Algeria Country Overview

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Private Banks in Algeria
Presented on February 3, 2005 at the 2005
US-Algeria Business Council Banking Finance
Symposium at the St. Regis Hotel in New York
City
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Foreword

• The new economic environment in Algeria is
  positive, proactive and
• helpful towards foreign companies interested
  in investing in the
• country.
• The speed and depth of the recent changes have
  been far greater than
• anyone anticipated.
• Liberalization measures have affected prices,
  foreign trade, interest
• rates, access to foreign exchanges and labor
  laws.
• The investment law is one of the most liberal in
  the region.
• Algeria is now an open market where all
  companies, local and foreign,
• can trade freely on the same footing.

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What makes Algeria a good Investment ?
Third largest economy in Africa
Strategic Location in North Africa
Significant Natural Resources and Good
Infrastructure
Well Educated People
and
A New Business Environment
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Background

• Banking system is dominated by 6 state owned
  banks with 95 market
• share.
• 15 private banks have been licensed since 1998.
  Citibank was the first
• foreign bank to be licensed in Algeria.
• Government is making every effort to modernize
  the banking sector and
• make it more efficient and sound. Progress
  has been achieved in
• modernizing the payment system.
• Algeria remains under banked and essentially a
  cash based economy.
• Domestic private banks are mostly family owned
  and often lack
• transparency.
• Private banks accounted for 26 of credit to
  private sector before the
• failure of Khalifa bank in 2003.

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Background

• Capital market remains in its infancy.
• Private banking sector accounts for less than 6
  of total deposits and about
• 7 of total outstanding loans
• There are 10 foreign banks the major ones are
  SocGen, BNP-Paribas, Arab
• Banking Corp. Natexis and Citibank
• Foreign banks expected to play a major role in
  the modernization of the banking
• system, but lack of branch network is a major
  obstacle.
• The collapse of Khalifa bank (largest private
  sector bank) and BCIA in 2003 and
• that of 2 other private banks has undermined
  public confidence in the private
• sector banks.

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Structure of the Algerian Financial System
Source IMF
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TOTAL BANKING SECTOR
47bn
ASSETS
33bn
DEPOSITS
18bn
LOANS
Est. Market Share
95
6 Government owned banks
8 Local Private banks
1
10 Foreign banks
4
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DEPOSITS
Billions of Algerian Dinars
Source Central Bank of Algeria
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Loans
Million of Algerian Dinars
Total loans reached 1,378,252 MM Dinars (18,880
MM) in 2003
Source Central Bank of Algeria
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Loans/Deposits
Million of Algerian Dinars
Loans/Deposit ratio was 56 in 2003
Source Central Bank of Algeria
11
Current Situation

• Bank failures led to amendment of the law on
  Money and Credit. The amended
• law raised entry barriers and imposed more
  proactive supervision of banks and
• implementation of strict regulatory reforms.
• The amended law could possibly weed out some
  private banks who may not
• be able to comply with the new requirements
  of the law
• Foreign banks operating in Algeria are not
  expected to be affected by the
• amended law and welcome the rise in banking
  standards stipulated in the
• banking law.
• Lack of FX market hamper the introduction of new
  products, i.e. derivatives,
• forwards, by private banks.

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Current Situation

• Private banks in Algeria remain cautious in
  extending credit.
• Private banks focus on secured short-term
  lending and trade finance.
• Collapse of private banks has weakened the
  Algerian private sector
• Volatility of liquidity creates uncertainty for
  private banks.

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Perspective
Despite serious challenges, the outlook for
private banks in Algeria is promising

• The size of the economy which remains
  under-banked.
• Fundamentally sound banking system that could use
  the added value
• of healthy private banks.
• Macroeconomic discipline and sustained economic
  growth.
• Acceleration of banking reforms will provide
  opportunities for private banks
• with the required expertise and know-how to
  promote new products/services
• and contribute to the development of
  financial markets.
• Huge opportunities in retail banking and
  leasing.

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Perspective

• The fast developing private sector in Algeria
  will require the active involvement
• of private sector banks in extension of
  credit facilities and advisory services for
• local businesses.
• The increasing integration of Algeria in the
  global economy calls for a more
• efficient banking system and a major role for
  private banks.
• Expected increase of more diversified FDI inflows
  as a result of political and
• economic stability in Algeria.
• Expected improvement in the banks operating
  environment will cut down
• intermediation costs and provide proper
  conditions for private banks to
• flourish.
• Economic diversification should result in
  better resource allocation
• and reduce volatility of hydrocarbon driven
  liquidity.

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Challenges

• Ability of private banks to compete on equal
  footing with all players in the
• market.
• Fragmented private sector (97 of private
  enterprises are family owned).
• Banking reforms would enhance the development of
  private banks.
• Slowdown in banking reforms means high
  intermediation costs.

More proactive supervision
Modernized payment system
Implementation of Strict Regulatory Reforms
Accounting standards and transparency
Governance
Train magistrates in commercial financial
matters
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Recommendations for a Sound Efficient banking
system

• Strict application of the rules and regulations
  regarding licensing and
• supervision
• Tighter Control of public and private banks
• Strengthen supervision and improve internal
  controls and risk management
• systems.
• Impose sanctions on banks that fail to observe
  prudential regulations.
• Attract private investment, particularly FDI into
  banking.

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CONCLUSION
PERSPERCTIVE FOR PRIVATE BANKS IN
ALGERIA REMAINS VERY PROMISING IN VIEW OF THE
NEW BUSINESS ENVIRONMENT, THE ONGOING
REFORMS AND THE OPPORTUNITIES OFFERED IN THIS
MARKET
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THANK YOU