Guinean primary banks do not distribute enough credit, they say!

By Diallo Safayiou *

Over the past few weeks, we have attended with great attention a panel where the financing of the Guinean economy was discussed in all its facets. Considering the positions of certain participants and speakers, primary banks located throughout the country do not participate sufficiently in financing the Guinean economy. Thus, we make it our duty to share in this paper our modest knowledge and experience on this important subject.

Before judging the banks, we should first know their constraints because it is not wise to grant credit to a business relationship that you do not know well. First of all, you should know that in banking, everything starts from KYC (Know Your Customer). In this country, knowing the customer is very difficult because many prospects, before becoming customers, withhold information (case of traders for example, providers of funds). In addition, there is no possibility of drawing specific information on certain specific prospects like PEPs (Politically Exposed Persons) from public sources because they are non-existent. Added to this is the absence of a platform of undesirable customers or those appearing on a list of national, sub-regional or regional financial sanctions, maritime surveillance or CSR exclusion.

Furthermore, it is true that financing constraints have long been considered to be one of the main obstacles to the economic development of the country in general and of SMEs in particular. This does not mean that difficulties in accessing bank credit are not observed at the level of the Individual and Large Business market. If we take the specific case of SMEs which must be highlighted, many entrepreneurs do not have the notion of what KYC procedures call financial data (balance sheet, income statement etc.) nor the financial information estimated by the Relationship Manager (customer advisor) in conjunction with the client. And yet, before granting a loan, you need at least certified financial statements from the last three (3) financial years preceding the current year in order to better appreciate the trend. However, even if they are produced, they sometimes do not reflect the reality of the company. It is not for nothing that overdue commitments are only increasing in this country with a rate of overdue debts (25% on average) which is relatively high, which limits the distribution of credit.

However, the question of underfinancing of economic activity in a context of excess banking liquidity remains a central question. If today banks prefer to build up cash balances and benefit from an annuity situation rather than taking the risks of financing productive activities, particularly those of SMEs, it is also partly due to the absence of a Central Bank of Risks (different from the SIC project of the Central Bank in connection with the world bank) the aim of which is to reduce credit risk by collecting, processing and finally sharing information on the financial situation of business relationships which seek assistance from the banking system.

On the other hand, banks are faced with several other problems in their activity, such as the volatility of the exchange rate but also of inflation caused by the rise in prices of imported products, particularly fuel, which directly impacts the household basket through its contagion effects. Concerning more particularly the level of the interest rate applied, it depends on the level of inflation which was around 7% year-on-year in October 2024 (official rate naturally) and 7% following the president’s address to the nation of the transition (see Speech of 12/31/2024).

To this is added the cost of the resource, the bank’s margin and the risk premium. In addition, banks encounter many other difficulties with court decisions in disputes between them and clients who do not respect commitments. The last case which was the subject of media coverage dates from June 2022 following the case which was decided in favor of HAMAN to the detriment ofAFRILAND andECOBANK

Other no less important factors enter into this situation unfortunately. These include: cost of registration of deeds, taxes, notary and bailiff fees

etc., expressed as a percentage of the credit amounts to be distributed. All these elements contribute to increasing and increasing the cost of credit. Furthermore, if the banks established in Guinea are faced with various problems as indicated above, some of them also make the lives of credit applicants unbearable because,some salespeople abuse their position so that their decisions are affected by a lack of visibility from business relationships who are in need

. Likewise,the guarantees required for the establishment of a loan are in most cases binding and often concern assets . Which weakens economic agents. Given that SMEs, for example, constitute a real vector of economic growth, the Guinean State has nevertheless created a GPP guarantee fund (Partial Portfolio Guarantee) in 2023 on the recommendation and support of the World Bank which shares the risk of loss 50% for MSMEs (Micro, Small and Medium Enterprises). However, at this stage, we cannot comment on the envelope distributed between the different primary banks in place, although some observers believe that it would be relatively low. Also, still on the guarantee funds, there is another guarantee project for MPME of the FGPE

which even includes signature commitments with 70% risk-taking.

Furthermore, this loan guarantee fund, although insufficient, makes it possible to reduce the burden of debt service (due capital + interest). All this can only be possible with the assistance of the Central Bank (BCRG) in its capacity as Regulator.

Finally, despite these multiple constraints, at the end of November 2024, outstanding financing of the economy (credits/commitments by cash without credits/commitments by signature) by banks amounts to more than 22,504 billion GNF.

In our humble opinion, given the importance of the subject, the BCRG should take the lead in fully studying this issue because many economic agents complain of not having access to banking services. Moreover, considering the figures at our disposal, the banking rate did not even reach 8% at the end of November 2022 even if it is maintained elsewhere that it is around 15% (this subject will be the subject of further discussion). further communication). This simply means that almost 92% of the population does not benefit from banking services, so they are financially excluded. How can we develop our country without banking assistance (in the absence of a stock market)?

So as not to waste the reader’s time, we intend to return to this subject in the coming days with more details (with quantified information) in order to enlighten public opinion and the monetary authority on the real issues of reforms to be undertaken in this sector.

Editor’s notes

About the Hamana Ecobank case

Hamana SA, a Guinean company, is in dispute with Ecobank following financial transactions dating back to 2011, for financing the import of 25,000 tonnes of rice. Ecobank had granted letters of credit totaling approximately 10 million USD and an overdraft of 5 billion GNF to Hamana. Disagreements over the amounts owed led to an accounting audit in 2018, revealing that Hamana owed 989 million GNF and 7 million USD to Ecobank. Following a second opinion, the court ordered Ecobank in 2021 to reimburse 53 billion GNF and 8 million USD to Hamana, provoking protests from the banking sector and mediation by the Ministry of Justice, resulting in a memorandum of understanding . A panel of five experts was formed, concluding that Hamana owed Ecobank USD 8 million, while the bank owed Hamana GNF 5 billion. In 2022, Hamana broke this agreement and initiated proceedings to seize Ecobank’s assets, citing a previous judgment. Subsequent discussions revealed an amount of USD 310,000 not credited to Hamana’s account, exacerbating the conflict. Mediation having failed, it seems that only further legal intervention will be able to resolve this dispute.

About Safayiou DIALLO