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financial services

Africa Banking
Survey
kpmg.co.za

This survey is slightly unusual, in that we decided not to simply reproduce a whole host of banking facts
and figures, most of which are freely available off the internet. We decided, instead, to set out a number of
important factors that one might require information on, if considering investment into Africa, particularly in
the banking sector.
Contributing countries had to answer a number of relatively simple questions, and the answers to these
form the bulk of the content of the survey. It is very important to note that these replies are only dipstick
responses, providing cautionary guidance to the reader it should be clear from every countrys response
that detailed professional advice is required in almost every aspect of investment in any African country.
This is true anywhere else in the world, but the array of responses in this survey should demonstrate to
users that Africa is definitely open for business and not as intimidating an investment destination as many
may think.
We strove to edit each countrys responses as little as possible. This provides, even if only slightly, a
flavour of each in terms of linguistic subtleties, applicable laws and culture. To add an objective measure
of the investor-friendliness of each country we have, with grateful permission, added the 2011 Ease of
Doing Business ranking compiled by the World Bank and International Finance Corporation.
While not all African countries took part in this survey, we believe we have sufficient representation from
the core areas of North, West, East, Central and Southern Africa. In future updates, we aim to attract
greater participation and hence add greater value.
Finally, for those who are interested, we have incorporated the summarised financial information of up
to four important banks in each country.
We hope you will find this survey a useful starting point for future investment into Africa!

KPMG
May 2012

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Financial Services | 1

World Bank Ease of Doing Business Ranking (2011): 183 countries surveyed
Population
GDP (nominal)
USD Exchange rate (17/03/012)
Currency

Definitions of Regulatory Approach


1. Institutional Approach
A firms legal status determines how it operates and who regulates it (e.g.
registered banks are regulated by a banking regulator, whereas registered
insurers are regulated by an insurance regulator).

2. Functional Approach
Regardless of a firms legal status, it is regulated by the type of business it
conducts. This means that one legal entity could have several different regulators,
depending on the type of business it conducts.

3. Single-regulator (integrated) Approach


A single (universal) regulator oversees all financial services, both from a prudential
and market conduct perspective.

4. Twin Peaks Approach


There is a separation of regulatory functions, so that one regulator provides the
prudential oversight, whilst another provides market conduct oversight.

5. Hybrid Approach
A mixture of the above 4 approaches.

Responses
Some countries elected not to answer all survey questions. Where further information
is required, please contact the nominated in-country KPMG representative.

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2 | Africa Banking survey

Section 1
Regulatory
1.1 Briefly describe the regulatory regime in your country.
For example, who is the principle regulator of the banking
sector? What sort of framework is used (eg Institutional
vs Functional vs Single-Regulator (Integrated) vs
Twin Peaks vs Hybrid approach). For a description of
these, please see Definitions overleaf.
1.2 Does the regulator follow international practice (eg
Basel I, II and III), or some other practice? What is the
status of implementation of the Basel Accords
(if applicable)?
1.3 What is the broad structure of the supervisory body?
How is it managed and controlled? In some countries, this
would fall under the control of the countrys central bank.
Is there a single person responsible for supervision?
1.4 What is the broad process for a banking licence
application in your country? Is there any special protocol
to be followed? How long would a typical licence
approval take? Do non-bank entities in a banking group
require regulatory approval?
1.5 What are the banks broad reporting requirements
in respect of the regulator (eg monthly/quarterly/annual
returns)? Are these standard/ automated/manual?
1.6 Please list the most important banking regulatory
requirements (e.g capital, liquidity, credit, forex, etc) in
your country. What are the regulatory consequences of
non-compliance?

2.3 What are the annual mandatory costs associated with


owning company (e.g. annual fee / licences, etc).
Are external audits compulsory?
2.4 What are the restrictions, if any, on foreign
investment and disinvestment in companies and projects
in your country?
2.5 Are dividends capable of being remitted abroad? Are
there any restrictive foreign currency regulations or laws?
2.6 Are intellectual property rights protected? Briefly
describe your IP regime.
2.7 What is the current state of regulation regarding
sustainability and the environment?
2.8 Are there restrictive anti-money laundering and
similar laws and processes in your country?
2.9 What are the broad types of tax applicable to
companies in your country? Please give indicative rates.
Consider Value-added and similar taxes, as well as any
state or local (non national taxes).
2.10 Are there different treatments for the taxation of
branches as opposed to subsidiaries?
2.11 What are the broad tax rates for individuals? What is
the process of collection of individual tax?
2.12 What is the broad process for the submission
of returns, and how often is this required, including
provisional returns?

Section 3

1.7 Is banking supervision conducted on a solo and/or


a consolidated process?

People

1.8 Are any specific supervisory responses being


considered or implemented in your country in response
to the Global Financial Crisis?

3.1 Briefly summarise any skills availability / educational


and training issues that your country may have,
especially in the banking sector.

1.9 Is there a deposit insurance scheme in your country?


If so, what are the key principles underlying the funding
of this scheme, and what protection is offered?

3.2 What is your countrys attitude to the use of ex pats


(i.e. foreign nationals) in the banking sector, and are there
specific laws and restrictions applicable to such persons?

