth in 2006 and then 35% in 2010.

A couple of banks expect 30% in 2006 followed by 20% in 2010.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya �3

Retail banking

Loss <0% Marginallyprofitable

0-10%

Profitable10-20%

VeryProfitable20-30%

ExtremelyProfitable

>30%

Home loans

Vehicle financing

Credit cards

Corporate banking

Merchant and investment banking

Treasury

Internet banking

Individual banks

Private banking

Asset management &unit trusts

Life insurance

Commercial property financing

Microlending

Brokerage

Q Over the last year what have your bank’s profits been, in terms of capital allocated, in each of the following lines of business?

The best performing business line for Kenyan banks over the last year was treasury.

Two or three banks identified retail banking, home loans, vehicle financing, credit cards, corporate banking and investment banking as being very profitable or extremely profitable.

However, there was evidence that several banks have had disappointing performance across virtually all lines of business.

Three or four banks for instance noted marginal profitability in key areas such as home loans, vehicle financing, and investment banking, while several banks recorded losses in areas such as internet banking, private banking and micro-lending.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya�4

No

Yes

Based on responses from 10 banks

0 1 2 3 4 5 6 7 8

Other

Parent bank strategy changes

Development of the outsourcing market

State of the economy

Regulatory change

IT costs

Product changes

Increasing competition

Increasing customer demands

Number of banks

Q Will your business model change over the next three years?

Q If yes, what are the drivers of that change?

Nine out of the ten participants believe that their business model will change over the next three years.

This suggests that we can expect major upheavals in the competitive environment.

In response to the key drivers behind that change, eight banks identified increasing customer demands, increased competition and product changes.

The regulatory environment and economy were considered less influential. One bank which recorded ‘other’, mentioned the impact of its future regional expansion.

The banking sector has witnessed re-packaging of banking and financial services to satisfy the ever changing needs of customers. This has resulted in the rapid growth of consumer banking products. More banks are increasingly offering new banking products such as Unsecured Personal Loans, Auto Loans, Unsecured Professional Loans, Safari Savings Accounts, Jumbo Junior Accounts and the SME Business Model Accounts. An increased number of institutions are offering e-banking and services for non-residents.

The future portends intensified competition in the financial sector arising from the introduction of Islamic banking products. Financial institutions will therefore be expected to redefine their business strategies while leveraging on innovative and affordable products so as to capture new market segments.

Extract from the Kenyan Banking Supervision Annual Report 2005 released October 2006.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya �5

In the merchant and investment banking sector, the participants believe that the domestic banks will gain market share at the expense of the foreign banks.

Six banks predicted domestic market share growth, while four banks opted for a continuation of the status quo.

In the retail banking sector the participants predicted that the domestic banks would capture a larger share of the market.

One banked cited the emergence of strong domestic competitors such as KCB, CBA, NIC, CFC and Equity Bank.

Another bank stressed that the market was already being subjected to much more competition than in the past.

Q Over the next three years the foreign banks’ market share relative to the big domestic banks will…

“The increased activity in the personal lending front has ignited a huge battle for the control of the market. The protagonists - Barclays Bank, Standard Chartered and KCB - are racing to net more loan applicants through a double-pronged strategy that includes increased market visibility and service quality improvement.

Second tier players such as NIC Bank, CFC Bank and I & M have also joined the race.

Industry insiders attribute the continued drop in lending rates to cutthroat competition that has intensified over the past 12 months.”

Financial Standard, 5 September 2006

Merchant and investment banking sector

Retail banking sector

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya�6

Strategic Issues

VeryUnprepared Prepared

VeryPrepared�

Credit risk management

Operational riskmanagement

Regulatory review

Market discipline

NA1 2 3 4 5

In July 2005 the Central Bank of Kenya participated in the The African Association of Central Banks (ACCB) symposium in Ghana.

The symposium focused on the implementation challenges facing emerging countries.

They identified the following challenges in the implementation of Basel II:

the complexity of the accord;

a lack of prerequisite human resource capacity; and

non-adherence by emerging countries to supervisory best practices.

Q How would you rate your bank’s level of preparedness for changes resulting from Basel II? (Where 5 is fully prepared)

The table indicates that four out of five banks are making progress in their Basel II preparations.

The foreign banks, as one would expect, will be dependent on their parents and are at the front of the pack.

The majority of banks, however, hover around a 3 out of 5 level of preparedness, with a couple of banks lagging behind.

The regulatory area represents the area where they seem best prepared. One foreign bank commented that the domestic banks were “not up to speed” in terms of market discipline.

This view is confirmed in the table where six of the eleven respondents scored market discipline at 3 or below.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya �7

Kenya peer review

1 2 3 4 5

Corporate Banking Citibank Standard Chartered Barclays Bank CBA KCB

Investment banking Stanbic Barclays Bank Standard Chartered CFC CBA

Foreign Exchange Trading Citibank Standard Chartered Barclays Bank KCB Stanbic

Money Markets Barclays Bank Standard Chartered KCB Citibank CFC

Retail Asset Management - Unit trusts

Old Mutual Barclays Bank African Alliance AIG -

Retail Lending and Deposits KCB Barclays Bank Standard Chartered Cooperative Bank/NIC -

Retail Mortgages – Home Loans KCB Standard Chartered Barclays Bank Housing Finance Stanbic

Commercial Property Finance Barclays Bank KCB Standard Chartered NIC -

Vehicle Financing NIC CFC Diamond Trust Barclays Bank Standard Chartered

Internet Banking Citibank Standard Chartered Barclays Bank CBA Stanbic

Private Banking CBA Barclays Bank Citibank Standard CharteredInvestment and Mortages Bank

Private Equity InvestmentsActis Capital/KCB/CFC were mentioned

- - - -

Micro Lending K-Rep Equity Bank Cooperative Bank FAULU Saulu/KCB

Key to bank names in Kenya:

CBA Commercial Bank of Africa CFC CFC Bank KCB Kenya Commercial Bank NIC National Industrial Credit Bank

Q Can you name the top three banks in terms of success (performance, presence, momentum, etc.) across a variety of different markets?

A simple scoring method awarded 3 points to first place, 2 points to second place and 1 point to third place. This allowed the banks to be ranked based on a total score.

Banks were asked not to record an opinion unless they were active in that segment and were comfortable in providing an accurate ranking in terms of success (performance, presence and momentum) as opposed to mere size.

They were not permitted to rank their own institution. Often banks chose just to indicate first or second place.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya��

Nam

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104,

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Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya �9

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Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya90

Banks Profit Before Tax

Total Assets and Contingencies

Return on Assets

Shareholders Equity

Return on Equity

African Banking Corporation 122.� 6,099 2.01% 5�6 20.95

Bank of Africa Ltd 7.5 7,�9� 0.09% 652 1.15

Bank of Baroda 23�.4 10,150 2.35% 1,069 22.3

Bank of India 123.7 �,177 1.51% �5� 14.42

Barclays Bank of Kenya Ltd 5,401.50 129,237 4.1�% 13,177 40.99

CFC Bank Limited 417.6 27,171 1.54% 2,71� 15.36

Charterhouse Bank Limited 122.4 5,510 2.22% 5�1 21.06

Chase Bank Limited 61.2 2,94� 2.07% 562 10.��

Citibank, N.A. 1,2�4.90 37,019 3.47% 5,355 23.99

City Finance Bank -46.7 691 -6.76% 370 -12.63

Commercial Bank of Africa 613.7 36,463 1.6�% 2,331 26.33

Consolidated Bank of Kenya -12.7 5,069 -0.25% 699 -1.�1

Co-operative Bank of Kenya 705.6 71,532 0.99% 4,057 17.39

Credit Bank Limited �9.� 3,3�6 2.65% 464 19.35

Development Bank of Kenya 166 3,2�� 5.05% 1,050 15.�1

Diamond Trust Bank Kenya 363.5 1�,749 1.94% 1,416 25.67

Dubai Bank Limited 29 1,954 1.49% 3�6 7.52

EABS Bank 7.2 10,65� 0.07% 1,2�7 0.56

Equatorial Commercial Bank 109 4,2�6 2.54% 579 1�.�3

Equity Bank Limited 500.5 12,341 4.06% 1,594 31.4

Fidelity Commercial Bank 16.2 1,93� 0.�4% 270 6

Fina Bank Limited 94.7 �,5�9 1.10% �47 11.1�

Giro Commercial Bank -5.6 6,0�2 -0.09% 431 -1.3

Guardian Bank 56.4 5,679 0.99% 757 7.45

Habib AG Zurich 146.� 5,351 2.74% 543 27.04

Habib Bank Limited 20.7 3,250 0.64% 42� 4.�3

Imperial Bank Limited 304.� 9,�96 3.0�% 1,122 27.16

Investment & Mortgages Bank 4�9.4 24,515 2.00% 2,057 23.79

Kenya Commercial Bank Ltd 1,90�.60 104,4�7 1.�3% 9,969 19.15

K-Rep Bank 4�.1 3,952 1.22% 790 6.09

Middle East Bank of Kenya 115.2 5,596 2.06% 794 14.51

National Bank of Kenya Ltd �59.1 65,211 1.32% 3,223 26.66

National Industrial Credit Bank 403.3 23,349 1.73% 2,722 14.�1

Oriental Commercial Bank -�5.7 2,624 -3.27% 723 -11.�5

Paramount-Universal Bank 15.� 2,4�5 0.64% 301 5.25

Prime Bank Limited 125 �,93� 1.40% 722 17.32

Southern Credit Banking Corp. 31 5,030 0.62% 519 5.9�

Stanbic Bank Kenya Limited 439.� 17,573 2.50% 2,032 21.64

Standard Chartered Bank Ltd 3,500.30 104,274 3.36% 9,50� 36.�1

Transnational Bank Limited 59.1 2,654 2.23% 1,04� 5.64

Banks in Kenya; Profitability of banking sector, 31 December 2005

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya 91

Source: Central Bank of Kenya, Banking Supervision Annual Report 2005

Banks Profit Before Tax

Total Assets and Contingencies

Return on Assets

Shareholders Equity

Return on Equity

Victoria Commercial Bank Ltd 123.7 4,�36 2.56% 562 22.01

SUB-TOTAL 1�,971.60 �1�,935 2.32% 79,159 23.97

NBFI’S

Housing Fin. Co. of Kenya Ltd. 101.7 13,65� 0.74% 1,291 7.��%

Prime Capital & Credit Ltd. 136.9 3,049 4.49% 79� 17.16%

Savings and Loan (K) Ltd. 76.7 4,72� 1.62% 5�4 13.14%

SUB-TOTAL 315.4 21,435 1.47% 2,673 11.�0%

BUILDING SOCIETIES

Family Finace Building Society 94 3,777 2.49% 33� 27.�2%

GRAND TOTAL 19,3�1 �44,147 2.30% �2,170 23.59%

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya92

Banks in Kenya; Loans and non-performing loans at 31 December 2005

Institution Npls (1) Provisions (2) Loans (3) (1/3) Npls (2/1)

