Senegal's overall economic backdrop is favourable for the continued development of the country's banking sector, Fitch Ratings says in a new report. However, credit growth - particularly retail lending - is limited and banks are likely to be exposed to high single-name borrower concentrations.

We forecast continued dynamism in Senegal's economy, with GDP growing by an annual average of 6.6% in 2018-2020. Medium-term prospects are supported by an improving infrastructure, a better business environment and the discovery of large offshore hydrocarbon deposits. Membership of West African Economic and Monetary Union (WAEMU) means Senegal benefits from a stable currency and moderate inflation.

WAEMU bank reform momentum is fairly strong and Senegal's progress towards international standards compares favourably with some sub-Saharan African countries. Senegal has started to implement Basel II and III, new regulation of credit bureaus will give lenders better access to borrowers' credit records, while new commercial tribunals should help protect creditor rights.

However, loan growth in Senegal is modest and shows no signs of outpacing GDP growth despite a fairly stable operating environment. This is unusual for fast-growing developing economies, where the pace of new bank lending often outstrips GDP expansion. Retail lending is particularly underdeveloped, reflecting a small retail base, with annual income per capita only about USD1,500 and less than 10% of the population having a bank account, according to the World Bank.

Senegal Banking Sector - Borrower Profile

End-2017

Banks' loan portfolios are dominated by private-sector corporate lending and single-name borrower concentrations can be high, given the limited retail lending and the high regulatory ceiling for single large exposures (75% of regulatory capital).