The financial sector in Senegal is well developed, growing strongly and supports the role of Dakar as a regional trading hub. With new oil and gas production on the horizon in 2023-2024, Senegal’s financial services industry has substantial room for growth and expansion.
Currently, the sector comprises 26 commercial banks, some of which are local Senegalese entities, while others are international or pan-African banks with parent organizations primarily based in France, Nigeria, Morocco and Togo. Senegal’s banking sector is regulated by the Central Bank of West African States (BCEAO) and the regional banking commission of the West African Economic and Monetary Union (WAEMU).
Analysts at the Economist Intelligence Unit note that Senegal has low sovereign risk, thanks to its strong macroeconomic fundamentals and a robust currency, the CFA franc. Although the country remains B-rated by global credit rating agencies, its score has improved recently by three points, driven by an expected recovery in real GDP growth between 2021-24 and rising foreign exchange reserves. The rating is also supported by strong access to finance, demonstrated by a successful international bond issue that took place last June. International financial support from development partners means that debt-related indicators remain manageable, and that Senegal is expected to meet its external debt obligations.
Senegal’s currency risk is also fairly stable and BB-rated, despite recent improvements in the score, driven by rising foreign exchange reserves and accelerating growth in export receipts. The French Treasury’s guarantee of the CFA franc, which is pegged to the Euro, also mitigates the risk of having a potential currency crisis, and the rating is further underpinned by low inflation. The banking sector risk rating also remains stable at BB, and the score has also seen slight improvements over the past two years. This was driven by an improvement in financing and macroeconomic conditions. The banking sector is well capitalized, and efforts to improve regulation in recent years have helped to bolster asset quality in the long term.
In 2012, Senegal established a sovereign wealth fund (FONSIS) with a mandate to leverage public assets to support equity investments in commercial projects supporting economic development objectives. Furthermore, a number of Senegalese companies have listings on the West African Regional Stock Exchange (BRVM), headquartered in Abidjan, Ivory Coast. The BVRM also has local offices in each of the WAEMU member countries, offering additional opportunities to attract foreign capital and access diversified sources of financing.
Regulations of the Central Bank of West African States (known by its French acronym BCEAO) proscribe the use of offshore accounts in project finance transactions within the WAEMU, except where approved by the Ministry of Finance and Budget, with the express consent of the BCEAO. According to the BCEAO, these restrictions allow visibility over international transactions, deter money laundering and help the BCEAO maintain adequate foreign currency reserves. The BCEAO emphasizes the importance of these rules in enabling it to fulfill its mandate of maintaining the stability of the CFA franc’s peg to the euro.
Senegal enjoys a dynamic microfinance sector: large microfinance institutions are sound and profitable, but smaller ones remain fragile, and enhanced supervision of the sector is required. Access to finance for small and medium-sized enterprises (SMEs) remains a challenge, with an estimated 80% of bank credit applications being denied due to insufficient collateral. Remittances to Senegal contribute strongly to GDP. Over 15% of the population lives and works abroad and the Senegalese diaspora regularly sends money home or invests in real estate, contributing to the remarkable construction boom that the country as a whole, and especially the capital city Dakar, has been experiencing in recent years.
The global COVID-19 pandemic has proven challenging for the banking sector in Senegal, as for many other sectors of the national economy. But overall, banks have adapted and proven to be quite resilient. The top five banks in Senegal are French-based Société Générale, the Moroccan-based CBAO Attirjariwafa Bank, Banque Islamique du Sénégal (BIS), FBN Bank Senegal and the Togo-based Orabank Group. The sector’s liberalization over the past decade has led to increased competition, which has progressively lowered the cost of credit and made banks in Senegal better able to withstand external shocks such as the pandemic.
Multilateral institutions like the United Nations Capital Development Fund (UNCDF) are taking an active role in helping Senegal expand the electricity grid to boost connectivity. Last April, the UNCDF launched a study to analyze the intersection between access to finance and access to electricity in Senegal. One of the core objectives of the study is to better comprehend the barriers that women and youth face when accessing finance after being connected to the electricity grid, specifically in rural areas across five regions in Senegal. Wiring households and businesses for electricity remains costly and requires financing, in particular for low-income households in Senegal.
The UNCDF study notes that Senegal is actively working to expand its electricity grid to connect more people, particularly in rural areas, through its strategy of Universal Access to Electricity by 2026. The Millenium Challenge Corporation, which is supporting the Government of Senegal’s electricity access plan through the Power of Senegal Compact, estimates that connection costs can range between $110-$180. However, connection and interior wiring costs are not the only expenses related to electricity. Expensive equipment and appliances to grow local businesses, as well as reduce the time spent on manual labor like milling grain, are still required.
Other institutions like The World Bank have put in place programs to support energy financing in Senegal. The objective of the Energy Sector Recovery Development Policy Credit is to ensure sustained, long-term development of electricity services and supply of petroleum products for Senegal. The World Bank is doing this by providing financial support to fund Senegal’s national utility company SENELEC, as well as implementing measures to ensure the optimal functioning of the downstream hydrocarbon sector, which provides essential inputs to the electricity sub-sector. This includes budgetary support for the SAR refinery, which is the largest refinery in West Africa and located in the Senegalese town of Mbour, near Dakar.
Fostering financial inclusion is another important aspect of energy sector financing in Senegal. In an effort to increase financial inclusion, Senegal has taken advantage of its strong mobile penetration, in which over 32% of adults have a mobile money account through services such as Orange Money. Meso-finance aims to serve as the missing link for financing in emerging African economies by targeting companies whose needs cannot be met by either microfinance or commercial banks. Several commercial banks, including Bank of Africa and Orabank, are currently implementing specific offers to target SME development, with the underlying goal of fueling demand for petroleum-related services.
The commercial banking sector in Senegal still plays a relatively minor role in financing energy sector projects, but this is gradually starting to change as more Senegalese banks prepare for a petroleum-driven economy from 2023 onward. In recent years, Orabank has been one of the top-performing banks in Senegal, winning numerous awards consecutively as the best-rated bank in the country. Orabank has regularly expanded its branch network and aggressively marketed its products to capture increased market share and finance a growing number of projects throughout the country. Other smaller to medium-sized banks like Coris Bank, which is currently ranked ninth in the country, or Banque Outarde, are growing as well thanks to successful commercial agreements with companies active in the energy sector, including SENELEC, SAR refinery, Der Mond Oil and Gas, Locafrique and West African Energy.
There are also a number of medium-sized banks ranked in the middle, such as BNDE, La Banque Atlantique, BDK, Crédit du Sénégal and UBA, which have not shown particularly rapid growth rates in recent years. However, they remain stable players that aim to capitalize on the upcoming bonanza that Senegal’s economy will experience when large-scale oil and gas production takes place from 2023.