By 2010, the minimum capital threshold in the West African Economic and Monetary Union (UEMOA) will be over 10 billion FCFA. The reform that has led to this trend might not provide the development that Nigeria has experienced.

By Mohamed B. Fall, Casablanca

On Monday August 25, 2008, Ecobank kicked off a six-week long party that is likely to be a long one with capital-increasing operations being carried out in western and central Africa. There will be 3.7 billion shares for sale in stock markets in Abidjan, Accra and Lagos. The bank got the go-ahead from its directors to raise 3 billion dollars of which 2.5 billion will be capital. Former shareholders who enjoy preferential standing have been reserved 40% of the deal, the rest being open to the public. Certainly, bank president Mande Sidibe, affirmed that the money resulting from this offer will provide the financing for the expansion of his technical and technological platform.

But it is evident that, behind this strategic plan lies the indispensable necessity for the bank’s management to strengthen its reserves of capital to conform to UEMOA regulations on minimum capital requirements to be attained by 2010 and for the various countries of Middle Africa where the pan-African brand is present. With its strong base in 25 countries, this is a development that is not worrisome to Ecobank but it is causing headaches in West Africa where banks are smaller and more independent. It isn’t every institution that can easily come up with 10 million FCFA. “But,” declared Abdoul Mbaye a few weeks ago, “raising the minimum capital requirement from 1 billion to 10 billion is just enough to provide momentum for strong development.”

“Reserve incorporation only requires a signature. But the positive effect this has on capital is debatable. The capacity for additional commitment is legal. It may not be real” 

The limited effects of reserve incorporation

One must acknowledge that the Senegalese banker is not the only one to believe that conforming to the new requirements might not the produce industry landslide that some anticipate. In Nigeria, where the process has been conducted within a rigid framework, the strict application of these regulations on minimum capital requirements instigated an era of merger acquisitions that gave rise to Africa’s banking champions – United Bank of Africa (UBA) and First Bank of Africa (FBN). For the time being, French-speaking West Africa, which opted to progress in stages (first 5 then 10 billion), has been struggling to follow the lead of these African heavyweights. For example, in Senegal, SGBS, the first establishment there to conform to the new capital standard made this transition by way of reserve incorporation. According to a credit analyst with a rating agency, this is not surprising though it would have been better for the bank to have found a source of fresh funds.

“Reserve incorporation only requires a signature. But the positive effect this has on capital is debatable. The capacity for additional commitment is legal. It may not be real. Either way, it isn’t fresh money brought in from outside sources,” added the analyst. It must be stated that many heads within the Central Bank of West African States (BCEAO) share his sentiments on the minimal impact that reserve incorporation can have. They recall that, “based on the commission text issued on 2nd November 2007, banks will be in a transitional phase until 2010.” In theory, the banks’ various action plans on which the banking commission will assess the measures to be implemented to raise the social capital threshold should be submitted by June 2008. Some are already lagging behind.