African Banking Corporation 145,262 64,705 2,707,2�7 5.4 44.5

Bank of Africa Ltd 29,324 29,324 3,060,4�3 1 100

Bank of Baroda 24�,554 73,972 3,4�0,423 7.1 29.�

Bank of India �0,544 64,301 2,3�6,�3� 3.4 79.�

Barclays Bank of Kenya Ltd 11,�77,000 4,057,090 70,267,�27 16.9 34.2

CFC Bank Limited 74�,003 155,165 11,�91,0�6 6.3 20.7

Charterhouse Bank Limited 30�,263 1��,�93 2,545,�07 12.1 61.3

Chase Bank Limited �9,697 16,4�3 1,707,330 5.3 1�.4

Citibank, N.A. 353,522 104,074 10,109,317 3.5 29.4

City Finance Bank 257,361 75,372 354,�64 72.5 29.3

Commercial Bank of Africa 916,520 266,907 11,91�,2�4 7.7 29.1

Consolidated Bank of Kenya �01,7�7 413,202 1,709,721 46.9 51.5

Co-operative Bank of Kenya 9,742,231 6,917,404 36,507,720 26.7 71

Credit Bank Limited 262,�39 34,335 1,74�,942 15 13.1

Development Bank of Kenya 232,�72 112,767 1,197,4�9 19.4 4�.4

Diamond Trust Bank Kenya �5,707 �0,0�6 10,5�6,064 0.� 93.4

Dubai Bank Limited 229,091 99,140 ��9,900 25.7 43.3

EABS Bank 1,54�,�63 391,63� 4,325,�22 35.� 25.3

Equatorial Commercial Bank 121,125 49,219 1,913,264 6.3 40.6

Equity Bank Limited 519,377 16�,071 5,743,42� 9 32.4

Fidelity Commercial Bank 141,320 44,921 1,100,325 12.� 31.�

Fina Bank Limited 4�5,270 316,12� 3,726,242 13 65.1

Giro Commercial Bank 676,576 1�4,920 3,4�9,031 19.4 27.3

Guardian Bank 903,�6� 354,5�5 3,326,54� 27.2 39.2

Habib AG Zurich 47,�56 35,100 1,169,065 4.1 73.3

Habib Bank Limited �5,637 24,543 697,293 12.3 2�.7

Imperial Bank Limited 337,�47 150,404 4,452,396 7.6 44.5

Investment & Mortgages Bank 6�4,629 126,594 11,323,697 6 1�.5

Kenya Commercial Bank Ltd 10,005,03� 6,402,306 39,593,341 25.3 64

K-Rep Bank 110,276 13,�59 2,467,�35 4.5 12.6

Middle East Bank of Kenya 240,603 104,172 1,644,325 14.6 43.3

National Bank of Kenya Ltd 17,146,219 13,712,046 3�,140,2�4 45 �0

National Industrial Credit Bank 705,�65 529,947 14,74�,356 4.� 75.1

Oriental Commercial Bank 99�,749 �23,022 1,139,760 �7.6 �2.4

Paramount-Universal Bank 2�7,412 107,116 1,006,3�4 2�.6 37.3

Prime Bank Limited 401,955 176,�2� 3,524,�59 11.4 44

Southern Credit Banking Corp. 694,271 122,234 2,09�,363 33.1 17.6

Stanbic Bank Kenya Limited 124,12� 94,6�6 �,�36,144 1.4 76.3

Standard Chartered Bank Ltd 1,679,449 3�4,�09 34,710,772 4.� 22.9

Transnational Bank Limited 365,160 176,430 1,3��,94� 26.3 4�.3

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Kenya 93

Source: Central Bank of Kenya, Banking Supervision Annual Report 2005

Institution Npls (1) Provisions (2) Loans (3) (1/3) Npls (2/1)

Victoria Commercial Bank Ltd 31,339 31,339 1,963,113 1.6 100

Totals 64,751,409 37,27�,137 365,59�,977 17.7 57.6

NBFI’s

Housing Finance Co. of Kenya 3,245,521 530,�47 6,720,1�7 4�.3 16.4

Prime Capital and Credit Ltd. 45,53� 30,102 1,472,172 3.1 66.1

Savings & Loan (K) Ltd 469,341 254,630 2,�93,703 16.2 54.3

Totals 3,760,400 �15,579 11,0�6,062 33.9 21.7

BUILDING SOCIETIES

Family Finance Building Society 360,179 325,433 2,020,92� 17.� 90.4

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria94 Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria94

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 95

Nigeria

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria96

Introduction

“Nigeria is the market that could turn the lights on for Africa”

Simon Millet, Country Head,

Standard Chartered Bank Nigeria

The Banker April 2006

Nigeria has recently completed a major overhaul of its banking system with a reduction in the number of banks from �9 to just 25.

This process instigated by the Governor of the Central Bank, professor Charles Soludo involved consolidation, the closure of 14 banks and the injection of 43.2 billion on the Nigerian Stock Exchange. The Central Bank increased a bank’s minimum capital requirement from N2bn to N25bn ($190 million) and stated that banks need to comply by 31 December 2005.

There are four foreign-owned banks in Nigeria namely, Citigroup, Standard Chartered Bank, Stanbic Bank and Ecobank. All four participated in the preparation of this review.

(Ecobank based in Togo is selling its Nigerian subsidiary to FirstBank. The new entity will make FirstBank/Ecobank the largest bank in West Africa.)

As noted by The Banker (April 2006), the sector has doubled its capital on its aggregate balance sheet. However, a comparison with the South African banking sector shows the Standard Bank of South Africa has roughly an equal size of shareholder funds and in asset terms is triple the size of the entire Nigerian banking sector.

The banks are highly liquid and are required to hold 40% of their deposits in liquid assets.

The banks use their extensive urban branch networks to collect deposits, which are almost entirely short term.

It is estimated that less than 10% of lending is made to individuals. The lack of a credit bureau means that most consumer loans are made to employees in larger companies or in government.

In May 2006, 23 of the 25 consolidated banks issued InterSwitch debit cards under a variety of different brand names. Over two million of the cards have now been issued.

The card holders use the cards to withdraw money from cash machines or ATMs, and to make payments online and at the point of sale terminals. More than 12 merchants have adopted InterSwitch for online transactions using the debit card.

In addition, both Visa and eTranzact have indicated that they plan to launch debit cards into the e-payment market.

Visa International has acquired 15 per cent stake in ValuCard Nigeria and will roll out a local version of VPay debit card.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 97

Participating banks:Afribank

Citibank (Nigeria International Bank)

Diamond Bank

Ecobank

First Bank of Nigeria PLC

GTB

Stanbic

Standard Chartered Bank

UBA

Union Bank

Zenith Bank

Background Employment

Eleven banks provided employment data for 2006 and all but one provided an employment projection for 2010.

The banks that participated in the survey employ 36,61� people at present and they anticipate this will grow by 53% to just over 56,000 by 2010. Five of these banks employ more than 3,500 people in 2006 and seven will exceed 3,500 in 2010.

Several of the smaller banks also anticipate very significant growth by 2010.

Branches

Branch data for all 11 banks was available for 2006 but two banks did not provide a 2010 projection. As a result the industry average was applied to their 2006 number.

In 2006 the participants operated 1,��7 branches and they predict a �6.3% increase to 3,516 branches by 2010. Four banks anticipate that they will more than double their network over the next four years. By 2010 four banks will operate more than 500 branches individually.

ATMs

Data for ATMs was provided by ten banks. One small bank did not provide any information.

Furthermore two banks were unable to provide projections for 2010. Again the industry average increase was applied to their 2006 number.

As a result the participant banks expect a 3�4% increase in ATMs from 1,1�4 in 2006 to 5,736 in 2010.

This very aggressive expansion provides strong evidence of how the banks plan to roll out and develop their distribution networks.

Nine of the ten banks literally expect to add hundreds of new ATMs over the next few years. Viewed in conjunction with the InterSwitch, Visa and eTranzact announcements mentioned on the previous page, the system is on the edge of a radical transformation.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria9�

Note: Based on responses from 9 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

12% 12%

11% 33% 11% 55%

11% 22% 33%

11% 44% 23% 22% 100%

Minor change

Significant opera-tional and organisational change

Fundamental change in strategy and positioning

No change

Response

Home loansThe home loan market is viewed as moderately competitive and over half of the respondents have made minor or no change to their strategies in the last year.

The sector remains highly underdeveloped in part because of the limited long-term deposit base.

Note: Based on responses from 10 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

10% 20% 40% 70%

20% 20%

10% 10%

10% 50% 40% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Q In your view, what is the level of intensity of competition in the following markets, and how do you expect this to affect your competitive response? Retail banking

The retail sector was viewed as intensively competitive by seven of the ten respondents.

Four of these banks have made fundamental changes to strategy in the last year while another five banks recorded significant changes.

Market competitionThe following charts illustrate how companies perceive the level of competition in six different segments of their business, and then how they have organisationally responded to that competition.

Total

Total

Where segments have attracted responses from more than 20% of respondents, they have been shaded in grey.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 99

Note: Based on responses from 10 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

10% 20% 10% 40%

40% 50%

10% 10%

20% 60% 10% 10% 100%

10%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Vehicle financingThis is the only segment that records no selection of intensive competition. Half the respondents categorise vehicle financing as light competition and 60% have made minor changes and 20% no change to strategy.

Note: Based on responses from 9 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

11% 44% 12% 67%

11% 11% 22%

11% 11%

22% 66% 12% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Internet bankingTwo banks indicated they did not have an internet banking product.

Competition in this area is active with two thirds of respondents indicating it was intensive. A similar percentage have made significant changes to strategy in the last year.

Intensive

Moderate

Light

None

Total

Com

pet

ition

1�% 73% 9% 100%

18% 73% 9% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Corporate bankingAll 11 respondents categorised corporate banking as intensely competitive. In addition, three quarters of the banks have made significant changes in the last year.

Total

Total

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria100

Note: Based on responses from 10 companies

Intensive

Moderate

Light

None

Total

Com

pet

ition

10% 60% 20% 90%

10% 10%

20% 60% 20% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Merchant and investment bankingMerchant and investment banking was the second most competitive market after corporate banking.

Eight banks have made significant changes to strategy in the last year.

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 101

Q What are the most important developments taking place in Nigeria’s financial markets at present?

ConsolidationThe number of banks active in the Nigerian market has decreased from �9 banks in 2004 to 25 banks in 2006.

RecapitalisationThe new corporate requirements have raised the barriers of entry. At the same time they permit banks to engage in larger transactions.

New marketsDiversification into new markets such as mortgages, bonds and pension funds. The development of a new capital market. One bank commented that the emergence of a pension sector was creating a lot of liquidity.

More active role of the Central BankFollowing the consolidation process, the Central Bank is playing an active role in foreign exchange, liberalisation and corporate governance. It is instituting a rule-based supervisory and monitoring system.

Technological advances

This is driven by two forces – the banks as they deploy technology based delivery channels and the Central Bank’s use of technology based monitoring processes.

Introduction of Micro FinanceAround 65% of the economically active population are serviced by the informal financial sector, Non Governmental Organisations (NGOs) – micro finance institutions, moneylenders, friends, relatives and credit unions. In December 2005 the government issued a Microfinance policy statement. The average bank density in Nigeria is one outlet for 32,700 people in urban areas and one outlet for 57,000 people in rural areas.

Reform of the payments systemIn early 2007 NIBBS (Nigeria Interbank Settlement System) established by the Nigerian Bankers’ Committee announced plans for a central switch. The platform will integrate the national retail payments system and expand into the West African Monetary Zone.

Launch of a credit bureauThe Federal Government and the Bankers’ Committee are constructing a policy document on the creation of a credit bureau.

In February 2007 XDS, a risk-solutions company, in association with International Credit Information Bureau of South Africa and the Debenture Trust Company of Ghana announced plans to introduce a credit bureau.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria102

Q Can you identify three major criticisms of Nigerian banking at present?

Foreign exchange regulationHigh levels of regulation in the foreign exchange market although there is evidence that this is changing.

Personnel shortagesThe industry has serious personnel issues. Current human resources are not fully trained and represent a significant challenge for training and re-skilling. The levels of compensation are considered excessive. This has encouraged high staff turnover levels among the banks.

Small business sector concernsInadequate support for the Small Business Sector.

Underdeveloped property lendingLow level of lending to the real estate sector.

Central Bank directionThe consolidation process occurred at too fast a pace. This has damaged some of the new entities.

One bank commented that there was “excessive and often inappropriate supervision by the Central Bank”. Another bank said that the “aggressive supervision” was compliance based and not risk based.

Urban branch networkOver-concentration of branches in the urban areas. Consequently the rural communities are largely unbanked.

Card usageLack of ATM and card opportunities. The card market remains at an early stage of development. A store value card has been in operation for several years, “Valucard” but there is significant scope for both credit and debit cards.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 103

Q Do you believe the banking market in Nigeria is overcrowded?

Only one bank believed that the market was overcrowded.

The clear majority consider the market underbanked and full of future potential.