Section 2

3.3 At a high level, describe the principles embodied in


the applicable labour legislation in your country.

Commercial, Legal and Tax Environment


2.1 At a high level, what is the process for establishing
a new company and registering it?
2.2 At a high level, what is the process with regard to
foreigners buying local companies?

3.4 Does your country have active/significant trade union


presence?
3.5 Are there restrictions on the hiring and firing of
employees?
3.6 To what extent is the use of contractors tolerated?

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Financial Services | 3

3.7 Is membership of a retirement and /or medical aid


fund compulsory? Briefly describe the requirements.

Section 4

5.8 What are the levels of crime and corruption?


5.9 What is the predominant language used in country?
For business? Is English widely spoken and/or
understood?

Banking Environment

5.10 Any other relevant information.

4.1 What are the major loan and deposit products offered
in your country?

Section 6

4.2 Briefly describe the payments/clearing system and


participants in your country.
4.3 Briefly describe the insolvency provisions relating
to individuals and companies, and the process of
liquidation.
4.4 Provide details of any restrictions on the taking and
perfecting of security.
4.5 Provide broad details of the banking branch and IT
infrastructure, including the use of distribution channels
such as mobile phones, internet, agencies, etc.
4.6 List the relevant active exchanges in operation in your
country (e.g. bond, securities, etc).
4.7 Provide a brief overview of the banking sector
approximate number and nature of players, competitive
landscape, hindrances and opportunities.

Section 5
Physical Environment
5.1 What are the broad principles relating to property
ownership (title, ability to buy, etc).

Governance and Reporting Issues


Please provide a summary of your countrys status
with regard to:
6.1 IFRS implementation
6.2 Basel II and III
6.3 FATCA (Foreign Account Tax Compliance Act)
6.4 Anti Money Laundering (AML) laws/regulations
6.5 Know Your Customer (KYC) laws/regulations
6.6 Annual financial reporting
6.7 Governance structures such as use of Audit
Committees, Boards, etc and adherence to local or
global standards
6.8 Prevalence of Government ownership and
management
6.9 Use of external auditors
6.10 Any important local Regulatory developments
or plans

5.2 Describe the general transport infrastructure, with


reference also to the public transport network.
5.3 Describe the general communications infrastructure
(telecoms, internet, etc).
5.4 Provide a brief overview of your countrys political
environment.
5.5 Provide a brief overview of your countrys economic
environment, including GDP and major economic
contributors.
5.6 Provide a brief overview of your countrys social
environment (access to housing, schooling, medicine,
etc).
5.7 Who are your countrys major trading partners?
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4 | Africa Banking survey

morocco

mauritania

SNGAL

nigeria
ghana

uganda
KENYA

TANZANIA

zambia

zimbabwe

namibia
botswana

SOUTH AFRICA

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Financial Services | 5

BOTSWANA 6
GHANA 12
KENYA 16
MAURITANIA 24
MAURITIUS 28
MOROCCO 34
NAMIBIA 40
NIGERIA 46
SENEGAL 50
SOUTH AFRICA

56

TANZANIA 60
UGANDA 64
ZAMBIA 70
ZIMBABWE 76

MAURITIUS

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International), a Swiss entity. All rights reserved. Printed in South Africa. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG
International. MC8241

6 | Africa Banking survey

Section 1
Regulatory
1.1 Regulatory regime

bank is required to seek prior approval from the Central


Bank before granting loans and other credit facilities to
a single entity or group of related companies which, in
aggregate, are in excess of 30% of a banks unimpaired
capital.

The principle regulator is the Central Bank (Bank of


Botswana). The framework used is Institutional.

1.7 Banking supervision

1.2 Basel Accord status

1.8 Global financial crisis response

The regulator has implemented Basel I and is currently


implementing Basel II with a deadline of 31 December 2012.

1.3 Structure of supervisory body


The Central Bank has responsibility for supervision through its
Banking Supervision Department. In Botswana, the primary
legislation covering the supervision and regulation of licensed
financial institutions is the Banking Act.

1.4 Banking licence application


The Central Bank, through the Banking Act, has the power
to regulate market entry through the provisioning of licences.
The Bank of Botswana has a set of documentation referred
to as the Application Package for a Banking License. This
should be furnished as part of the banking license application
process.

1.5 Regulatory reporting requirements


Reporting requirements include:
Monthly prudential returns,
Quarterly prudential returns,
Annual audited prudential return,

Supervision is conducted on a solo basis.

Other than the regulator holding discussions with financial


institutions, and updates from those financial institutions,
there has been no specific response.

1.9 Deposit insurance scheme


There is no deposit insurance scheme in Botswana.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
The incorporation process has been simplified. To facilitate
the incorporation of a company, a completed application form
must be accompanied by the various stakeholder consents,
and a notice of reservation of the company name.
The Companies Act allows foreign companies incorporated
outside Botswana to register and continue business as if they
had been incorporated in Botswana under the Act.

2.2 Foreign investment in local companies

All returns are currently manual and done on standard forms,


however a project is ongoing to have automated reporting.

There is no separate process for foreigners. The Competition


Authority (the Authority) is responsible for the prevention
of, and redress for, anti-competitive practices in the economy,
and the removal of constraints on the free play of competition
in the market.

