The proposed privatization of Credit Populaire d’Algerie (CPA) has shown the government’s renewed confidence in the private sector, with several international players bidding. Four years after the collapse of Khalifa Bank, the government has finally shown willingness to reduce its ownership of one of the smaller state banks. A successful privatization could build momentum for the sell-off of other state banking assets.
On May 21, the Algerian government began reviewing the candidates for a 51% stake in CPA, the country’s fifth largest financial institution. Algerian Financial Reforms Minister Delegate Karim Djoudi said the process would also help bidders become better acquainted with CPA’s structure, credit policy and the local banking environment. The offer will be studied in July, while privatization is expected to be completed by end-2007. The government is set to retain a 49% stake in CPA for the foreseeable future.
The CPA sale is seen as a test case for privatization in Algeria’s banking sector, which is overwhelmingly dominated by state-owned banks such as the Banque Exterieur d’Algérie (BEA), Banque Nationale D’Algérie (BNA), Caisse Nationale d‘Epargne et de Prévoyance (CNEP), and Banque de l’Agriculture et du Développement Rurale (BADR). In 2005, state banks accounted for 92.6% of credit and 93.3% of deposits, despite the fact that they represent only seven of Algeria’s 17 commercial banks. It is expected that the CPA sale will be the first of a handful of privatizations in the pipeline over the next few years.
CPA is an attractive proposition for investors, with a 15% share of the local market and 135 branches nationwide. Six banks have registered interest in bidding for the bank: France’s Natexis (part of the Banque Populaire Group, BPG), BNP Paribas, Crédit Agricole, and Société Générale are complemented by Spain’s Banco Santander, and US giant Citigroup. An acquisition by BNP or Société Générale would give those banks an immediate extension to their limited presence in the market, while the other banks would gain their first foothold in the growing Algerian banking sector.
The government has decreed that bidders must have a minimum $3 billion in capital and an extensive branch network internationally.
Proposals to privatize CPA were first floated in 2000, and initial plans were scheduled to be completed by the end of Q1 2007. However, in the wake of the Khalifa Bank scandal, the government has prioritized structural reform and attacks on corruption. The 2003 collapse of Khalifa, then Algeria’s largest private bank, led to an investigation that revealed endemic corruption and poor accounting practices, with similar issues, albeit on a smaller scale, affecting the rest of the banking sector. Khalifa Bank collapsed with $1.5 billion in debts, and investigators found evidence of graft and corrupt deals with public bodies and in Khalifa Bank’s dealings with its sister companies, seriously damaging confidence in private banking. Further investigations revealed irregular practices at Banque Comercielle et Industrielle d’Algérie (BCIA) – where $187 million of government funds were embezzled – and at BNA. BCIA was later liquidated. The government then banned public bodies from working with private banks, retarding their growth.
In March, former Khalifa boss Abdelmoumen Rafik Khalifa, currently in exile in the UK, was convicted in absentia and given a life sentence. Another 55 executives were also convicted.
While the Khalifa affair may have put the privatization of state banks on hold, the increased presence of foreign banks has injected some dynamism into the sector.
However, some enthusiasm for privatization has been renewed, with other banks expected to follow CPA’s lead. The next to go on offer is expected to be Banque de Développement Local (BDL), a relatively young institution founded in 1985, and recommended for privatization by the World Bank as early as 1994. The bank’s focus on the booming private small and medium-sized enterprise (SME) sector gives it good access to a growing customer base.
The sale of the two banks could take the private sector’s share of the Algerian banking market to 35% to 40%.
There remain no plans to privatize the largest state banks, BEA, BNA, CNEP and BADR. This has led to criticism in some quarters, as public banks have proved less efficient than their private counterparts. The former suffer from non-performing loan (NPL) rates of around 38%, compared to 5.8% in the private sector. The state-owned banks also struggle with a lack of human and physical resources and poor information systems, though the latter is being remedied in part by the introduction of the Algeria Real Time Settlement (ARTS) and the Algérie Télécompensation Interbancaire (ATCI, Algeria Interbank Clearing) systems, which have cut transaction times.
However, the CPA privatization shows that the government has lost its aversion to private players on the market and the ghost of Khalifa has, by and large, been laid to rest.