It was unanimously felt that the reduction to 25 banks in 2006 is only the first step in a process that will further reduce the number of banks.

Participants believe that the reformed banking system is not as receptive to the formation of new banks. The rationalisation of the system and level of competition meant that it was no longer as lucrative to operate a bank.

Furthermore the new capital requirements meant that as one bank said, “there would be no greenfield operations with $200 million needed on the table”. Fifty percent recorded l/5 and, fifty percent recorded 2/5 on a scale of 1 to 5.

Q Will there be further consolidation?

Q On a scale of 1 to 5, where 5 is very receptive, how receptive is the reformed banking system to the creation of new specialised or niche banks?

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria104

Q How will the needs of the retail customer of 2010 differ from the needs of the customer today?

Q On a scale of 1 to 5, where 5 is very important, how important is consumerism in Nigerian banking?

Based on responses from 7 banks

The banks believe that there will be major changes in consumer banking over the next four years. The needs of the retail customer will reflect the growing technology awareness. The 2010 customer will demand more personalised services and faster access. One bank commented that the needs will be the same in 2010 – it’s just that those needs are not being met in 2006 but will be by 2010.

It is envisaged that the electronic channels supporting debit and credit cards, e-banking and access to credit will be fully operational by 2010. The retail customer in 2010 will be better informed and more empowered.

The customer will demand improved service quality and this will be facilitated by technology.

One bank noted that there will be a need to liberalise interest rates to respond to the new environment.

It was felt that consumerism will play a vital role in the financial services sector.

The emerging middle class will be a major driver in the continued progress to a consumer-oriented society.

One bank observed that a viable credit card market would facilitate this transformation but the credit database is still weak and underdeveloped in Nigeria.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 105

Q What are the major drivers of change in the Nigerian banking industry today?

Despite the profound changes that have occurred in Nigerian banking as a result of the consolidation process, technology was ranked in first place ahead of consolidation.

Although the presence of foreign banks remains relatively understated, globalisation was cited as the third most important driver (foreign entrants were placed in sixth position).

At the top end of the market, many Nigerians are familiar with the products and service quality provided by the global banks.

Convergence, commoditisation, disintermediation and securitisation are all considered relatively unimportant.

Compliance was mentioned by ten banks as the biggest threat to banking in Nigeria at present. In joint second place were fee and service charge erosion and technological change.

The threat of an economic downturn and serving the unbanked market were viewed as minor threats.

Q What are the major threats that banking in Nigeria is currently facing?

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria106

Q What are the most pressing issues you face?

Can you rate them from 1 to 5?

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Rogue traderInsurance

Increasing competition from foreign banks

Business continuationIncreasing competition from non-banks

Understanding complex productsConsumer Credit Legislation (if applicable)

Liquidity of banksBasel II

Addressing new compliance & regulationsAppropriate staff incentive schemes

High dependence on new technologyMarket volatility

Building a customer baseLack of adequate financial disclosure bank's clients

Client focusLegal risks

Economic downturnRecruiting/training front office staff

Banking for the previously unbankedBanking sector reforms

Increasing competition from domestic banksInternet Security risks

Consolidation of financial services industryGlobalisation

Quality of loan books (credit risk)Increased competition

Retaining existing clients

Operational risk managementIntroducing New Information Technology

Service qualityImproving revenue growth

Profit performance

increasing importance

The pressing issues chart displays all but one of the 33 issues on the right side of the axis.

Profit performance was the most pressing issue with the maximum score of 5/5. (0 represents a score of 3 out of 5 on the scale).

Profit performance is followed by revenue growth, service quality and introducing new technology.

Competition from other banks is not evident in the ranking of other domestic banks at 12, non-banks at 29 and foreign banks at 31.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 107

Q How successful has your bank been in penetrating the following markets in the last year?

The most successful markets for the Nigerian banks as a group are treasury, commercial lending, retail lending and deposits and foreign exchange.

Indeed in two-thirds of the different business lines examined the banks score 3 or below on a 1 to 5 scale.

Disappointingly low scores are recorded for unit trusts, asset management and life insurance. Credit cards, mortgages and e banking all score around 3 out of 5.

Micro-lending and vehicle financing record 2.5 out of 5.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria10�

Q Can you score on a scale of 1 to 5 the importance of each of these markets for your bank over the next three years?

Despite the disappointing scores of past success, the banks attach much higher scores to the future importance of the different lines of business.

Only two business lines reside close to 3 out of 5. Many areas of consumer banking, loans and deposits, credit cards, vehicle financing and e-banking generate strong scores.

Even micro-lending moved out to almost 4 out of 5 for the eight respondents. Private banking exceeds 4 out of 5 for nine respondents.

Many of the corporate and investment banking products are also expected to be very important to the banks over the next three years.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 109

��������������

Q How important is outsourcing at present and will it be in 2010?

Q What will the role of branches be in 2010?

The banks anticipate an increase in importance for outsourcing by 2010. In 2006 eight banks indicated that outsourcing was relatively unimportant. By 2010 only two banks featured in that category.

Three banks said that outsourcing would be significant by 2010 and a further six banks classified outsourcing for the first time as very significant in 2010.

The majority of banks believed that traditional branches will continue to operate and many predicted healthy increases in their branch networks.

One bank ventured that traditional branches will decrease by 10% in the urban centres by 2010. Another indicated that ATM and internet channels would grow in importance.

One bank suggested they would expand mini branches rapidly on a “hub and spoke” network.

Several banks stated that since Nigeria remains a cash-based society, branches will continue to be very important.

As the banks address the previously unbanked market, it was felt that branches would grow in importance.

One bank provided the following detailed response:

“The role of branches in 2010 will change in accordance with the growing demands of customers, and essentially they will function in the following ways:

as wealth centres, offering advisory services that empower customers to create financial plans around life events, not around products;

as sales centres, leveraging enterprise-wide customer data to make the right offer to the right customer at the right time;

as service centres, offering high-touch customer-centric service that is integrated with other channels; and

as a new marketplace, creating new revenue sources by linking customers with suppliers and offering out-sourced or value-added products and services.”

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria110

Q What is your estimate of the annual growth in revenues of your business for 2006 and over the next four years?

0 10 20 30 40 50 60 70 80 90 1000

10

20

30

40

50

60

70

80

90

100

Expected annual growth rate in 2010 (%)

Exp

ecte

d an

nual

gro

wth

rate

in 2

006

(%)

500/25 200/50

There is wide variation in the anticipated growth in revenue to 2010.

Two banks expect very aggressive growth in 2006, one bank forecasted 500%, while another predicted 200%. These rates will be reduced to respectively 25% and 50% annual growth by 2010.

Several banks fall in the 50%-70% area for both 2006 and 2010, while one bank expects less than 10% growth in 2006 but 100% growth by 2010.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 111

Q Over the last year what have your bank’s profits been, in terms of capital allocated, in each of the following lines of business?

The largest distribution of profitability indicators was in the marginally profitable and profitable columns. The best profit performance was found in treasury and corporate banking.

Micro lending and retail banking were recorded as marginally profitable by four or five banks.

Only three banks provided an indication of profitability for credit cards and internet banking, and all of them indicated theses areas were only marginally profitable.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria112

Q Will your business model change over the next three years?

If yes, what are the drivers of that change?

A myriad of factors will contribute to the need to change the business model.

These include increased competition, regulatory change and product changes.

The banks also recognise that customer demands will change and the economy may change.

Two thirds of the nine respondents believe that their business model will change over the next three years.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 113

Q Over the next three years the foreign banks’ market share relative to the big domestic banks will…

The Nigerian Deposit Insurance Scheme (NDIC) was established in 19�9 and was designed to target small savers who may not be in a privileged position to obtain or interpret technical market information relating to the health of a bank.

The insured amount per depositor is up to a maximum of N50,000 (US$337) although this is being revised upward. US$1=14� Naira

Although in an earlier question the foreign banks were not perceived as a threat, just over half of the group believes that they will increase their

market share in the investment banking sector and a further quarter think the market breakdown will remain stable.

In the retail banking sector, opinion was divided equally between increase and remain the same, with a smaller percentage opting for a decrease in the current market share held by the foreign banks.

Respondents that suggested the domestic banks would increase their market share relative to the foreign banks stressed that the Nigerian market requires substantial local knowledge

and that the foreign banks would find it difficult to expand outside the big cities and into the hinterland.

The likelihood of further mergers means that the big domestic banks are well positioned to grow their businesses.

Investment banks

Retail banks

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria114

Q How would you rate your bank’s level of preparedness for changes resulting from Basel II? (Where 5 is fully prepared)

Overall the banks recorded positive results on their level of preparedness for Basel II.

They recorded their strongest score in the regulatory and market discipline areas and weakest scores in credit risk and operational risk management.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 115

Nigeria peer review

1 2 3 4 5

Corporate Banking GTB Zenith Bank First Bank Citibank (NIB) IBTC

Investment banking IBTC FCMB First Bank/ GTB /Citibank (NIB)

Foreign Exchange Trading Zenith Bank First Bank Citibank (NIB) GTB Standard Chartered

Money Markets First Bank Union Bank UBA GTB Zenith Bank

Retail Asset Management - Unit trusts

IBTC ARM Union Bank GTB FCMB

Retail Lending and Deposits First Bank Union Bank/UBA Zenith BankAfribank/Diamond Bank

Retail Mortgages – Home Loans Union Bank First Bank UBA Afribank -

Commercial Property Finance First Bank Union Bank Spring Bank GTBIntercontinental Bank

Vehicle Financing First Bank UBA WEMA Diamond Bank Fidelity Bank

Internet Banking Zenith Bank First Bank GTB Standard Chartered UBA

Private Banking IBTC Zenith Bank GTBBarclays/Standard Chartered/Citibank (NIB)

Private Equity Investments First Bank (incl. MBC)/IBTC Capital Alliance FCMBGTB/Union Bank/UBA

Micro Lending First Bank Union Bank Afribank/Diamond Bank

Key to bank names in Nigeria:

Q Can you name the top three banks in terms of success (performance, presence, momentum, etc.) across a variety of different markets?

A simple scoring method awarded 3 points to first place, 2 points to second place and 1 point to third place. This allowed the banks to be ranked based on a total score.

Banks were asked not to record an opinion unless they were active in that segment and were comfortable in providing an accurate ranking in terms of success (performance, presence and momentum) as opposed to mere size.

They were not permitted to rank their own institution. Often banks chose just to indicate first or second place.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria116

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Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 117

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Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria11�

Bank Name Component members of the Group

1 Access Bank Plc Marina Bank

Capital Bank International

Access Bank

2 Afribank Plc Afribank Plc

Afrimerchant Bank

3 Diamond Bank Plc Diamond Bank

Lion Bank

African International Bank (AIB)

4 EcoBank EcoBank

5 ETB Plc Equatorial Trust Bank (ETB)

Devcom

6 FCMB Plc FCMB

Co-operative Development Bank

Nigerian American Bank

Midas Bank

7 Fidelity Bank Plc Fidelity Bank

FSB

Manny Bank

� First Bank Plc FBN plc

FBN Merchant Bank

MBC

9 FirstInland Bank Plc IMB

Inland Bank

First Atlantic Bank

NUB

10 Guaranty Trust Plc GT Bank

11 IBTC-Chartered Bank Plc Regent

Chartered

IBTC

12 Intercontinental Bank Plc Global

Equity

Gateway

Intercontinental

13 NIB Nigerian International Bank

14 Oceanic Bank Plc Oceanic Bank

International Trust Bank

15 Platinum-Habib Bank Plc Platinum Bank

Habib Bank

The 25 Nigerian banks after consolidation

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – Nigeria 119

Bank Name Component members of the Group

16 Skye Bank Plc Prudent Bank

Bond Bank

Coop Bank

Reliance Bank

EIB

17 Spring Bank Plc Guardian Express Bank

Citizens Bank

Fountain Trust Bank

Omega Bank

TransInternational Bank

ACB

1� Stanbic Bank Ltd Stanbic Bank

19 Standard Chartered Bank Ltd Standard Chartered Bank Ltd

20 Sterling Bank Plc Magnum Trust Bank

NBM Bank

NAL Bank

INMB

Trust Bank of Africa

21 UBA Plc STB

UBA

CTB

22 Union Bank Plc Union Bank

Union Merchant Bank

Universal Trust Bank

Broad Bank

23 Unity Bank Plc New Africa Bank

Tropical Commercial Bank

Centre-Point Bank

Bank of the North

NNB

First Interstate Bank

Intercity Bank

Societe Bancaire

Pacific Bank

24 Wema Bank Plc Wema Bank

National Bank

25 Zenith International Bank Plc Zenith International Bank Plc

Source: Bank Supervision Department, Central Bank of Nigeria

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa120 Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa120

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 121

South Africa

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa122

Introduction

Thirty-five banks, which include the branches of foreign branches, were present in South Africa at the end of August 2006. The market is dominated by four large banks; Standard Bank, ABSA, FirstRand Bank and Nedbank. In terms of total assets these banks are followed by Investec, Citibank, JP Morgan Chase Bank, Imperial Bank, Calyon and Deutsche Bank.