1.6 Important banking regulatory requirements

2.3 Annual costs

Capital
Core capital to total unimpaired capital should be at least
50%.

The statutory fee for an annual return under the Companies


Act is BWP 300 (USD 41). There are also trading license fees
applicable, depending on the type of business activity of the
company.

Liquidity

2.4 Restrictions on foreign investment

The Banking Act stipulates that every bank must maintain


in Botswana, on a daily basis, liquid assets as a percentage
of its deposit liabilities currently equal to 10% and 3% for
commercial banks and credit institutions, respectively.

The Minister may, from time to time, make regulations


declaring any trade or business to be a reserved trade or
business which will be issued only to citizens of Botswana
or companies wholly owned by citizens of Botswana. A joint
venture of medium business enterprise between a citizen and
a non-citizen may be granted in a reserved trade or business,
where the citizen has a minimum beneficial ownership
of 51% of the joint venture. Apart from this there is no
restriction on foreign investment. There are no restrictions on
disinvestment.

Senior management profiles for new appointments,


Annual directors profile.

Capital adequacy ratio should be at least 15%.

Credit
The Banking Act restricts a bank from granting facilities
that are in excess of 10% of a banks unimpaired capital to
a single or group of related borrowers, without the specific
approval of a banks entire board of directors. Further, a

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entity. All rights reserved. Printed in South Africa. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. MC8241

Financial Services | 7

52
2 million (2010 estimate)

BWP 1 = USD 0.13636


BWP: Botswana Pula

$14 billion (2010 estimate)

Gerry Devlin
T: +2673912400
E: gerry.devlin@kpmg.bw

2.5 Dividend remittance

2.11 Personal tax

There are no restrictions on the remittance of dividends.


There are no restrictive foreign exchange regulations or laws.

Resident individuals are subjected to progressive rates


ranging from 5% of the first Pula above BWP 36 000 per
annum, and peaking at 25% on annual income in excess of
BWP 144 000.

2.6 Intellectual property rights


The Copyright and Neighbouring Rights Act was passed with
the objective to revise and update the law governing copyright
in order to encourage the development of creative artistic
endeavours in the country. In Botswana patent protection
is 20 years from the date of filing of the application. It gives
its owner the exclusive right to prevent or stop others from
making, using, offering for sale, selling or importing a product
or a process, based on the patented invention, without the
owners prior permission.

2.7 Sustainability and the environment


There is currently no general regulation. With respect to the
mining/extractive industries there is a requirement for the site
to be rehabilitated to its original condition once the operation
has ended.

2.8 Anti-money laundering


The Financial Intelligence Agency is an autonomous body
under the Ministry of Finance that acts as the central agency
for requesting, receiving, analysing and disseminating
information on financial disclosures relating to suspicious
transactions. The Agency is only one of the many
stakeholders whose responsibility is to combat financial
crimes, in particular money laundering and the financing of
terrorism.
There are a number of comprehensive acts and legislation
in place that seek to address anti-money laundering.

2.9 Tax regime


Botswana levies inter alia the following taxes:
Corporate tax resident company at 22% (15% for certain
approved entities).
Corporate tax non-resident company 30%.
Dividend withholding tax 7.5% (unless varied via a
Double Tax Agreement).
Value Added Tax standard rate 12%.
Various training levy

2.10 Branch taxation


Branches are taxed at the corporate tax rate of 30%, and
branches are entitled to repatriate after tax profits with no
further costs.
Subsidiaries are taxed at the corporate tax rate of 22%, and
have a 7.5% withholding tax on repatriation of after tax profits
as dividends.

Non-resident individuals are subjected to progressive rates


commencing at 5% on the first Pula, and peaking at 25% of
income in excess of BWP 144 000 per annum.
Individuals are required to submit an annual return and are
subject to PAYE (Pay-As-You-Earn) regulations.

2.12 Tax returns


Companies are on a self-assessment system, where
corporate tax returns are due within four months of
the financial year end. Corporate tax is paid in quarterly
instalments during the relevant financial year.

Section 3
People
3.1 Skills availability
There is a general skills shortage, with a resulting high
turnover in staff between banks, and especially if a new
bank enters the market. There are, as a result, issues around
service levels coupled with a generally low productivity.

3.2 Foreign nationals


In general companies, including banks, are required to make
a commitment to provide employment opportunities for
suitably qualified citizens. It is recognised, however, that
there may be a need to bring in expert skills from outside,
because either the skills are not available in the local market,
or not present in sufficient numbers to meet requirements.
Any company with ex-pats needs to have a localisation
plan lodged with the Ministry of Labour, detailing who is
understudying them, and the timelines involved to localise
the position.

3.3 Labour legislation


There is an employment Act and it entails clauses that
regulate the employee-employer relationship including leave,
pension and conditions of employment.
There is, however, no minimum wage prescribed in the bill.

3.4 Trade union presence


The main Trade Unions in Botswana are the Federation of
Trade Unions (BFTU) and The Botswana Public Employees
Union.

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8 | Africa Banking survey

3.5 Hiring and firing of employees

4.3 Insolvency provisions

There are no prohibitive restrictions on the hiring and firing of


employees, provided the processes set out in the labour law
and regulations are followed.

