Banking sector competitiveness is important for stimulating a country’s economic development. Indeed, competitive financial sector channels available financial savings towards the productive sector and encourages the promotion of the private sector and economic growth. This is why financial reform has been underway in most African countries for several decades, with the aim of among other things, increasing the competitiveness of their financial systems.
African countries which embarked on financial reform have admittedly not had identical experiences, nor have they achieved the same degree of success. Each country constitutes a model on its own right, depending on its size, the maturity of its economy, depth of financial reforms undertaken and the effectiveness of the policies adopted to liberalize various sectors of activity and to promote specific mechanisms as instruments for resources allocation and economic regulation.
Algeria was similar to other countries in setting out on the path of financial reform to strengthen the role of credit allocation market mechanisms, improve the institutional capacity to mobilize savings and effective monetary policy and encourage the competition among financial institutions. These reforms were initially directed at the banks and later extended with the establishment of the Algeria Stock Exchange in 1997 and the first privatization programme.
Enhancing banking depth and greater access to banking services
In 2008 the Algerian banking system comprised six public banks, 14 private banks with foreign capital, one bank specialized in agricultural finance and six financial institutions. A large number of bank agencies exist in the banking sector in Algeria; the network consisted of 1339 agencies in 2007. This affords satisfactory coverage of the Algerian territory in both rural and urban areas and encourages the penetration of banking services.
Some measurement of banking efficiency in Algeria
The banking system in Algeria has always been dominated by public banks. The Algerian state set up these banks to fund activities it considered strategic such as housing, agriculture, and industry. However, their continued existence was threatened by the credit distribution policies adopted in the 1980s and 1990s, as manifested by problems of asset quality, solvency, and liquidity. The banks were obliged to increase their intermediation margins while at the same time increasing the risk premium.
Furthermore, an analysis of the profit trend of both public and private Algerian banks confirms that they have a relatively high profitability rate compared to banks in the rest of the world. The reason for this lies in the deteriorating quality of assets and the weak level of competition among banks, the largest of which are government-owned.
Pricing of banking products and mark-ups
During the period of 2002-2007, the margins of private and public banks which were already unequal took off in opposite directions. Private banks continued to progress favorably, registering an average 5 percent growth, while margins for public banks were much lower, averaging about 2.8 percent.
Real interest rate and risk premium
Algeria has not yet succeeded in achieving positive real interest rates, in contrast to other countries in the region such as Egypt, Morocco, and Tunisia. From this point of view, it would appear that the financial reforms undertaken by Algeria to date have not yet yielded positive real deposit rates, given that they settled at a negative level of -3 percent in 2008. Financial repression persists in the country and financial saving remains discouraging.