The Financial Sector CharterSouth African banks are required to adhere to the terms of the Financial Sector Charter. The commitments made by the banks to the Charter are as follows:

improve access to financial services for low-income communities;

increase investment in housing for low-income households (target of R42 billion), small and medium black-owned enterprises (target of R5 billion), agriculture (target of R1,5 billion) and transformational infrastructure (target of R25 billion);

increase funding for black economic-empowerment (BEE) transactional financing;

accelerate employment equity and skills development within the financial sector;

increase procurement from BEE-accredited enterprises; and

achieve BEE ownership and control

targets.

Mzansi accountsOne of the key developments in South African banking in recent years has been the need to deliver entry level banking products. Consequently, to address the needs of affordability and accessibility, the banks developed the Mzansi account. Since the launch in October 2004, over two million Mzansi accounts have been opened by the Big Four banks and the PostBank. (“Big Four” banks are Standard Bank, Absa Bank, FirstRand Bank and Nedbank.)

Building upon the success of the Mzansi account these five institutions launched a money transfer facility in September 2005. This product enabled customers without a bank account to transfer up to R5,000 per day to outlying areas by using the account-to-cash mechanism.

Other new product developmentsIn 2006 the market has been subjected to a number of new innovations in credit cards. These include the Virgin Money credit card, which combines no annual fees, no loyalty fees an introductory 0% interest rate for three months with a variable rate (at time of introduction) thereafter of 15.75%.

Bank chargesThe Competition Commission is in the process of conducting an enquiry into banking charges and access to the national payment system.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 123

Participating banks:ABSA

African Bank

Citibank

Commerzbank

FirstRand

Investec

Nedbank

Standard Bank

Background Employment

Eight banks participated in the South African survey and collectively they employed 12�,237 people in 2006.

This total will increase by over 9,000 people to 137,54� by 2010.

Two of the Big Four banks anticipate an increase of around 12% in employment while another expects a 3.7% increase.

One of the Big Four banks plans a slight reduction in its 2006 total.

Branches

The eight banks interviewed collectively operate 3,221 branches and they predict this will increase by 17% to 3,764 branches by 2010.

African Bank is included in this total and recognises that its definition of a branch is not the equivalent of a Big Four bank branch.

Two of the Big Four banks anticipate a 20% increase in their branch network by 2010.

ATMs

The number of ATMs operated by the participants was 15,631 in 2006 increasing by 31% to 20,500 by 2010.

Two of the Big Four banks predicted a sizeable increase in their ATM networks by 2010.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa124

Note: Based on responses from 7 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

14% 43% 29% 86%

14% 14%

28% 43% 29% 100%

Minor change

Significant opera-tional and organisational change

Fundamental change in strategy and positioning

No change

Response

Home loansThe results from this sector mirror the findings in the 2005 report.

�6% of respondents view mortgages as intensively competitive. There has been little change in strategy over the last year.

Note: Based on responses from 6 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

50% 17% 67%

33% 33%

0%

0%

33% 50% 17% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Q In your view, what is the level of intensity of competition in the following markets, and how do you expect this to affect your competitive response?

Retail bankingThe retail market continues to be viewed as intensively competitive. In contrast to previous reports �3% of the banks indicated that they had made minor or no changes.

This may change in the future with the entrance of new players such as Virgin Money and the findings of the Competition Commission Banking Enquiry.

Market competitionThe following charts illustrate how companies perceive the level of competition in six different segments of their business, and then how they have organisationally responded to that competition.

Where segments have attracted responses from more than 20% of respondents, they have been shaded in grey.

Total

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 125

Note: Based on responses from 6 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

17% 33% 17% 33% 100%

17% 33% 17% 33% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Vehicle financingThe nature of this market is evident, with respondents’ unanimously recording intensive competition.

The banks are split between those who have made minor or no change and those that have made significant or fundamental change.

Note: Based on responses from 6 banks

Intensive

Moderate

Light

None

Total Com

pet

ition

17% 17% 34%

33% 33% 66%

50% 50% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Internet bankingCompetition in this market is considered moderate by four banks and intensive by two banks.

Little change has occurred, with all the players having developed their internet channel.

Intensive

Moderate

Light

None

Total

Com

pet

ition

14% 44% 14% 14% 86%

14% 14%

14% 43% 14% 28% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Corporate bankingOnly one of the seven banks did not record corporate banking as intensively competitive. However, the majority of banks have made little change to strategy.

Total

Total

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa126

Note: Based on responses from 7 banks

Intensive

Moderate

Light

None

Total

Com

pet

ition

14% 43% 14% 29% 100%

14% 43% 14% 29% 100%

Minor change

Significant operational and organisa-tional change

Fundamental change in strategy and positioning

No change

Response

Merchant and investment bankingThis sector is also viewed as intensively competitive. Four of the seven banks have made minor or no change to strategy.

Total

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 127

Q What are the most important developments taking place in South Africa’s financial markets at present?

Economic empowermentThere is pressure to provide services in rural areas.

Financial Sector CharterThe Charter is still an issue of focus and pending deadlines were mentioned by several respondents.

Sub-Saharan AfricaA growing interest in expansion out of South Africa into Sub-Saharan Africa was noted.

The Barclays acquisition

The Barclays Bank acquisition of a controlling shareholding in ABSA was noted by several banks. The possibility of further consolidation was also raised and its impact on the competitive environment. ABSA was considered to be more aggressive at the upper end of the market and to have increased its interest in Africa.

Debate on fees and competitionThe future implications of the Competition Commission Banking enquiry’s findings were viewed as being

very important. The growing importance of consumerism from a regulatory and government perspective was mentioned. There was acceptance of the need for greater transparency.

SecuritisationThe securitisation market for corporates was said to be gathering pace.

Basel IIThe approaching implementation date of January 200� for Basel II conversion was cited by several banks.

New competitorsCompetition from non-traditional players such as GE Capital and Virgin Money was mentioned and further disintermediation expected.

National Credit ActIt was predicted by one bank that the National Credit Act (“NCA”) would have a major impact on revenue streams and the pursuit of default loans.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa12�

Q Can you identify three major criticisms of South African banking at present?

Need for transparencySeveral self criticisms centred around the need for greater comparability and transparency.

Payment systemThe ownership of the payments system and the pricing mechanism needs re-examination.

Dominance of the Big Four banksThe dominant market share of the Big Four banks makes it difficult for foreign players. One participant protested that the domestic banks were subsidising the high-end corporates with profits from the retail sector and thereby undercutting the foreign bank competitors.

Service qualityIt was acknowledged that quality of service is an issue in both the retail and corporate markets.

Unbanked marketAddressing the needs of the new black consumer. Although the Mzansi account is considered successful, one bank said there has been a significant cost increase. Another bank discussed the need for customer education and questioned whether the banks had the right “footprint” for this market.

Fees and chargesIt was acknowledged that there was a perception of overcharging customers and the Virgin Money example was mentioned in this context.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 129

Q Do you believe the banking market in South Africa is overcrowded?

Q Will there be further consolidation?

Q On a scale of 1 to 5, where 5 is very receptive, how receptive is the reformed banking system to the creation of new specialised or niche banks?

No

Yes

Based on responses from 8 banks

No

Yes

Based on responses from 7 banks

In a 2002 PwC report Strategic and Emerging Issues in South African Banking, ��% of respondents thought the market was overcrowded. This current report suggests that opinion is divided.

The belief was that the retail sector was not overcrowded and represented market opportunities.

In contrast, the corporate and merchant and investment banking sectors are considered to be overcrowded.

One respondent believed that there may be one more foreign acquisition of a large domestic bank.

It was also predicted that there would be more new foreign entrants, mainly from Asian countries.

The bankers believe that the banking system is responsive to the creation of new banks. Four of the five respondents awarded a score of 4 out of 5 on the scale.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa130

Q How will the needs of the retail customer of 2010 differ from the needs of the customer today?

Overall the banks predicted less need for cash transactions and a greater demand for more internet-based and electronic banking.

Several banks said that the needs would not change and that most needs – with the exception of transparency, are already covered.

A continued transformation of the market is expected, with consumers becoming more educated and demanding more choice.

The rapid development of an emerging black middle class was noted.

One banker suggested that they would continue to roll out services and then try to move their customers up-market.

Another said that services would need to be more integrative and better packaged.

Decrease

Increase

Based on responses from 5 banks

Major changes are expected in the nature of the branch network by 2010. At the beginning of this section it was predicted that the banks will grow their branch network by 17% by 2010, and expand the ATM network by 31%.

One banker described it as a “very physical” market while another observed that the Financial Sector Charter was pressing them to expand their physical presence.

Several respondents noted the increased significance of branches as sales outlets rather than transactional units.

One participant said that a sizeable number of branches were no longer in the right locations. The growth of electronic services and expansion of mobile phone banking was predicted.

This question has taken on a new significance as a result of the Banking Enquiry. There is now a belief that transaction fee income will be closely monitored.

The National Credit Act will also have an impact on fee structures. One bank said they were moving in the direction of increasing interest income relative to fee income.

Q What will the role of branches be in 2010? (Please comment).

Will “traditional” branches decrease/increase?

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 131

Q What is your estimate of the annual growth in revenues of your business for 2006 and over the next four years?

0 5 10 15 20 25 30 35 40 45 500

5

10

15

20

25

30

35

40

45

50

Expected annual growth rate in 2010 (%)

Exp

ecte

d an

nual

gro

wth

rate

in 2

006

(%)

Most respondents are clustered in the 15% annual revenue growth space both for the current year and looking forward to 2010.

Two banks recorded 20% growth in 2006 retreating to 15% annual growth by 2010.

There are two outliers. One bank plans a 40% increase in 2006 falling back to 15% by 2010, while another follows the “norm” of 15% in 2006 but hopes to grow by 30% annually by 2010.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa132

Q Over the last year what has your bank’s profits been, in terms of capital allocated, in each of the following lines of business?

The 2006 respondents provided the following insight into the profitability of their business lines.

No bank identified a line that was loss making. Treasury and Merchant and Investment banking performed well in 2006.

These segments were closely followed by commercial property finance.

Interestingly three business lines: home loans, vehicle financing and corporate banking did not advance beyond the “Profitable” category in 2006.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 133

Q Over the next three years the foreign banks’ market share relative to the big domestic banks will…

The seven respondents provided the same answer to this question for both merchant and investment banks and retail banks.

In both cases four banks predicted a foreign bank increase while three banks expected a continuation of the status quo.

Those that believed the foreign banks might increase their share in the retail sector stressed that this would occur in “product pockets”.

They referred to players such as Standard Chartered Bank in the home loan market and Virgin Money in credit cards.

Retail banking

Merchant and investment banking

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa134

Based on the 2005 Survey findings, the South African market is well advanced in recognising the growing importance of consumerism.

With only two exceptions the banks recorded a score of 4 or 5 out of 5 on the consumerism scale.

Q On a scale of 1 to 5, where 5 is very important, how important is consumerism in South African banking?