The Insolvency Act is the primary legislation governing


insolvency processes and procedures in general. The
Companies Act includes provisions allowing for winding up
by court and judicial management. The Master of the High
Court has jurisdiction over these procedures. The Act also
includes provisions for members voluntary winding up.
Comprehensive provisions are included in the Act for removal
of companies from the Register of Companies.

3.6 Contractors
The use of contractors is tolerated.

3.7 Retirement and Medical Aid


Severance pay, as set out in the Labour law, is compulsory,
except where the employee is entitled to a contractual
gratuity, or is a member of a recognised pension fund, in
which case severance pay is not required. Medical fund
membership is not mandatory but is generally encouraged
by employers. Membership of a pension plan is currently not
compulsory under local legislation.

Section 4
Banking Environment

4.4 The taking of security


There are no restrictions in place.

4.5 Banking branch and IT infrastructure


Within the Botswana bank network there are 94 branches,
12 service centres and 381 ATMs. As part of improving
service delivery, more banks introduced cell-phone/electronic/
internet banking, electronic bank statements, services for
utility bill payments, as well as accounts geared towards
encouraging savings, by offering competitive interest rates.

4.6 Active exchanges


4.1 Major loan and deposit products
Loan Products
Personal loans, export/import invoice financing (invoice
discounting), auto loans, equipment loans, overdraft, term
loan, mortgages, letter of guarantee, letter of credit, short
term loans (secured by share deposits) and building society
loans.
Deposits
Current accounts, call accounts, savings, time deposits and
foreign currency accounts.

4.2 Payments/clearing system


There is a programme in place for the modernisation and
reform of the national payments system, including the
integration of cross border payments in line with the SADC
payments framework and plans. In accordance with the
programme, a risk-based oversight framework for on-site
inspections was used for the first time in 2010 on the
two Systemically Important Payment Systems (SIPS),
comprising the Real Time Gross Settlement System [also
known as Botswana Inter-bank Settlement System (BISS)]
and the Electronic Clearing House (ECH).The Central Bank
has inspected these which confirmed the robustness,
safety and efficiency of the two components of the SIPS.
In addition, the Society for Worldwide Inter-bank Financial
Telecommunication (SWIFT), which is a messaging platform
for both BISS and cross-border foreign exchange transactions,
has been stable in terms of its operations and efficacy for
some time now.

The Botswana Stock Exchange is the main exchange.

4.7 Banking sector overview


There have been no new entrants in the last two years.
However, existing banks continue to increase their footprints
in various parts of the country, through expansion of branch
networks and additional Automated Teller Machines
(ATMs). With the aid of technology, some banks bolstered
their competitive advantage through the introduction of
new products which included, inter alia, cell phone/internet
banking, short messaging services (sms) alerts and
services aimed at providing banking services to the unbanked
sections of the population.
The market place itself is one of excessive liquidity, which
is channelled through the banks into Bank of Botswana
Certificates. The secondary market is not that active, despite
encouragement from the Central Bank.

Section 5
Physical Environment
5.1 Property ownership
Property can be either leasehold or freehold. Sectional title
is also permissible. Property may be purchased without
restrictions.

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5.2 Transport infrastructure

5.8 Crime and corruption

Botswana has and continues to invest heavily in its


infrastructure. Botswana is freely accessible by air, road and
rail. Botswana has five international airports, one of these in
Gaborone is able to accommodate long haul flights. Botswana
has over 24 000 kilometres of roads and tracks, half of which
consist of well-maintained bitumen and gravel roads.

Petty and violent crime is increasing, particularly in the major


towns of Gaborone, Francistown and Maun. House burglaries
are also increasing. However in the overall context of Africa
and the region, crime can be considered to be a low threat.
Compared with most African countries, corruption is not a
major problem, with high levels of honesty prevalent in most
transactions, in both the public and private sectors.

5.3 Communications infrastructure


Telecommunications in Botswana consists of a digital
exchange telephone system and a microwave ring around
the country.
Botswana Telecommunications Corporation (BTC), a stateowned enterprise, is the sole provider of fixed network
services with two private entities offering mobile phone
services. Mobile penetration is estimated at over 70%
in Botswana. Internet service is slow due to low carrying
capacity of the domestic cable bandwidth. The Government
has allocated BWP 50 million to upgrade the local bandwidth
which will improve internet speed.

5.4 Political environment


The politics of Botswana take place in a framework of a
representative democratic republic, whereby the President
of Botswana is both head of state and head of government,
and of a multi-party system. Executive power is exercised
by the government. Legislative power is vested in both the
government and the Parliament of Botswana. The most
recent election, its tenth, was held in 2009.

5.5 Economic overview


Botswana has one of the fastest growing economies in the
world. The source of this growth has been the countrys rich
mineral endowments. Botswana has a high level of economic
freedom when compared to other African countries.
Botswana holds mineral resources in the form of diamonds.
Recently significant quantities of uranium were discovered.
GDP is estimated at USD 14 billion in 2010.

5.9 Language
English is widely used both spoken and written mainly in the
business circles. Setswana is also widely used both spoken
and written.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
The Companies Act and the Regulators require compliance
with International Financial Reporting Standards (IFRS)
IFRS.

