Interview with Yao Kouassi, Deputy Chief Executive Officer of BICICI (BNP Paribas Group)

What is your overview of the economy in Ivory Coast at the moment?

I think that we have no secrets here at the bank. We have come out of a crisis and the government has done what was necessary to re-establish the economy. Things have set off again well and we have been doing well for the past 3 years. We have seen steady growth in the economy; we have had growth of about 9% and we aim to reach over 10% growth in 2015 and the following years. This is real and palpable.

The only hiccup that we have is that this growth has mainly been a result of public investments. The private sector has not yet picked up enough to be able to lead this kind of growth. We have practically only seen public investment through investments in large infrastructure projects. There have been some companies that have carried out important projects but we have been a bit disappointed in this respect. We hope that in the months to come things will get going in a more meaningful manner. The contact we have with our clientele shows us that the majority has some large projects of great volume. Unfortunately, putting them into practice will take a bit more time but we have high hopes that in the months to come things will accelerate in that respect.

What does the private sector need in order to develop further?

A lot has been done in that regard. The business climate has been reviewed and worked on by the authorities. There are still some legal aspects that need to be improved. In terms of taxes, the government has made quite an effort to make adjustments. The “doing business” concept has allowed them to put into place a large number of rules and bases that motivate investors to invest in the country. Thus from that perspective, significant steps have been taken. The main expectation now is the legal framework. Obviously investors expect that when they place their money in a country, their rights are respected when any difficulties occur. I would say that this is the main area that needs to be improved by the authorities to accelerate foreign investment, though I am confident that the authorities are aware of this and that these improvements are being made. For example, the Professional Association of Banks has submitted a white paper to the authorities that includes a certain number of recommendations that have been put into place and we continue to work with the authorities to improve the business climate here.

What is your overview of the banking sector here? This is a very competitive market. What is your competitive advantage?

I think that the fundamental problem we have in this market is that we must find a way to evolve the way consumers use the bank and speed up our banking services. Today, banks are used in the bank offices. Thus all the banks here have opened up large networks of offices, which is expensive. It costs about 300 million to open a bank office and then of course it must be made profitable. This means that the rhythm cannot be as steady as we might like. I think that we can be inspired by what is going on in other latitudes. When you look at Europe do you think that people go into the bank offices? They access their banks through their computers and this is a model that we really need to establish here in this market. That will allow us to accelerate the rate of banking penetration in the country. If we were to rely merely on the classic route of bank offices we would have a job to increase the number of people with bank accounts in this country. I´m sure we would get there but it would take a lot of time. We need to find other ways of reaching clients. However to do this we need to have some prerequisites. We need to introduce digital invoicing and the internet must be accessible for everyone no matter the point of sales in the country. I know that the authorities are working on increasing the networks but obviously it all takes time, so we can´t move at the fast pace that we would like to.

Yes of course you need the government’s support.

We need the government to put in place the basic infrastructure. We need to have internet coverage all over the country and from then on, our responsibility as a bank is to be as imaginative as possible in attracting the population to participate in the banking sector using the infrastructure that has been put in place. We could do this with voice recognition software, digital software, etc… Quite a large percentage of our population cannot read or write so it is our responsibility to implement products and programs that suit our population and our culture.

What can you tell us about the competition in the banking sector?

Competition is beneficial on the condition that it be healthy. Today, I will not hide from you that we are starting to reach levels that could be quite worrying at a later date. Today we are seeing credit at 3% which would have been completely unimaginable five or ten years ago. We often hear from critics that credits are too expensive, etc., although all of this depends on the evaluation we give to our risk. Obviously if a large multinational comes along then the risk is much more clearly defined and we can allow ourselves to give a little bit in terms of our margins but when it comes to companies that are involved in much smaller investments then obviously we have to be a bit more careful. We have to make sure that this competition does not lead to dumping or the weakening of a certain number of banks. The larger banks have the resilience to support such competition. But I think that it is more complicated for the smaller banks. The problem is that if it becomes too complicated for the smaller players then there could be a snowball effect that could weaken the entire market. Otherwise it is completely beneficial because it makes us question and evaluate ourselves constantly.