No

Yes

Based on responses from 6 banks

Several banks mentioned a growing interest in Africa, particularly in resource-rich and English-speaking countries.

One bank pointed out that it was already active in 11 countries in Sub-Saharan Africa.

Another recorded an interest in Nigeria, Angola and DRC together with Uganda, Tanzania and Kenya.

Q Does your bank have expansion plans within Africa?

As indicated in the background to this survey, certain information in respect of South Africa was copied from the 2005 Strategic and Emerging Issues in South African Banking Survey. These are set out below:

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 135

Q What are the major drivers of change in the South African banking industry today?

Q What are the major threats that banking in South Africa is currently facing?

���������������

The major threats identified by South African banks in the 2005 Survey are all very pertinent in today’s environment.

The top three threats refer to regulatory constraints, the Financial Sector Charter, and fee and service charges.

As noted in the earlier discussion on major development in the market these threats and other threats shown in this chart feature prominently.

The most important driver of change identified by the 23 banks in the 2005 Survey was Foreign Entrants, followed by Technology and “Other”.

The “Other” category included reference by 11 banks to the Financial Sector Charter as a driver of change.

Economies of scale, disintermediation and globalisation were all considered as influential drivers to the South African banks.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa136

Q What are the most pressing issues you face?

Can you rate them from 1 to 5?

The most pressing issues for South African banks based on the 2005 Survey were Improving Revenue Growth, Profit Performance and Client Focus.

In addition to these factors were a host of other pressing issues which included retaining clients; New Regulations; Service Quality and the Financial Sector Charter.

The earlier question on important developments in the market highlighted the growing significance of Bank charges and New Entrants and it would appear these issues have increased in importance.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 137

Q Can you score on a scale of 1 to 5 the success of each of these markets for your bank during the last year?

The chart below is extracted from the 2005 Survey on South African Banking. It shows that the banks were successful in Treasury, M & A, Foreign Exchange and Brokerage.

Lines of business where they experienced disappointments were Listings, Privatisations, Structured Finance, Unit Trusts and Micro-lending.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa13�

Q Can you score on a scale of 1 to 5 the importance of each of these markets for your bank over the next three years?

The chart below is extracted from the 2005 Survey on South African Banking.

It shows the importance of market segments to the South African banks in 200�. Most of the markets fall outside the circular line, which indicates a score of 3 out of 5.

Markets that are expected to be very important include Treasury, Foreign Exchange, Commercial Lending, Structured Products, and a series of retail markets.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 139

Q How important is outsourcing at present and will it be in 200�?

��������������

In previous reports South African banks have indicated little interest in outsourcing.

The chart presented in the 2005 Survey shows a migration toward more outsourcing by 200� but this has been influenced by the inclusion of a number of foreign banks in the response.

These banks sometimes define outsourcing as moving a function such as processing to another part of the group located overseas.

The Financial Sector Charter will encourage outsourcing of functions such as facilities management, procurement and IT.

Q Will your business model change over the next three years?

If yes, what are the drivers of that change?

���������������

In the 2005 Survey 17 banks indicated that their business model would change over the three years to 200�.

The most important reason for this was increased competition.

The state of the economy was attributed relatively lower importance.

Other reasons cited included:

internalisation of bank operations in Africa;

removal of exchange controls;

Financial Sector Charter;

increased profitability; and

black empowerment.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa140

Q How would you rate your bank’s level of preparedness for changes resulting from Basel II? (Domestic banks in 2005)

����������������

�����������������

In the 2005 Survey all of the domestic banks in South Africa (with one exception in Regulatory Review) had moved to the prepared or beyond stage.

Several banks were already in the final very prepared stage.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 141

Total Assets

R’000

THE STANDARD BANK OF SA 495,516,6�9

ABSA BANK 429,276,641

FIRSTRAND BANK LIMITED 35�,037,769

NEDBANK 347,4�5,2�5

INVESTEC BANK 113,073,016

CITIBANK N.A 50,0�7,044

JP MORGAN CHASE BANK (JOHANNESBURG BRANCH) 2�,�92,255

IMPERIAL BANK 27,402,365

CALYON CORPORATE AND INVESTMENT BANK 25,167,412

DEUTSCHE BANK AG 21,409,225

ABN AMRO BANK 15,223,952

AFRICAN BANK LIMITED 9,05�,263

HSBC BANK PLC (JOHANNESBURG BRANCH) �,945,723

COMMERZBANK 7,�13,�64

SOCIETE GENERALE JOHANNESBURG BRANCH 5,�0�,939

STANDARD CHARTERED BANK 4,396,141

MERCANTILE BANK 4,197,4�1

TEBA BANK LIMITED 2,367,154

CAPITEC BANK 1,697,334

REGAL TREASURY PRIVATE BANK 1,521,�13

CHINA CONSTRUCTION BANK CORPORATION - JHB 1,46�,0��

ALBARAKA BANK 1,314,�04

SASFIN BANK 1,232,64�

HBZ BANK 1,171,591

MEEG BANK LIMITED �99,470

MARRIOTT CORPORATE PROPERTY BANK LIMITED �25,133

THE SA BANK OF ATHENS �07,�35

STATE BANK OF INDIA 702,377

GBS MUTUAL BANK 561,99�

BANK OF TAIWAN SOUTH AFRICA BRANCH 552,952

RENNIES BANK LIMITED 519,997

HABIB OVERSEAS BANK 46�,446

BANK OF CHINA JHB BRANCH (T/A BANK OF CHINA) 2�3,321

VBS MUTUAL BANK 235,470

BANK OF BARODA 1��,049

Total Assets 1,96�,610,544

South African banksTotal Assets at 31 August 2006 (R’000)

Source: South African Reserve Bank

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa142

Arguments in favour of opening domestic financial sectors to international ownership are:

Internationally owned banks provide stability in times of financial crises, since internationally owned banks are geographically more diversified than domestic banks and are therefore less affected by adverse shocks in the domestic economy.

Internationally owned banks are expected to provide a “safe haven” in a troubled country, thereby potentially reducing the amount of funds flowing offshore.

Internationally owned banks can provide a new source of funds to recapitalise troubled banks.

Internationally owned banks may improve the efficiency of the domestic banking system through the transfer of technology and know-how and the exploitation of economies of scale.

Entry of internationally owned banks may also support the development of financial markets in host countries and may result in increased integration with international capital markets.

Internationally owned banks may also result in a higher degree of diversification of banking-systems, assets and an increased presence of rating agencies and auditors.

Studies found that the benefits of international entry seem to depend on the level of development of the host country. At least for developing nations, international entrants tend to be more efficient than existing domestic banks, and the increased competition appears to improve overall bank efficiency.

International bank presence is argued to increase the amount of funding available to domestic projects by facilitating capital inflows.

International banks are able to improve the quality, pricing and availability of financial services, either directly as providers of such enhanced services, or indirectly through competition.

International bank presence is argued to improve accounting and transparency.

An international presence may also enhance the ability of financial institutions to measure and manage risk effectively.

Arguments for and against international ownership of domestic banks (Annual Report 2005, Bank Supervision Department, Reserve Bank of South Africa)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets – South Africa 143

Arguments against international bank participation are:

Profits accruing to international owners, which may result in a financial loss to the domestic economy.

Barriers to domestic bank entry, especially in times of uncertainty in the domestic market.

Challenges with the regulation of international banks.

Adverse shocks to international banks hurting the domestic economy.

Despite a lack of firm empirical support for “cherry picking” by internationally owned banks, possible concerns about international banks serving the most profitable domestic markets or customers and leaving less competitive domestic banks to serve other, riskier customers.

Uncertainty about internationally owned banks possibly limiting “flight-to-quality” events. Government action can vitiate this benefit, as in Argentina, where internationally owned banks initially received deposit inflows, but then experienced massive withdrawals once depositors became concerned that there might be discrimination against international banks.

Internationally owned banks decreasing the stability of aggregate domestic bank credit, by providing additional channels for capital flight, or by more rapidly withdrawing from local markets in the face of a crisis (either in the host or the home country).

Complex banks active in a number of jurisdictions raising multiple challenges to supervision.

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 144 Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 144

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 145

Appendices

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 146

Appendices

A. Background description of the participants based on publicly available information

Egypt

Sénégal

Côte d’Ivoire

Kenya

Nigeria

South Africa

B. African Countries: A Statistical Overview

C. Selected African Countries: Real GDP, Consumer Prices, and Current Account Balance

D. Per Capita GDP Growth for Countries included in this report

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 147

Bank Background Description

Bank of Alexandria www.alexbank.com

In October 2006 the Italian Gruppo San Paolo IMI won the bidding for �0% of Bank of Alexandria for $1.6 bn ($ 12.6 per share). Hence, 100% of the Bank’s shares reaches $2.016 bn (EGP 11.6 bn). The deal price is worth 5.5 times the Bank’s book value (EGP2bn); thus exceeding the local and international rates ranging from 3 to 4 times. The Bank currently has the fourth largest distribution network in Egypt (after National Bank of Egypt, Banque Misr and Banque du Caire) with 1�� branches and outlets accounting for approximately 10% of all bank branches in Egypt as at the end of February 2006.

Al Watany Bank www.alwatany.net

Al Watany Bank is a joint stock company that operates as a trading bank. The Bank provides banking services in three distinct segments, namely, Retail Banking, Business Banking and Financial Markets. Its Retail Banking service offers car finance schemes, union cards, ATMs services, safe deposit boxes, and personal loans as well as education, travel and furniture loans. The Business Banking segment includes such services as project financing schemes, special financing, investment services and Islamic banking. The Bank’s head office is in Giza, and it has 17 branches. (finance.google.com).

Arab African International Bank www.aaibank.com

Incorporated in 1964 as the first Arab multinational bank in Egypt, Arab African International Bank was established by a Special Law as a joint venture between the Central Bank of Egypt and Kuwait Investment Authority. Since its inception, AAIB has been known as one of the most distinguished commercial and investment banks in the region.

While maintaining its core competence as a corporate bank, AAIB is making breakthroughs in retail activities through expanding its innovative product range and geographic presence in the most commercially strategic locations. AAIB’s pioneering achievements include the creation of Egypt’s first international foreign exchange dealing room. AAIB was also the first to introduce credit cards in the 19�0s and Smart Cards in 2003. AAIB is a joint venture between the Central Bank of Egypt and Kuwait Investment Authority.

Arab Bank www.arabbank.com

Arab Bank has a presence in 30 countries. Arab Bank Egypt corporate banking offers a complete range of products and services such as working capital finance, trade finance, medium-term finance, cash management, corporate solutions and institutional banking. In addition, the bank offers personal services such as loans, cards, accounts and deposits and insurance.

Banque Misr www.banquemisr.com.eg

Banque Misr was founded in 1920 in Cairo by Tala’at Harb. It has many branches across Egypt and the overseas market. Its mission is to participate in the development of trade between Egypt, Europe, France and French-speaking countries.

Banque Misr has equity stakes in 135 projects in various fields, aimed at serving the national economy. These projects include 14 joint venture banks, 44 industrial projects, 20 tourist projects, 22 housing projects, 19 food projects, 14 financial projects, and 15 projects in the field of communication and information. It offers cards, bancassurance, consumer loans, internet banking, ATMs and Islamic Banking services.

Appendix ABackground Information of the participants based on publicly available information

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 14�

Bank Background Description

Barclays Bank www.barclays.com/africa/egypt

Barclays re-entered the Egyptian market almost 30 years ago in a joint venture with Banque du Caire. On June 22nd 1999, Barclays Bank PLC became the majority shareholder increasing its shareholding to 60%. In March 2004, Barclays Bank acquired the 40% shareholding in Cairo Barclays from Banque du Caire, giving Barclays 100% ownership of the business. Traditionally known as Corporate Bank, Barclays Bank Egypt is now in the process of extending its Retail Banking function with the introduction of new products and services. Barclays Bank Egypt Corporate & Investment Banking offers comprehensive banking services for 570 corporate clients in Egypt. Barclays Bank Egypt is a member of the 123 ATM network which gives cardholders access to over 600 cash machines scattered around Egypt.