6.2 Basel II and III


Basel II is to be implemented in 2012. No plans have been
officially announced in respect of Basel III.

6.3 FATCA
There is no evidence of FATCA implementation in Botswana
to date.

6.4 Anti Money Laundering (AML) laws/regulations


The banking act requires that banks are obliged under this
Act to keep financial records that exhibit their financial status
and transactions clearly and accurately. The act also imposes
a requirement on banks to notify the Central Bank of any
suspicious transactions relating to money laundering.

5.6 Social environment

6.5 Know Your Customer (KYC) laws/regulations

Comprehensive healthcare services are available to 90%


of the total population of Botswana. The Government of
Botswana is currently focusing on the development of
primary health care, specifically in the rural areas of the
country. Students are guaranteed ten years of basic education.
Approximately half of the school population attends a further
two years of secondary schooling. Secondary education in
Botswana is neither free nor compulsory.

The banking act requires that due diligence and


reasonableness must be adhered to when dealing with
customer identification, thereby enforcing the know your
customer principle.

5.7 Trading partners

King III is in the process of being adopted. King II is currently


followed as best practice.

South Africa is Botswanas biggest trading partner. Outside of


the Southern African Development Community (SADC), other
trading partners include the US, China and UK.

6.6 Annual financial reporting


Annual financial reporting is required for all companies.

6.7 Governance structures

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10 | Africa Banking survey

6.8 Government ownership and management


The Botswana government has widespread ownership
in Botswana companies. This would apply to parastatal
organisations, including all the utility service providers
[power, water, telecoms], the cattle industry [Botswana
Meat Commission], investment [Botswana Development
Corporation, Debt Participation Fund Company Limited,]
banking [National Development Bank, Botswana Building
Society, Botswana Savings Bank] Postal Services and mining,
where the government can take a minority stake in the
extraction company that holds the mineral licence.

6.9 External auditors


Any company that is either a non-exempt private company or
a public company requires an audit. In addition, any company
that has a company amongst its shareholders requires an
audit.
It is important to note that the Central Bank requires all
institutions regulated by it to have external auditors.

6.10 Local regulatory developments or plans


The Budget speech for 2012 announced that:
Review of the Insurance Industry Bill and the Retirement
Funds Bill is underway.
Tax and banking laws are currently being reviewed in line
with international standards on transparency and exchange
of information for tax purposes.
New Immigration Act to substantially reduce time for
processing work and residence permits.
The Non-bank Financial Institutions Regulatory Authority
and MFDP are reviewing several pieces of legislation to
protect customers and ensure stable environment.

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Financial Services | 11

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12 | Africa Banking survey

Section 1
Regulatory
1.1 Regulatory Regime
The Bank of Ghana has an overall supervisory and regulatory
authority in all matters relating to banking business.
The regulatory regime in Ghana uses the Institutional approach.

1.2 Basel Accord status


The Bank of Ghana is at the final stage of preparation to
implement Basel II, scheduled for introduction June 2012.

1.3 Structure of supervisory body


Bank of Ghana, the Central Bank, has a designated department
(Banking Supervision Department) responsible for banking
supervision.

1.4 Banking licence application


An application for a licence is made in writing to the Bank of
Ghana and accompanied with various prescribed documents.
The Bank of Ghana may interview the promoter, directors
and proposed senior management personnel in the course of
an appraisal, and may also inspect their books and records to
satisfy itself about the representations made or information
furnished by the applicant. The decision on application is
generally communicated within three months from the date of
the application. However, a provisional licence may be issued
to the applicant on terms and conditions that the Central Bank
considers appropriate.
Non-bank financial institutions require licensing and approval,
and are also supervised and regulated by the Central Bank.

1.5 Regulatory reporting requirements


Financial institutions are required to submit various prudential
reports on a weekly, monthly, quarterly, bi-annually and
annually, to the Banking Supervision Department of the Bank
of Ghana.
The reporting process is not automated.

1.6 Important banking regulatory requirements


There are a number of important regulatory requirements:
Capital Adequacy Ratio (CAR)
Minimum capital adequacy ratio is 10% measured as
a percentage of adjusted capital base of the bank to its
adjusted asset base, in accordance with Regulations of
the Bank of Ghana.
Liquidity
There are prescribed requirements for holding liquid assets
of a specific amount and composition, of which the amount
is either a percentage of all the banks deposit liabilities, or
in any other manner, and different percentages for different

classes of deposits or assets, as the Bank of Ghana may


determine in any particular case.
Consequences for non-compliance include, but are not limited
to, payment of penalties to the Bank of Ghana, and a prohibition
on granting loans or credits, or making investments, or
accepting deposits.

1.7 Banking supervision


Banking supervision in Ghana is performed on a solo basis.

1.8 Global financial crisis response


There was no specific response to the global financial crisis.

1.9 Deposit insurance scheme


Presently there is no deposit insurance scheme in Ghana.
However, banks are required to have mandatory reserves with
the Central Bank at a minimum percentage of 9% of deposits.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
Potential investors must first register with the Registrar
General Office. The minimum number of shareholders is
one, with at least two directors. One of the directors has to
be present in Ghana at all times. Investors must register with
the Bank of Ghana (if it is a financial institution), and register
with the Ghana Investment Promotion Council (GIPC). Upon
submission of all required documents, the process can take an
average of three to four weeks.

