This handed the Bank of Algeria greater independence to oversee the sector’s reform and subsequent regulation. The key objective was to restore the banks’ finances, setting a capital adequacy ratio of 8%. As a result, the sector experienced a large influx of liquidity in the 1990s as the government implemented re-capitalization and debt-takeover procedures averaging 8% of GDP annually.
Structural reform followed in 1997 to dismantle the monopoly of the public banks, which led to a flurry of both domestic and international entrants to the sector offering a range of new products and services. A national stock exchange was also set up in Algiers.
Despite these changes, however, there remain many challenges. The state-owned banks still dominate the sector with approximately 90% of all assets, solvency continues to be an issue, while much more operational modernization is needed before the banks approach international standards. Computerization of bank operations, the introduction of inter-bank electronic transactions, electronic payments, and credit cards are all yet to be completed. The country is also underbanked, with only one bank branch per 9,000 people.
Privatization, which many argue is the key to fully modernizing the banks, has up until 2002 been prevented in the financial sector. But in a decision made late last year, Algeria’s third largest bank, the Popular Credit Bank of Algeria (CPA), announced it was seeking to sell up to 49% of its shares to a domestic or international investor.
However, Mr. Farouk Bouyacoub, Chairman of the Agriculture and Rural Development Bank (BADR), argues that modernization shouldn’t wait to be performed by a private investor. BADR, which since November 2002 has had a clean balance sheet, began the process of internal restructuring focusing on developing a fully computerized intra-bank system and revamped customer service approach. The bank developed a new customer-focused management concept called “banque assise.” Under the system each new branch has a front office with customer service managers reporting back to a supervisory office in the same branch. For example, in the bank’s downtown Amirouche agency, 14 customer service managers operate the front office with two back office supervisors, while the modernized computer system reduced internal bureaucracy to speed up processing time for the customer. “This has been an extraordinary success for us,” says Mr. Bouyacoub. “By doubling our turnover in one year for this single branch,we saw that we were on the right path. We’ve decided to continue the internal reforms we started with BADR until we have the system grafted onto our whole network”.