CIB www.cibeg.com

Commercial International Bank was established in 1975 as a joint venture between the National Bank of Egypt (51%) and the Chase Manhattan Bank (49%) under its original name ‘Chase National Bank of Egypt’. Following Chase’s decision to divest its equity stake in 19�7, National Bank of Egypt increased its shareholding to 99.9%, and the Bank changed its name to Commercial International Bank (Egypt) S.A.E. During 1993, as part of its privatization strategy, CIB successfully launched a public share issue resulting in a decrease of the major shareholder’s stake to 43%, while CIB and NBE employees became the owners of 16% of the Bank’s capital in a parallel employee ownership plan. The remaining 41% was sold to over 14,000 Egyptian, Arab and multinational investors, including the International Finance Corporation. In July 1996, National Bank of Egypt (NBE), CIB’s principal shareholder, sold an additional 20% equity stake in CIB’s capital through a (GDR) offering listed on the London Stock Exchange. In 1999, CIB launched its Retail Banking. Over the last few years, CIB added Commercial International Life Insurance (CIL), CONTACT Car Trading Company, and CorpLease for Financial Leasing to its affiliates.

Citibank www.citibankegypt.com

Citigroup’s presence in Egypt dates back to 1955. In 1993, Citigroup received its license to operate in local currency, a major milestone, which allowed for the gradual development of CIB (Corporate and Investment Banking) business that caters for corporate customers and financial institutions, providing the full range of Global Transaction Services, Corporate Finance, Treasury, and Asset Based Finance solutions. In 1999 Citigroup celebrated the launch of its Consumer Banking business in Egypt by introducing the first unsecured Credit Card to the market. Balanced and aggressive growth has enabled diversification into Personal Loans, Auto Loans, Banking, and Payrolls. Citibank has over 100,000 retail customers through 9 branches, � of which are in main locations in Cairo, and one in Alexandria.

EAB Calyon www.eab-online.com

Calyon Bank Egypt, a subsidiary of Calyon Group, is an Egyptian bank owned 75% by Calyon, 22% by El Mansour and El Maghrabi for Development and Investment Group and 3% by various Egyptian investors. The Bank offers a range of banking solutions including capital markets, corporate and investment banking, financing and retail banking. Calyon Bank Egypt also carries out services for its customers such as trading (spot and forward), deposits, loans, currency swaps and trading of treasury bonds and other securities. It is currently operating through six branches in Egypt, with five in Cairo and one in Alexandria. (finance.google.com)

HSBC www.egypt.hsbc.com

HSBC Bank Egypt was established in 19�2 as Hong Kong Egyptian Bank. The Bank was rebranded HSBC Bank Egypt in April 2001, following an increase in the HSBC Group’s shareholding from 40% to over 90% of its issued share capital. HSBC Bank Egypt is one of the largest multinational banks operating in Egypt providing a comprehensive range of banking and related financial services through a network of 25 branches and 10� ATMs in Cairo, 6th of October City, Giza, Alexandria, Sharm El Sheikh and Hurghada.

Egypt Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 149

Egypt

Bank Background Description

Industrial Development Bank www.idbe-egypt.com

The Industrial Bank was initially established in 1947 as a state-owned joint stock company to provide specialised financing for the industrial private sector. In 1976 the Bank was re-established as IDBE an autonomous specialised financial institution focusing on providing structured finance to the newly emerging private sector industrial projects. In addition to its core specialised banking business, IDBE extends the following services to its clients: projects evaluation, financial engineering, feasibility studies, disposal of assets on behalf of its clients. The Bank’s branch network of 13 branches, which are strategically located within Egypt’s major industrial cities, provides IDBE with the focused reach needed to service its clientele base.

NSGB www.nsgb.com.eg

NSGB is considered the second largest private bank in Egypt. Since its establishment in 197�, NSGB traditionally focused on corporate banking with large clients. More recently, it decided to go into retail business and, therefore, expand its branch network.

NSGB was created by Société Générale and National Bank of Egypt . Since its establishment, NSGB has offered Commercial, Merchant & Investment Banking services. Traditionally, NSGB focused on Corporate banking with large corporate clients but has additionally developed its Investment Banking capabilities and also began to focus on retail banking.

National Bank of Egypt www.nbe.com.eg

National Bank of Egypt (NBE) is the oldest commercial bank in Egypt, established in1�9�. During the 1950s, NBE performed the central bank’s duties. After its nationalization in the 1960s, it acted as a pure commercial bank besides carrying out the functions of the central bank in the areas where the latter had no branches. Since the mid 1960s, NBE has been in charge of issuing and managing saving certificates on behalf of the government.

NBE provides various and distinguished saving pools in L.E. and foreign currencies covering the needs of the different brackets in the society. NBE accounts for 70% of the credit card market and 40% of the debit cards. NBE has 37� banking units nationwide.

Piraeus Bank www.piraeus.com.eg

Egyptian Commercial Bank was integrated into the Piraeus Bank Group in June 2005 and started operating with the new name Piraeus Bank – Egypt in January 2006. The Bank operates in three main banking segments, institutional, personal and private banking. Its institutional banking covers treasury and corporate banking services and its personal banking is comprised of such products as accounts, certificates, loans, cards, money transfer and international rates. The company has 24 domestic branches throughout the country, but plans to extend this to 40 branches by the end of 2006. (finance.google.com)

Suez Canal Bank www.scbank.com.eg

Suez Canal Bank is an Egyptian joint stock company engaged in providing a range of corporate, private and investment banking products and services. Its banking products include direct and indirect finance, loans, social funds, deposits, savings, credit cards, issuance of letters of guarantee and Islamic banking services, as well as technical, economic, financial, administrative and consultative services. The Bank operates through a 26-branch domestic network and a representative office in Tripoli, Libya. (finance.google.com)

Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 150

Bank Background Description

Sénégal

Banque Internationale pour le Commerce et L’Industrie du Sénégal (BICIS), (BNP Paribas

Compagnie bancaire de l’afrique Occidentale (CBAO)

In 2003 CBAO celebrated 150 years in Sénégal. It is the oldest bank in French-speaking sub Saharan Africa. It was the first bank to launch MasterCard and the first to launch the services of Western Union.

Citigroup (Sénégal) www.citigroup.com

Citigroup has had a presence in Sénégal since 1975, and now has a consumer and corporate customer base of more than 1,150 individual accounts and businesses. 56 employees serve their clients, providing banking services, insurance and investment products.

Société Générale de Banques au Sénégal (SGBS)

Sénégal Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 151

Bank Background Description

Côte d’Ivoire

BIAO (Côte d’Ivoire) www.belgolaise.com

Banque Internationale pour l’Afrique Occidentale (Belgolaise du Group Fortis)

Belgolaise purchased �0% of the shares in the BIAO Côte d’Ivoire when it was being privatised, with the Côte d’Ivoire government retaining the remaining 20%. It is active in Corporate Banking, Private Banking and Correspondent Banking.

As the third largest bank in the West African Economic and Monetary Union (WAEMU), BIAO-CI has a 15% market share in Côte d’Ivoire, employs 47� staff and covers the entire country via its network of 29 branch offices.

BICICI (BNP Paribas) (Côte d’Ivoire) www.bicici.org

Banque Internationale pour le Commerce et l’Industrie en Côte d’Ivoire

The government of Côte d’Ivoire, had from its formation a 10% shareholding, then a majority holding between 1971 and 1975. Thereafter, the State reduced its participation. The unification in 1999 of BNP Paribas led BICICI to absorb PARIBAS CI in 2001. BICICI has 34 points of sale and 35 ATMs.

BNI (Côte d’Ivoire)

Banque Nationale d’Investissement

Standard Chartered Bank (Côte d’Ivoire) www.standardchartered.com/ci

Standard Chartered Bank CI SA has been in full operation in Côte d’Ivoire since February 2001. It is the bank’s first full operation in Francophone West Africa. With four branches, the bank serves a total of nearly 1,000 customers. Standard Chartered offers a full range of Consumer and Wholesale Banking services. In Côte d’Ivoire the bank has led the way with cash management solutions, providing the first fully customised services package, and an end-to-end bank delivery with the implementation of a mini-branch at customer premises.

Côte d’Ivoire Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 152

Bank Background Description

Standard Chartered Bank www.standardchartered.com

Standard Chartered Bank opened its first branch in Nairobi in January 1911. The Bank has a network of 29 branches strategically located in Kenya, and a network of 62 ATMs countrywide. SCB Kenya falls under the East Africa Area with Tanzania and Uganda and possibly other countries in the future. The Bank is organised in three core business divisions: - Corporate and Institutional (C&I), Consumer Banking (CBD) and Global Markets.

Equity Bank www.ebsafrica.com

Equity Bank started its operation in 19�4 as Equity Building Society. The initial focus was to offer mortgage services but in the early 1990’s Equity Building Society changed its focus to micro-finance services. EBS grew to become a leading micro finance institution providing a wide range of products and services. The growth in business volume and outreach necessitated the conversion to a commercial bank. On 31st December 2004 Equity Building Society was converted to Equity Bank Limited. Equity is a public company that is �3.55% owned by over 2,416 indigenous shareholders, 10.93% by Britak Investment Co. and 5.52% by AFRICAP (a consortium of international development investors principally IFC and the European Investment Bank).

Kenya Commercial Bank www.kcb.co.ke

Kenya Commercial Bank Ltd. offerings are organised in the following groups: retail banking; corporate banking and treasury and specialised services, including business advisory services for the agro-based, manufacturing, horticulture and floriculture, mining and excavation, trade and services, export-oriented and fishing and fish processing industries. It has 95 full-time branches and 35 satellite branches. (Google Finance)

CFC Bank www.cfcbank.co.ke

Incorporated in February 1955 as the first independent finance company, Credit Finance Corporation Limited (CFC) became the largest Kenyan owned and operated financial institution to be quoted on the Nairobi Stock Exchange. In 1995 CFC converted into a commercial bank under the name of CFC Bank. The Bank currently has four branches and one agency. The Bank has a long-term foreign currency rating of B- and short-term foreign currency rating of B from Fitch IBCA (a leading global credit rating agency).

NIC Bank www.nic-bank.com

NIC Bank is positioned as a well established commercial bank in Kenya whose principal activities are the provision of banking, financial and related services. In addition NIC Bank is Kenya’s 7th largest bank by shareholders funds and Kenya’s 9th largest bank by assets.

National Industrial Credit Bank Limited was incorporated in Kenya in 1959 as a joint venture between Mercantile Credit Limited and Standard Bank. It was among the pioneer non-bank financial institutions formed to provide hire purchase and instalment credit finance facilities in Kenya.

Cooperative Bank of Kenya www.co-opbank.co.ke

The Co-operative Bank is 100% privately owned by over 57,000 Kenyan shareholders. Out of this, Co-operative Societies and Unions own 65%, while individual members of co-operatives own the remaining 35%, making Co-op Bank the largest private indigenous bank in Kenya. The bank operates a total of 77 ATMs.

Kenya Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 153

Bank Background Description

Barclays Bank www.barclays.com/africa

Barclays Kenya opened its doors in 1916. In Kenya, it boasts of a balance sheet worth US$ 1 billion which is equivalent to 10% of the country’s GDP. The bank is the market leader in the retail segment and is aggressively growing its corporate business. The bank pioneered the concept of unsecured retail lending in Kenya where it currently holds a market share of 30%.

The bank has 69 outlets across the country. In addition it has �2 ATMs, the largest number by any bank in Kenya. Barclays Kenya was listed on the Nairobi Stock Exchange in 19�6 and currently has 34,000 shareholders.

Stanbic Bank Kenya www.stanbicbank.co.ke

Stanbic Bank in Kenya is part of Standard Bank, based in Johannesburg. Standard Bank has total assets of about US$�1 billion and employs about 35 000 people worldwide. Its network spans 17 sub-Saharan countries.

National Bank www.nationalbank.co.ke

Incorporated in 196� National Bank of Kenya was Kenya’s first indigenous commercial bank, originally wholly owned by the Government of Kenya. In 1994 the Government sold 32% of the total shares to the general public. Another block of shares were offered to the public in 1996 and currently the Government only has a 22.5% stake in the company.