2.2 Foreign investment in local companies


There is currently no specific process for foreigners buying local
companies. There are no restrictions with regard to acquiring
any company. However, there are restrictions for acquisition of
listed companies/purchase of listed shares as a foreigner.

2.3 Annual costs


Generally, there are no specific costs, annual fees or licences
for owning a company in Ghana. There is a requirement for
an external audit, for the review of the financial statements
that would be used for filing the companys annual tax returns.
Annual filing fees carry a cost, dependent on the legal status of
the entity.

2.4 Restrictions on foreign investment


The minimum requirement for wholly owned foreign
investment is USD 50 000. The minimum requirement for
foreigners to enter the retail sector is USD 300 000. There is a
proposal to increase this amount to USD 1 million.

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Financial Services | 13

67
24.2 million (2010 estimate)

GHC 1 = USD 0.00006


GHC: Ghanaian Cedi

$45.1 billion (2010 estimate)

2.5 Dividend remittance


Dividends can be remitted abroad upon payment of the
appropriate tax (withholding) of 8%, and obtaining the
appropriate tax clearance from the Ghana Revenue Authority
(GRA).

2.6 Intellectual property rights


Intellectual property rights are protected. The Trade Mark
Act governs intellectual property rights.

2.7 Sustainability and the environment


Such regulations are not widely known. However an
environmental impact assessment certified by Environmental
Protection Agency (EPA) is required by entities whose
activities affect the environment, either directly or indirectly.

Nathaniel Harlley
T: +233302770454
E: nharlley@kpmg.com

Section 3
People
3.1 Skills availability
There are highly educated people in the job market and there
are also many professional bodies active in the fields of
banking, accountancy, marketing and management, whose
members are largely employed in the banking sector. In
addition, the banks continuously assess staff training needs,
and provide appropriate training on a regular basis.

3.2 Foreign nationals

There are anti-money laundering laws in Ghana. These are


largely contained in the Anti-Money Laundering Act.

Generally the attitude towards ex pats is receptive. However


the preference is to have local content for positions, where
available. There is a quota system for expatriate employment
ranging from one to four, depending on the level of equity
investment. There are also provisions for short- term expatriate
employment, which can be purchased for USD 2 500 for a one
year non-renewable quota.

2.9 Tax regime

3.3 Labour legislation

Ghana has a number of applicable taxes including:

The purpose of the Labour Act of 2003 is to codify the rights


and responsibilities of the employee and the employer
(protection of employment), general conditions of employment,
rules relating to the employment of young people, fair and
unfair termination of employment, protection of remuneration,
special provisions relating to temporary and casual workers,
employment of women, trade unions and employers
organisations, rules and modes of collective agreement, rules
on forced labour, occupational health and safety, rules relating
to labour inspections and codification of instances of unfair
labour practices.

There is a requirement to rehabilitate the land after degrading it.

2.8 Anti-money laundering

Corporate income taxes (25%).


Value Added Tax (15%).
Import duties and taxes.
Property taxes and business taxes (municipal level).

2.10 Branch taxation


Generally, the tax treatments for branches and subsidiaries
are the same. However, subsidiaries are charged an 8% tax
on dividends, and branches are charged 10% on repatriated
profits. Both branch and subsidiaries are taxed at the corporate
tax rate of 25%.

2.11 Tax rates


Individual income tax is graduated, with 25% being the highest
tax rate. Employers are required to withhold the appropriate
tax liabilities, and pay these to the Ghana Revenue Authority
(GRA).

2.12 Tax returns


Entities are required to file an annual income tax return not later
than four months after the accounting year end. Generally, the
GRA issues the provisional assessment (provisional returns) on
an annual basis.
Other taxpayers are allowed self assessment, by issuing
their own tax projections to the GRA at the beginning of the tax
year. This forms the basis for the quarterly tax payments.

3.4 Trade union presence


There is significant trade union presence in the public sector,
production, manufacturing and the financial sectors. Within
the private sector, entrepreneurial and small to medium scale
businesses are largely non-unionised.

3.5 Hiring and Firing of employees


There are no particular restrictions on the hiring of employees,
as long as the process conforms to the non-discrimination
clauses itemised in the labour law. For the process of
termination, the Labour Act states the grounds for lawful
termination.

3.6 Contractors
Where Contractors refers to the use of casual or temporary
workers, the Labour Act provides rules for the on-boarding and
remuneration of casual and temporary workers. A temporary
worker employed by the same employer continuously for more
than six months, is treated as a permanent worker.

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Where the term Contractor refers to the provision of auxiliary


services to the business by external agencies, there are no
particular restrictions.

3.7 Retirement and Medical Aid


There is a national compulsory retirement fund (SSNIT) which
requires monthly statutory contributions by the employer (13%)
and the employee (5.5%) of the employees gross salary. There
is no legislative requirement for membership of any kind of
medical fund. There is, however, a state-run health insurance
scheme (National Health Insurance Scheme) to facilitate easy
access to medical aid. It is a general practice for employers to
provide a medical fund for employees, in the form of a refund
of medical bills paid, designated hospital expenses and medical
insurance. Membership of a retirement fund is compulsory.