In that case you are in a good position if the larger banks like yours can survive…

Speaking as Vice President of the Professional Association of Banks it is not in my interest to “save my own chapel” so to speak but to save everyone’s. I need us all to survive. We have to find the correct resources or springboards so that everyone can continue to be active in this market. The competition in terms of tariffs exposes another quirk that we are seeing in the market more and more, which is that an increasing number of banks is not demanding guarantees. That is dangerous. We are not pawnshops but there is a minimum amount of safety measures that we must put in place. We must remember that the money that we deal with is not our own, it is our client´s deposits. It is our responsibility to be able to ensure that this money remains at our clients´ disposal. We need to demand a minimum level of guarantees. Today, more and more banks are not following these requirements and that is not good.

Tell us a bit about the large projects that the government put in place to accompany the economy. I understand it is difficult for banks to approach with their own equity.

These infrastructure projects cost at least 50 to 70 billion CFA francs. This is the only sector that is regulated to quite an extent because we are obliged to limit the amount of equity we put in each project. You may only put in 25% of your shareholders´ equity into one project. We can push a little bit in terms of state contracts that we consider to be somewhat infallible. We can push a bit further but the main rule is that one single entity cannot put more than 25% of its shareholders´ equity. There is also a rule that limits the total volume of credit given to companies having won a bid to hold a maximum of 25% of the equity from the bank; all of this is regulated. This means that if we want the banks to be able to take on a more significant position in these projects we must ensure that they can have the kind of funds necessary; that is the first thing that needs to be controlled.

The second thing is that when it comes to projects carried out by the state and infrastructure projects, they logically do not fall within the scope of ordinary commercial banks such as ours but rather in the scope of the DFI. However, we can be imaginative and accompany these kinds of projects, for example, the commercial banks could take up a project for 5 or 7 years and then the DFI could pick up the reigns afterwards. There are a number of things we could do but in order to do so in a visible and significant manner we need robust players. We can’t be content with just accompanying the economy in a minor and invisible manner.

The other expectation of the government is that the banks accompany the SMEs. We are aware of this concern and objective. At any rate we are condemned to do it. The large bids are competed for by all of the banks. Thus the margins on these large projects are extremely weak. The profitability of the banks can only be generated by the bids we give to the SMEs that offer more significant margins because the risks are greater. There are a certain number of prerequisites. First of all we need credible players with good governance. Secondly we need players that have a financial strength that complies with the regulations. The Central Bank works actively in this respect. The regulations fixed by the Central Bank in terms of classification, fixes the solvability ratio at 20% for all companies without distinction. In my opinion it is difficult to ask a small SME working in commerce to have 20% solvability: that is an enormous amount. These regulations need to be adjusted to suit the SMEs. That will help the banking system go forward.

The other thing that needs to be addressed is the matter of guarantees. It is a subject that we have discussed before. In the mid 90s, a consultant from the European Union was sent here to work on the matter of why SMEs find it difficult to get credit from the banks. In this respect I participated on behalf of the Professional Association of Banks and from this study we concluded that there are 3 fundamental reasons. The first being governance as I mentioned earlier. The second reason was the matter of guarantees, and the third reason was the matter of financing of credits for SMEs. With regard to governance, we realised that the fatality rate of SMEs is elevated in our countries simply because they are often badly managed and there are difficulties when it comes to putting together the financial documentation. This is important because banks will only endorse someone according to their financial documentation which is where they can evaluate the risks and all these are things that are approximate. Thus we still need to address this matter. At the time the matter was addressed by the creation of a structure and framework for SMEs, which actually was created and at the time it was called Support and Service for Companies. The banks participated and held seats on the administrative board but for reasons that no one understands it didn’t last long.

The second reason is the matter of guarantees so the idea is to look at how you can put into place a guarantee fund that accompanies credit for SMEs. Equally in this respect, there were various bodies cooperating bilaterally, from Belgium and Canada, etc., who were candidates contributing to the financing of these guarantee funds for SMEs alongside the government in Ivory Coast. Unfortunately this hasn’t been successful either.