The Commercial Bank of Africa www.cba.co.ke

CBA has consistently been one of the highest capitalised commercial banks in Kenya. The Bank’s primary focus is in corporate and institutional banking. On the personal banking side the focus is on the top end of the market.The Commercial Bank of Africa Limited aims to be the leader of medium-sized domestically-owned banks in Kenya. It aims to focus its efforts and resources on Corporate and Trade Finance, Treasury, and the quality end of the Personal Banking Market and Foreign Mission and Non-Governmental Organisations segments.

Kenya Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 154

Bank Background Description

Afribank www.afribank.com

Afribank Nigeria Plc is one of the leading banks in Nigeria in terms of both assets and profitability. From two branches in 1960, the Bank has grown to be represented in 140 locations in major urban and sub-urban towns throughout Nigeria.

Afribank Nigeria Plc is the parent company of the Afribank Group. The highly diversified financial group boasts of a full service commercial bank, a merchant bank, an off-shore finance company in Dublin, Ireland, a stock broking company, an insurance brokerage company, a trustees and asset management company and an estate development company. Afribank is a full service commercial bank offering one-stop financial services. Presently over 130 of the 140 branches and business offices of the Bank are linked on-line real-time.

The Bank was recently appointed by the Federal Government of Nigeria to solely co-ordinate the revenue collection and registration of all expatriates working in Nigeria. In the education sector, it pioneered the sale of examination application forms at all levels.

Citibank (Nigeria International Bank) www.citigroup.com

Citigroup, through its subsidiary, Nigeria International Bank Limited (NIB) has had a presence in Nigeria since 19�4. The bank offers a broad range of services to corporate and commercial customers, financial institutions (including other banks) and public sector organisations.

Diamond Bank www.diamondbank.com

Diamond Bank Plc is a public limited company licensed to carry on commercial banking business. The Bank started formal operations on 21 March 1991, and currently operates as a universal bank with over 53 branches across the country. It has been a pioneer in the use of cutting edge information technology; all branches are run on the on-line real-time platform. Diamond Bank has recorded tremendous growth, placing it amongst the strongest banks in the Nigerian financial services industry, with an asset base in excess of N59 billion. In line with its relative strength and position in the financial sector, it has developed relationships with various multinationals and international financial organizations such as the U.S. Eximbank, The Netherlands ’FMO and the World Bank ’s International Finance Corporation (IFC), amongst others. Diamond Bank offers Personal, Corporate and Commercial banking.

Ecobank www.ecobank.com

ECOBANK is a private sector banking group based in 13 countries of West and Central Africa, namely: Benin, Burkina Faso, Cameroon, Cape Verde, Côte d’Ivoire, Ghana, Guinea, Liberia, Mali, Niger, Nigeria, Sénégal and Togo where over 109 branches and offices have been created in the last fifteen years. The Ecobank Group has become an established regional banking institution. The Group employs more than 2 000 professionals from West and Central Africa, and from other African and non-African countries. The Ecobank Group has a network of more than 109 branches and offices in 13 countries of West and Central Africa.

First Bank of Nigeria www.firstbanknigeria.com

First Bank of Nigeria PLC (the Bank) is a financial institution in Nigeria. The Bank provides a broad range of financial products and services, covering agricultural finance, bill discounting, bonds and guarantees, cash management services, check collection services, commercial credit papers, customised checks, equipment leasing, export banking and finance, first savings schemes, foreign operation services, lending products and services, loan syndication, money transfer services, overdrafts, small and medium-sized enterprise development project loans, revolving credits, stock replacement facility finance and term loans. The Bank also offers consumer finance products such as consumer loans, mortgage loans and First Global System for Mobile Communications (GSM) Acquisition Loans (FGAL). In addition, the Bank issues MasterCard credit cards and ValuCard banking cards. It is also engaged in the provision of Internet banking services.

Nigeria Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 155

Bank Background Description

Guaranty Trust Bank www.gtbplc.com

Guaranty Trust Bank PLC (“GTB”) was incorporated in July 1990, as a private limited liability company, wholly owned by Nigerian individuals and Institutions. The Bank was licensed as a Commercial Bank in August 1990 and commenced operation in February 1991. It offers personal banking, business banking, internet banking, SMS banking, and telephone banking.

Stanbic www.stanbic.com.ng

Stanbic Bank in Nigeria is part of Standard Bank Group. Stanbic Bank in Nigeria opened in 19�4 as Grindlays Merchant Bank of Nigeria. It became Stanbic Bank Nigeria in 1992 following the take over of ANZ Grindlays’ African operations by Standard Bank. The group’s investment is 93% of the issued share capital and is now trading as Stanbic Bank.

The bank caters to large multinationals and corporates through its branches in Abuja, Ikeja, Kano, Lagos and Port Harcourt. It offers a wide range of financial products and services in the personal, business, corporate and investment markets.

Standard Chartered Bank www.standardchartered.com/ng

Standard Chartered re-entered Nigeria in 1999 (being the first foreign bank to be granted a banking license since the 19�0’s) and opened to customers in 1999 as a wholly owned subsidiary of Standard Chartered Bank U.K. The bank has expanded, with the second branch opened in The Federal Capital Territory Abuja in 2000, the third branch was opened in Port Harcourt, Rivers State in 2002 and the fourth branch was opened in 2004 at Ikeja. Standard Chartered employs 30,000 people in over 500 locations in more than 50 countries.

United Bank for Africa www.ubagroup.com

United Bank for Africa (“UBA”) offers a range of consumer banking solutions, including money transfer products, check guarantee cards, smart cards, savings account products, overdrafts, global loan facilities, dealer finance, distributor finance, share purchase schemes, small to medium-sized enterprise/micro-finance loans, contract finance and other related products and services. UBA Capital & Trust, one of the Bank’s subsidiaries, handles specialised services, including asset management, retirement and pension, executorship of wills, trusteeship services and other services. The Bank has 25� branches and cash offices and agencies in Nigeria’s major commercial centers and state capitals, including two offshore branches in New York and Grand Cayman Island. (finance.google.com).

Union Bank of Nigeria www.unionbankng.com

Union Bank of Nigeria Plc was established in 1917 as a Colonial Bank with its first branch in Lagos. Union Bank of Nigeria Plc acquired three banks- Universal Trust Bank Plc, Broad Bank Ltd and Union Merchant Bank Ltd. It also has the largest shareholders’ funds of N57.32billion and operates through 379 network of branches that are well spread across the country, of which more than 340 are on-line, real time. Strategic Business Units include corporate banking, international banking, commercial banking, small and medium enterprises banking and agricultural credit. It offers personal, business and corporate accounts.

Zenith Bank www.zenithbank.com

Zenith Bank Plc through its network of over 150 business offices offers a full range of financial services: commercial banking, corporate banking and investment banking.

The bank is currently expanding overseas in line with its vision of becoming an international banking franchise. This expansion commenced with the establishment of Zenith Bank (Ghana) Limited and other overseas subsidiaries are soon to follow within the West African sub-region and other parts of the world. Zenith Bank was incorporated in 1990 as a private limited liability company with 100% equity ownership by Nigerian citizens and institutions. It commenced banking operations in July 1990. The bank was listed on the Nigerian Stock Exchange on October 21, 2004 and the shares of the bank are held by over 2�0,000 shareholders. It offers corporate finance, corporate banking, retail banking, private banking and treasury services.

Nigeria Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 156

Bank Background Description

ABSA www.absa.co.za

Absa Group Limited is one of South Africa’s largest financial services organisations, serving personal, commercial and corporate customers in South Africa. The Group also provides products and services to selected markets in the United Kingdom, Angola, Mozambique, Namibia, Tanzania and Zimbabwe in Africa.

The Group interacts with its customers through a combination of physical and electronic channels, offering a comprehensive range of banking services, (from basic products and services for the low-income personal market to customised solutions for the commercial and corporate markets), bancassurance and wealth management products and services.

As at 30 September 2005, Absa had 33,166 employees, assets of R3�1,1 billion, 6�6 staffed outlets, 5 46� ATMs and South Africa’s largest internet banking customer base.

1991 signified the formation of Amalgamated Banks of South Africa Limited (Absa) through the merger of UBS Holdings, the Allied and Volkskas Groups, and certain interests of the Sage Group. In 2005, Barclays, one of the world’s top ten banks, acquired a majority stake in Absa as part of its drive to expand its global product and international retail and commercial banking businesses in attractive markets outside the United Kingdom.

African Bank www.africanbank.co.za

Prior to 199�, African Bank operated for 24 years as a small commercial bank with its roots in, and concentrating on, the historically disadvantaged market. Following its acquisition by the JSE-listed Theta Group in 199�, African Bank was merged with King Finance Corporation, Unity Financial Services, and Alternative Finance - three loan finance companies owned by the Theta Group. Non-core assets and business activities of the former African Bank were disposed of, and only the business activities relevant to the core business were retained to form the new African Bank. African Bank’s original retail deposit taking and transaction banking activities were phased out.

Citibank www.citibank.com/southafrica

Citigroup is represented in South Africa, with offices in Johannesburg, Durban, Port Elizabeth and Cape Town. Since 1995, Citigroup has enjoyed considerable success in the South African market. Citigroup’s offices are staffed with banking professionals who not only understand the local financial marketplace, but also the strategic issues of our global customers. There are four sales offices in South Africa. The bank handles global transaction services, lending services, project and structured finance, treasury services, and global markets.

Commerzbank www.commerzbank.co.za

Commerzbank is Germany’s second-largest bank and one of the leading banks in Europe. Commerzbank sees itself as an efficient provider of financial services for private and business customers as well as for small to medium-sized companies (Mittelstand), but it also serves numerous major corporates and multinationals. It is represented with outlets of its own in more than 40 countries. With the full range of investment and wholesale banking services, Commerzbank Johannesburg transacts in South Africa for corporate clients, multinationals, banks, parastatals and public-sector clients. It offers corporate banking, treasury and trade finance

South Africa Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 157

Bank Background Description

FirstRand www.firstrand.co.za

FirstRand was created in April 199� through the merger of the financial service interests of Anglo American Corporation of South Africa Limited and RMB Holdings Limited. FirstRand Limited was listed on the Johannesburg Stock Exchange on 25 May 199�. FirstRand represents a very different proposition to its peers in that it is the only fully integrated financial services group in South Africa . It is also the only one of the big-four South African retail, commercial and investment banking groups that is “owner-managed”.

FirstRand Limited is the holding company of the FirstRand Group of companies, engaged in financial services activities in the areas of retail, corporate, investment and merchant banking, life insurance, employee benefits, health insurance, short-term insurance, and asset and property management. Corporate segment is the provider of transactional banking and other services. Public Sector segment is on the three spheres of government: national, provincial and local. The FirstRand Banking Group is a wholly owned subsidiary of FirstRand. Within the Banking Group are the major banking businesses: Rand Merchant Bank the investment bank, First National Bank (FNB) the retail and wholesale bank, WesBank-installment finance, the African subsidiaries of FNB and its treasury businesses. During the fiscal year ended June 30, 2005, FNB merged FNB Corporate and FNB Retail. Included in FNB Other is the mass, public sector banking, branch banking, brand and support. (finance.google.com).

Investec www.investec.com

Investec is an international, specialist banking group that provides a diverse range of financial products and services to a select client base. Founded as a leasing company in Johannesburg in 1974, it acquired a banking licence in 19�0 and was listed on the JSE Securities Exchange South Africa in 19�6. Since inception, it has expanded through a combination of substantial organic growth and strategic acquisitions. Today, it has an integrated platform, offering core activities in South Africa and the UK and select activities in Australia, with approximately 4 400 employees. Investec comprises five business divisions: Private Client Activities, Treasury and Specialised Finance, Investment Banking, Asset Management and Property Activities. The South African operations mirror those of the international Investec group, focusing on investment banking, treasury and specialised finance, private client activities and asset management. Within South Africa, Investec is represented in all the main business centres: Johannesburg, Cape Town, Durban, Pretoria, Port Elizabeth and East London. Through a Dual Listed Companies structure, Investec has primary listings in South Africa and the UK. Investec Limited is one of the top 30 largest companies listed on the JSE Securities Exchange (JSE) and Investec plc is one of the top 200 companies listed on the London Stock Exchange.