Section 4
Banking Environment
4.1 Major loan and deposit products
Loan products
Term loans, mortgage loans, staff loans, overdrafts, leases,
and hire purchase.
Deposit products
Current accounts, time/fixed deposits, savings accounts and
cash collateral.

4.2 Payments/clearing system


The Ghana Interbank Settlement System is the system in place
for cheque clearing. Participants are generally the financial
institutions, and all cheques are cleared through the Automatic
Clearing House (ACH). Cheques generally take two business
days to clear through the ACH system.

4.3 Insolvency provisions


Insolvency provisions are contained in the Companies Code
of Ghana and do not apply to individuals. Insolvent companies
are required to give notice to the Registrar, together with a
statement of the companys financial position. The Registrar
will register both the notice and the statement, and cause a
copy of the notice to be published in the Gazette.

4.4 The taking of Security


Generally, there are no restrictions in the taking and
perfecting of security. However, procedures for taking and
enforcing security are protracted, legally complex, costly, and
unpredictable. There also exists a high degree of information
asymmetry, which leads to imprudent lending decisions. This is
caused by the limitations in data captured by the credit registry.

4.5 Banking branch and IT infrastructure


Banks are widely networked with branches, and most banks
provide internet banking services to customers. Also, the use
of mobile banking has increased steadily.

4.6 Active exchanges


The Ghana Stock Exchange. Instruments traded are mainly
shares/stocks of listed companies.

4.7 Banking sector overview


Ghanas financial system is dominated by foreign-owned
banks. Commercial banks account for 75% of the total assets
of the financial system. Of the 26 commercial banks operating
in Ghana, 13 are subsidiaries of foreign banks and their market
share is estimated at 51% of bank assets. A significant
proportion of the population is unbanked and this offers the
banks the opportunity for growth.

Section 5
Physical Environment
5.1 Property ownership
Land in Ghana can, and in many cases does, belong to local
communities, which are represented by their chiefs and kings.
The constitution provides for both public land (i.e. land owned
by the state) and private land (i.e. land owned by clans, families
or individuals).
Land cannot be legally acquired as freehold but only as
leasehold. Ghanas constitution provides that non-Ghanaians
are allowed to lease residential, commercial, industrial and
agricultural land for up to 50 years. The property market is
quite open and flexible. Administrative procedures for property
ownership/title and its registration are known to
be bureaucratic and time consuming.

5.2 Transport infrastructure


Ghana offers transport by road, rail, air and water. Ghanas
transportation and communications networks are centred in
the southern regions, especially the areas in which gold, cocoa,
and timber are produced.
The northern and central areas do offer a major road system,
however some of these northern areas remain isolated.
Infrastructure and services has been identified as one of
governments priority areas to be developed under its mediumterm plan.

5.3 Communications infrastructure


Information and Communication Technologies (ICT)
infrastructural development in Ghana is progressing
comparably to other low-income countries, but above the
1.1% average for Sub- Saharan Africa.

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Financial Services | 15

Over the years, several initiatives have been made by the


Government of Ghana and other agencies to develop the ICTinfrastructure, so as to bridge the digital divide between Ghana
and the developed world. Prominent among these initiatives
is the development of a national fibre optic network by the
nations electricity provider.
Generally, communication infrastructure is fairly good, with
easy access to mobile telephony and internet modem services.
However, internet speed and connectivity can be challenging.
There are six private companies operating mobile phone
systems. There are also several internet and e-mail providers.
Broadband internet access is offered by an increasing number
of providers.

5.4 Political environment


The political environment has been stable for the past 20 years.
There are two major political parties with a pocket of other
smaller parties in the political landscape. Ghana is a maturing
democracy. In December 2008, Ghana successfully held its
latest round of general elections.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
All listed and financial institutions are required to report their
financial results in accordance with International Financial
Reporting Standards (IFRS). However, most SMEs have not
yet completely adopted IFRS.

6.2 Basel II and III


Basel II is scheduled to be introduced in June 2012.

6.3 FATCA
Ghana has not yet implemented FATCA.

6.4 Anti Money Laundering (AML) laws/regulations


Ghana has put in place most of the basic elements for
a comprehensive AML/CFT framework, but it is not yet
compliant with most core and key FATF recommendations.

5.5 Economic overview

6.5 Know Your Customer (KYC) laws/regulations

Ghana is rich in natural resources. Ghana is one of the worlds


top gold producers. Other exports such as cocoa, crude
oil, natural gas, timber, electricity, diamond, bauxite and
manganese are major sources of income.

Ghana has implemented a fully comprehensive system of


know your customer policies.

5.6 Social environment


Education, housing and medicine in Ghana are fairly accessible,
but this varies greatly in different parts of the country. Basic
education is free, but access to higher level education is
becoming challenging, due to unavailability and overstretched
facilities. There is a significant shortage of housing in the major
cities, and access to certain medicine can be costly.

5.7 Trading partners


Ghanas major trading partners are the Netherlands, UK,
France, US, Germany, Belgium, Nigeria and China.

5.8 Crime and corruption


The level of crime is minimal, whilst the level of corruption
is considered to be high in the public sector, based on public
perception.