For the last twenty or thirty years we have been repeating the same things without being able to achieve them. However I think that the current authorities have taken the matter in hand and I think that things are being done. Already, the famous Phoenix Program was agreed upon by the government and it allows them to really fix their objectives. They know where they want to go and what they want to do. The private sector is also trying to play its role alongside this. In terms of the CGECI, the National Confederation of Ivorian Companies, there is a project to create a guarantee fund which will allow the banks to support the SMEs. There are other solutions; there are investment funds that are beginning to come here, but I think that we need to have some real terms in place here and this will be one of the subjects that will be discussed, particularly regarding technical conditions, sponsors, etc., and to see to what extent a local investment fund could be put into place to help consolidate the equity of the SMEs. I think that this will be the true argument for aiding the financing of SMEs. The Central Bank is also working on the matter of financing, looking at the advantages of using shareholders’ equity while the banks finance the SMEs. All of this together should contribute to improving things here.

Then there is just one further point that must be addressed. It is a matter that perhaps is not considered enough today. There are currently a lot of critics saying that banks do not finance the SMEs. However, we have more and more clients who come to us saying that they have a project in mind and that they would like our assistance. When we question them further we often realise that they have just an idea, and an idea is not a project. The bank doesn’t finance ideas. We must find a way of helping them to convert their ideas into projects that banks can tackle. I think that we have truly begun to work in this respect and we have made good progress.

You have taken certain steps to help the SMEs, what has your bank done in particular?

What we have done is very simple. We have mapped the ecosystem to see where our risks are. Once we had the mapping and our risks were identified we began to find solutions to address the risks. We have closed two agreements with the French Development Agency. The first agreement allows us to guarantee 50% of credits to SMEs but these are silent guarantees where the client is not aware of them. The second agreement concerns individual guarantees. This allows us to offer more significant credits to the SMEs. The other solution that we have found in this respect is in agreement with the SFI as a way of sharing the risk, where the SFI supports us as a guarantee for the credits we give to the SMEs at a rate of up to 45%. The total agreement with the SFI is worth 20 billion.

Our strategy is to capitalise on the sectors where our expertise is well known and we have the most clientele. Secondly we want to address the SME market. Thirdly we want to accompany all of the smaller SMEs, i.e. the very small companies and individuals.

Alongside this, we are convinced that we have to find products that are more and more adapted and specific to SMEs. Apart from the classic products for SMEs such as credit to finance capital or medium term credit, etc., which are the classic products that you find everywhere, we have tried to introduce as of 2014 a new product to do with non-recourse factoring. We are the first bank in Ivory Coast to offer this and we are doing so with our partners Coface. This is going really well. We have reached our initial targets and we aim to keep going. We have also accelerated our lease-purchasing agreements. We are the leading players in this on the Ivorian market. Since 2014 we have doubled the volume of lease-purchasing agreements given to our clientele.

Tell us a bit about these agreements.

These agreements allow the banker to help the client access transferable leasing agreements. For example, if a client needs to purchase a delivery vehicle, instead of them having to put forward a large amount of their capital to finance the vehicle, the bank will buy the vehicle and rent it out to them. In this way the SME leases the vehicle instead of having to invest in one go a much larger amount. This is a product that is entirely aimed at SMEs.

I mentioned factoring as another solution. A client who deals with invoices and must wait 30 days, 90 days or 120 days to be paid, they may cede his invoice to the bank, essentially selling that invoice to the bank, who will immediately reimburse the value for a fee.The bank then ensures that they receive the payment for the invoice within its time frame. The client therefore doesn´t have to worry about that, they get their money immediately and the bank deals with the pending invoice from the customer.

There is another product that we launched two years ago and that the BICICI team won a prize for within the international division of BNP Paribas. This product is the advanced payment of invoices. It allows us to pre-finance our clients´ invoices and allows them to continue their activities without too much stress.

We are working on our solutions particularly on our real estate lease-purchase agreements which will be a structural solution to help the SMEs, notably those with the most difficulties.

When do you expect that to be available?

We expect to be finalising it in 2015. We are working on it.

What is your medium term strategy for BICICI?

