Journal Issue

Chapter 2. Benchmarking Senegal’s Financial Sector: What do International Comparisons Tell Us?

Patrick Imam, and Christina Kolerus
Published Date:
October 2013
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Methodology of the Benchmarking Exercise

The benchmarking exercise allows an assessment of Senegal’s financial sector performance with respect to depth, breadth, access, and efficiency.9 For each key financial sector indicator, a structural benchmark is estimated based on the country’s economic and structural characteristics.10 The difference between the observed value and the benchmark then needs to be interpreted. A negative difference suggests scope for policy action, whereas a positive difference could reflect successful reforms. The analysis was carried out using data from 1995 onward, where available, and the tool developed by the World Bank for this purpose.

Comparisons are also made with a few selected countries, namely Cote d’Ivoire, Kenya, and Morocco. Cote d’Ivoire was chosen because it is a member of the West African Economic and Monetary Union (WAEMU) and it shares a number of characteristics with Senegal. Kenya is an example of a sub-Saharan African economy with a rapidly developing financial sector. Finally, Morocco is a country that many Senegalese observers view as a potential model for financial development, and it is used as an emerging market comparator.

A Financial Performance Broadly in Line with Structural Characteristics

Depth. Senegal outperforms the benchmarks for banking and insurance, but underperforms for debt and equity markets (Figure 6).

Figure 6.Selected Indicators on Financial Sector Depth in Senegal

Source: FinStats Database.

  • Senegal’s banking sector has deepened significantly in recent years with the ratios of credit and deposits to GDP now significantly above their benchmarks. Bank intermediation, measured by the credit to deposit ratio, is in line with the structural benchmark.
  • Although low in absolute terms, the ratios of insurance sector assets and insurance premiums to GDP are significantly above their benchmarks.
  • Debt markets are deepening, but they remain below potential, particularly as a source of private sector financing.
  • Taking into account its regional nature and the limited recourse to it by the private sector, the equity market looks underdeveloped, at least from a Senegalese perspective.

Breadth. The picture is more mixed with regard to the range of products, markets, and providers (Figure 7).

Figure 7.Selected Indicators on Breadth and Access in Senegal

Sources: FinStats Database, Ministry of Finance.

  • The level of competition in the banking system—proxied by the asset concentration of the three largest banks or the interest rate margin—is close to the benchmark. More recent data (for 2011 and 2012) suggest that competition may have increased.
  • The ratio of credit to the public sector to GDP is in line with its benchmark. This ratio has increased in recent years, likely reflecting the development of the government debt market.
  • The insurance sector outperforms the benchmark, in particular in life insurance.
  • There is underperformance in the area of long-term financing, including from the regional stock market, where only one Senegalese company is listed against a predicted value of 30 companies.

Access. Access to banks is mostly in line with the benchmarks. In particular, the number of bank branches relative to the population significantly outperforms the benchmark, and the gap has increased.

Efficiency and profitability. These are both broadly in line with structural characteristics for the banking sector. One exception is nonperforming loans, which are significantly higher (and provisioning lower) than their benchmark.

But with Still Substantial Scope for Deepening

Although statistical benchmarking shows that Senegal is not lagging in terms of financial sector development, direct comparison to selected peer countries suggests substantial scope for further deepening. Even for indicators for which Senegal outperforms the benchmarks, there is still some distance to peer countries. Policy action may be warranted to catch up with them, in particular Kenya, which has overtaken Senegal on various indicators over the past five years, despite having started at similar levels (Figure 8).

Figure 8.Comparing Senegal to Selected Peer Countries

Sources: Central Bank of West African States, FmStats Database, IMF staff calculations.

  • Depth. Kenya’s deposits and credit to GDP ratios are about 10 percentage points higher than Senegal’s (SEN), whereas Morocco’s are more than twice as high. Even though Senegal’s insurance market performs very well compared to the structural benchmarks, the share of insurers’ assets to GDP in Cote d’Ivoire (CIV), Kenya (KEN), and Morocco (MAR) is significantly larger. Stock market capitalization to GDP has picked up markedly in Kenya since 2002.
  • Breadth. Kenya has been able to reduce bank asset concentration since 2003, starting from the same level as Senegal then. Life insurance premiums have increased much faster in both Kenya and Cote d’Ivoire than in Senegal throughout the past decade. Also, there is a big difference in the development of the equity market, with 50 listed companies in Kenya and more than 70 in Morocco, but only 1 in Senegal.
  • Access. Although broadly in line with other peers including Kenya, access is significantly lower than in Morocco for firms as well as for households. However, the indicators may not reflect the impact of mobile banking on access. Mobile banking has developed very quickly in Kenya, but not in Senegal.

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