South Africa Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 15�

Bank Background Description

Nedbank www.nedbank.co.za

Nedbank Group Limited (formerly Nedcor Limited) is a bank holding company that, through its principal banking subsidiary, Nedbank, together with the other members of the Nedbank Group, operates as one of the four largest banking groups in South Africa. The group offers a wide range of wholesale and retail banking services through three primary business clusters: Nedbank Corporate, Nedbank Capital, and Nedbank Retail. The principal services offered by the group comprise corporate and retail banking, property finance, investment banking, private banking, foreign exchange and securities trading. Nedbank Group also generates income from private equity, credit card acquiring and processing services, custodial services, unit trust and trust administration, asset management services and bancassurance.

Nedbank Group’s headquarters are in Sandton, with large operational centres in Durban and Cape Town, which are complemented by a regional network throughout South Africa and facilities in other southern African countries. These facilities are operated through Nedbank Group’s eight subsidiary and/or affiliated banks, as well as through branches and representative offices in certain key global financial centres that serve to meet the international banking requirements of the group’s South African-based clients.

Standard Bank www.standardbank.co.za

Standard Bank is a South African-based financial services company with a global presence. It operates from 17 African countries and 21 countries on other continents, including the key financial centres of Europe, the Americas and Asia. Standard Bank Group is one of the big four full-service South African banks. The group operates in a range of banking and related financial services. The group has a wide representation which spans 17 African countries and 21 countries outside of Africa with an emerging markets focus. Standard Bank has 746 branches in South Africa and 23� in the rest of Africa. The Standard Bank Group is the largest South African banking group ranked by assets and earnings. The group had total assets of over R756 billion (approximately $119 billion) at 31 December 2005 and employed more than 42 000 (including Liberty) people worldwide. Standard Bank’s market capitalisation at 31 December 2005 was R103 billion (approximately $16 billion).

South Africa Appendix A (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 159

Country Area (‘000 Km2)

Population (000’s)

GNI per Capita (US$)

Consumer Price Inflation (%)

2005 2004 2005

Africa 30 307 904 �04 �11 7.9

Algeria 2 3�2 32 �54 2 2�0 3.9

Angola 1 247 15 941 1 030 2�.3

Benin 113 � 439 530 2.6

Botswana 5�2 1 765 4 340 6.9

Burkina Faso 274 13 22� 360 3.4

Burundi 2� 7 54� 90 19.2

Cameroon 475 16 322 �00 2

Cape Verde 4 507 1 770 -0.6

Cent. Afr. Rep. 623 4 03� 310 3.�

Chad 1 2�4 9 749 260 7.2

Comoros 2 79� 530 3.5

Congo 342 3 999 770 2

Congo (DRC) 2 345 57 549 120 15.5

Côte d’Ivoire 322 1� 154 770 4.9

Djibouti 23 793 1030 3.5

Egypt 1 001 74 033 1 310 6.7

Equat. Guinea 2� 504 ... 7.6

Eritrea 11� 4 401 1�0 ...

Ethiopia 1 104 77 431 110 ...

Gabon 26� 1 3�4 3 940 -0.3

Gambia 11 1 517 290 5.3

Ghana 239 22 113 3�0 13

Guinea 246 9 402 460 26.�

Guinea Bissau 36 1 5�6 160 3.9

Kenya 5�0 34 256 460 17.9

Lesotho 30 1 795 740 4.1

Liberia 111 3 2�3 110 ...

Libya 1 760 5 �53 4 450 ...

Madagascar 5�7 1� 606 300 25.2

Malawi 11� 12 ��4 170 14.�

Mali 1 240 13 51� 360 3.4

Mauritania 1 026 3 069 420 16.5

Mauritius 2 1 245 4 640 5.9

Appendix B African countries: A statistical overview

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 160

Country Area (‘000 Km2)

Population (000’s)

GNI per Capita (US$)

Consumer Price Inflation (%)

2005 2004 2005

Morocco 711 31 47� 1 520 1.2

Mozambique �02 19 792 250 5.7

Namibia �24 2 031 2 370 1.�

Niger 1 267 13 957 230 6.7

Nigeria 924 131 530 390 ...

Rwanda 26 9 03� 220 12.1

São T. & Principe 1 157 370 ...

Sénégal 197 11 65� 670 0.5

Seychelles 1 �1 � 090 ...

Sierra Leone 72 5 525 200 13.9

Somalia 63� �,22� ... ...

South Africa 1 221 47 432 3 630 3.4

Sudan 2 506 36 233 530 ...

Swaziland 17 1 032 1 660 3.6

Tanzania 945 3� 329 330 ...

Togo 57 6 145 3�0 6.6

Tunisia 164 10 102 2 630 1.4

Uganda 241 2� �16 270 10.5

Zambia 753 11 66� 450 1�.4

Zimbabwe 391 13 010 ... ...

Source: African Development Bank 2006

Appendix B (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 161

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Appendix CSelected African countries: Real GDP, consumer prices and current account balance (annual percent change unless otherwise noted)

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Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 162

Net External Position Net Net Heavily Indebted

creditor debtor(1) Poor Countries

Algeria *

Egypt *

Morocco *

Tunisia *

Sub-Sahara

South Africa *

Horn of Africa

Djibouti •

Ethiopia • *

Sudan *

Great Lakes

Burundi • *

Congo, Dem. Rep. of • *

Kenya •

Rwanda • *

Tanzania • *

Uganda * *

Southern Africa

Angola *

Botswana *

Comoros •

Lesotho *

Madagascar • *

Malawi • *

Mauritius *

Mozambique, Rep. of * *

Namibia *

Seychelles *

Swaziland *

Zambia • *

Zimbabwe *

West and Central Africa

Cape Verde *

Gambia, The * *

(1) Dot instead of star indicates that the net debtor’s main external finance source is official financing.Source: IMF World Economic Outlook 2006STATISTICAL APPENDIX

Table F. Other Emerging Market and Developing Countries by Region, Net External Position, and Heavily Indebted Poor Countries

Net External Position Net Net Heavily Indebted

creditor debtor(1) Poor Countries

Ghana • *

Guinea • *

Mauritania * *

Nigeria *

São Tomé and Príncipe * *

Sierra Leone • *

CFA franc zone

Benin • *

Burkina Faso • *

Cameroon * *

Central African Republic

Chad • *

Congo, Rep. of • *

Côte d’Ivoire •

Equatorial Guinea *

Gabon •

Guinea-Bissau • *

Mali • *

Niger • *

Sénégal * *

Togo •

Appendix C (cont.)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 163

Per Capita GDP ($ PPP)

1997 199� 1999 2000 2001 2002 2003 2004 2005(e) 2006(p) 2007(p)

Africa 2,020 2,051 2,100 2,161 2,246 2,307 2,395 2,510 2,724 2,�03 2,945

Egypt 2,92� 3,037 3,213 3,3�6 3,521 3,623 3,732 3,934 4,100 4,163 4,334

Kenya 9�0 9�3 9�� 9�6 999 1,005 1,017 1,044 1,144 1,1�0 1,301

Nigeria 994 9�3 9�� 1,039 1,072 1,0�1 1,192 1,241 1,776 1,769 1,�22

Côte d’Ivoire 1,471 1,527 1,53� 1,502 1,511 1,4�9 1,451 1,4�� 1,503 1,564 1,64�

Sénégal 1,266 1,304 1,370 1,406 1,471 1,477 1,562 1,676 1,745 1,�52 1,975

South Africa �,551 �,566 �,735 9,119 9,4�4 9,920 10,222 10,721 11,470 11,940 12,629

Source: African Economic Outlook 2006

Key:(e) – estimated(p) – projected

Appendix DPer Capita GDP Growth for countries included in this report

(%)

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 164

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Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 165

For further information please contact the Partner in Charge of our relevant African offices

Gabon

366 Rue Alfred-Marche, Libreville BP 2164 Tel+ 241 76 23 71 Fax+ 241 74 43 25

Contact: Christophe Relongoue

Ghana

PMB CT 42, Cantonments, Accra Tel+ 233 21 761 500 Fax + 233 21 716 544

Contact: Charles Egan

Guinea

Immeuble ETI-Bull, 5th Floor, Boulevard du Commerce, (Face Ambassade de France), Conakry BP 47� Tel+ 224 45 14 43 Fax+ 224 45 23 77

Contact: Flan Oulai

Malawi

PO Box 1147, Blantyre Tel+ 265 1 �20 322 Fax + 265 1 �21 215

Contact: Kevin Carpenter

Mauritius

Cerne House, 6th Floor, Chausee, Port Louis Tel+ 230 207 5000 Fax+ 230 20� �037

Contact: Robert Bigaignon

Mozambique

PO Box 25�3, Maputo Tel + 25� 1 30 7620 Fax+ 25� 1 30 7621

Contact: Rob Walker

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Angola

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Botswana

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Contact: Uttum Corea

Cameroon

BP 56�9, Douala - Akwa Tel+ 237 3 43 24 43 Fax+ 237 3 42 �6 09

Contact: Come Tienta

Cape Verde

PO Box 303, Cidade da Praia, Cape Verde Tel+ 23� 615 934 Fax+ 23� 616 02�

Contact: Edouard Messou

Congo

32 Avenue du General de Gaulle, Pointe Noire Tel + 242 94 30 2� Fax + 242 94 23 34

Contact : Prosper Bizitou

Democratic Republic of Congo

BP 10195, Kinshasa 1 Tel+ 243 12 206 49 Fax+ 243 �� 000 75

Contact: Ben Nzailu

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 166

Namibia

PO Box 1571, Windhoek Tel + 264 61 2�4 1000 Fax + 264 61 2�4 1001

Contact: Louis van der Riet

Swaziland

PO Box 569, Mbabane Tel+ 26� 404 2�61 Fax+ 26� 404 5015

Contact: Paul Lewis

Tanzania

PO Box 45, Dar-es-Salaam Tel+ 255 22 213 3100 Fax+ 255 22 213 3200

Contact: Leonard Mususa

Uganda

PO Box ��2, Kampala Tel+ 256 41 236 01� Fax+ 256 41 230 153

Contact: Joseph Baliddawa

Zambia

PO Box 30942, Lusaka, 10101 Tel+ 260 1 22� �09 Fax + 260 1 220 76�

Contact: Richard Mazombwe

Zimbabwe

PO Box 453, Harare Tel + 263 4 307 213 Fax+ 263 4 332 495

Contact: Tinashe Rwodzi

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 167

We enclose below the contacts for banking services, for South Africa, who sponsored this survey:

Kenya

Rahimtulla Tower, 7th Floor Upper Hill Road Nairobi

Tel+ 254 20 2�5 5000 Fax+254 20 2�5 5001

Contact: Charles Muchene

Nigeria

252E Muri Okunola Street Victoria Island Lagos

Tel+ 234 1 271 1700 Fax+ 234 1 220 3109

Contact: Gabriel Ukpeh

South Africa

Private Bag X36 Sunninghill Gauteng 2157

Tel+ 27 11 797 4000 Fax+ 27 11 797 5�10

Contact: Tom Winterboer

PricewaterhouseCoopers contacts for the other territories participating in this

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22, El Nasr Street - New Maadi Cairo

Tel+ 2 02 516� 027 Fax + 2 02 516� 169

Contact: Tarek Mansour

Francophone West Africa

Immeuble Alpha 2000 23rd Floor Rue Gourgas Abidjan 01

Tel+ 225 20 31 54 00 Fax+ 225 20 21 0� �5

Contact: Edouard Messou

Contacts for Banking Services

Initial Perspectives on Strategic and Emerging Banking Issues in Key African Markets 16�

Contacts for Financial Services in Southern Africa

The leadership of our Southern African Financial Services practice would be pleased to hear from you.

Financial services and long-term insurance leader:

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