Our strategy is to capitalise on the sectors where our expertise is well known and we have the most clientele. Secondly we want to address the SME market. Obviously we are going to do this without sacrificing our risk policy which is the backbone of BNP Paribas. Thirdly we want to accompany all of the smaller SMEs, i.e. the very small companies and individuals. Notably we are going to be developing mortgages. The government has a very ambitious program for housing here. We estimate that there is a need for more than 500 thousand houses in Ivory Coast and that it will work out to be about 50 to 60 thousand houses built per year. Thus clearly we will be taking part in this program.

Additionally, we want to spread our network over the country, increasing our coverage. Of course we are constantly taking into account our profitability. We consider that every point of sales must be profitable by itself. That is the basic rule.

What about the larger accounts, what sets you apart?

We need to develop these larger accounts on our national network. In general we offer the same products that are offered by all the others. The differentiation comes from our professionalism, the bank´s responsiveness, and the ability of the bank to offer innovative solutions to our clients.

I shall give you a simple example. Here in Ivory Coast we grow coffee and cocoa and this is a sector of great predilection that everyone wants to get involved in. We have taken the decision to go a little further in this. In 2014 we created a commodity department that deals with coffee, cocoa, and also cotton, cashews, palm oil, hevea and sugar. We are going to get involved in all of this but of course with an extremely professional approach. I think that this is where we have a good competitive advantage; because we have BNP Paribas, a large group behind us who can support us with all of their expertise in the matter. We have had some expert engineers come in from the group to help us with certain aspects of this.

What is your message regarding Ivory Coast in all sectors? How do you think that Ivory Coast should push to be more competitive, and push for the development of its people?

I think there is an important point that we must address. We need to work on the capacity of our population to look beyond material riches and look towards intellect. I think that it will be incredibly important in the future. Today, we have talked about cashews, cotton, agriculture in general; the banks finance these different sectors, but really which is the area that at the moment we are concentrating on? We work on the trading side but we don’t finance the production side simply because the claim rate at this level is such that we can´t take it on for now. We need to organise people and work on the mentality of the people so that they understand that credit must be paid back.

I attended a delegate from the SFI in the office not long ago; someone came to see us to look into how we could put together a scheme to finance agricultural cooperatives. I explained to them that I am currently in my 29th year of working in the banking sector and in all that time whatever we have done in terms of cooperatives has ended up in disputes simply because the way they are organised is not secure, it is like a bubble and there is always a moment when they burst. People have not realised the responsibility involved in the credit that they contract. When you get credit, you must pay it back. However they seem to think otherwise. Thus we need to work on that mentality ; we need to develop good civic behaviour in this country. There are examples of this mentality everywhere, if you look at the traffic in the cities, people drive up one way streets in the wrong direction for example. Very few people respect the rules. I think that the greatest improvement that the authorities must do apart from creating wealth is to develop a population where civic behaviour is key. I reference the agricultural sector but I think that it is something that can be seen in various sectors. If you lend money to a planter, you will have trouble getting it back. I can give you some very simple examples. In the sector of hevea and palm oil, unlike other countries with huge plantations, we have individual producers who take their production to larger companies each month. The bank is committed to give credits to planters, but the problem is that for the companies to be able to pay the planters, the planter has to deliver them their production. However what can happen is that once the planter has his credit, then he delivers his production to his neighbour! So it becomes a disaster.Thus it really doesn´t encourage the banks to support them. As you can see we always return to the matter of civic behaviour. I really think it is essential, it needs to be encouraged, I´m not quite sure how but it is essential.

What do you think a foreign investor could bring to Ivory Coast?

I think this country is incredible lucky. It is a country where it is hot and it rains a lot, so you can grow rice absolutely anywhere. The subsoil has barely been touched. Everything is possible here. There is so much that can be done here. A lot has been done by the authorities but the potential for growth is still enormous. I would say that the authorities have taken into account the prerequisites that are necessary to reassure those foreign investors interested in coming here. Things are being done and they are visible in all of the results we have seen in terms of doing business, etc. Even the legal framework is being improved. There is now a Commerce Tribunal and other huge advancements are being made. There truly are reasons to come here, there is so much to be done here and the potential for growth is enormous.