5.9 Language
The official language is English, which is also the medium for
education and business. However, most Ghanaians also speak
at least one local language.

6.6 Annual financial reporting


All registered companies are required to file their accounts with
the Registrar General Department on an annual basis.

6.7 Governance structures


Governance structures are in place, and largely common
among listed companies and financial institutions.

6.8 Government ownership and management


The state has a controlling interest in five commercial banks,
through direct and indirect shareholding by the government,
which accounts for 29% of banking system assets.

6.9 External auditors


External audit is mandatory for all registered companies.
Companies are required to appoint an auditor at the time of
registration.

6.10 Local regulatory developments or plans


There are various projects being carried by the Central Bank in
partnership with international bodies such as the IMF. A typical
project is the Financial System Stability Assessment Update
prepared by staff team of the International Monetary Fund.

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Section 1
Regulatory
1.1 Regulatory Regime
Kenya predominantly uses an institutional regulatory
framework. The banking sector is regulated by the Central
Bank of Kenya (CBK), which was established through an Act
of parliament in 1966 to licence, regulate and supervise banking
operations.
In addition, listed banks are also regulated by the Capital
Markets Authority (CMA).

1.2 Basel Accord status


The CBK regulation is undertaken through the implementation
of policies and standards that are in line with international best
practice for bank supervision and regulation.
The CBK is in the process of formulating a policy position on
Basel II implementation in Kenya.

1.3 Structure of supervisory body


The Board of Directors of the CBK are charged with
responsibility of policy formulation. The board consists of
eight members who are appointed by the President. The
executive management team comprises the Governor, the
Deputy Governor and fifteen heads of department who report
to the Governor. Supervision of the Kenya banking sector
is undertaken by the Central Bank Supervision Department
(BSD). This department is headed by a director who reports
to the Deputy Governor of the CBK, who then reports to the
Governor and finally to the Board of Directors. The BSD director
is supported by three assistant directors, portfolio managers,
surveillance teams, and policy, legal and administrative teams.

1.4 Banking licence application


The process of applying for a licence is summarized below:
The institution is required to seek approval for the use of the
name bank or finance from CBK.
Once CBK has approved the name, application must be
made to the Registrar of Companies for incorporation of the
proposed bank, mortgage finance company or non-bank
financial institution as a limited liability company.
Upon incorporation of the limited liability company an
application, accompanied by supporting documentation, is
made for a banking, mortgage finance company or non-bank
finance institution license.
Upon meeting all the requirements, the Central Bank will
grant a written approval (approval in principle) to conduct the
business of a bank, mortgage finance company or non-bank
financial institution, as the case may be.
When the premises are ready, an invitation is made to CBK
to conduct an inspection.
If the inspection is satisfactory, the Central Bank places a
notice in the Kenya Gazette to formally specify the institution.

A license is then issued and the institution can open its doors
to customers.
Licence renewal applications should be made within three
months immediately preceding the expiry of the licence.

1.5 Regulatory reporting requirements


Licensed and operating institutions in Kenya are required to
publish in a national newspaper, a copy of the audited financial
statement of financial position and income statement covering
its activities and any other information prescribed by Central
Bank of Kenya, within three months of the end of every
financial year.
A copy of un-audited financial statements should be published
in a daily national newspaper, in the format prescribed by the
CBK. Un-audited financial statements shall be published at
quarterly intervals.
In addition commercial banks make the following returns
to CBK:
On a monthly basis, banks report the size of their risk
weighted assets while other loans & advances and larger
exposures/ largest borrowers are submitted on quarterly
intervals. The reports are prepared on standard manual
forms.
Foreign currency exposures returns must be submitted on
a weekly basis.
In addition, there is a collection of banking data on a monthly
basis for the Research Department. These include data on
the maturity structures of both local and foreign currency
deposits, a sectoral analysis of loans and advances, an
analysis of both the size distribution and the maturity of new
loan approvals, and details on both the volume and prices of
money market operations.
Returns on liquidity and foreign exposure are also required
weekly, and CBK has capped the exposures on banks to
protect depositors and other stakeholders.
The Banking Act requires banks to pay a return (profits)
on all savings accounts kept or operated in accordance with
Islamic Law. This amendment applies to institutions offering
Islamic banking products which do not permit payment of
interest. All institutions offering Islamic savings products
should provide for a return on these accounts.

1.6 Important banking regulatory requirements


Banks in Kenya are required to maintain core capital of KES
250 million (USD 2.9 million). The CBK may pursue any or all
corrective actions as provided below for institutions failing to
comply.
The core capital of an institution shall at all times be not less
than 8% of its total deposit liabilities.
The core capital of an institution shall at all times be not less
than 8% of its total Risk Weighted Assets(RWA)
The total capital of an institution shall at all times be not less
than 12% of its RWA.

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Financial Services | 17

98
41.1 million (2011 estimate)

KES 1 = USD 0.0119


KES: Kenyan shilling

$35.8 billion (2011 estimate)

The capital adequacy ratio should be maintained at a


regulatory minimum of 10%.
Statutory prescribed minimum liquidity requirement is 20%
of deposit liabilities, matured and short term liabilities. An
institution that fails to comply is required to report its inability,
in writing, to the CBK, Bank Supervision Department, stating
reasons for such failure and/or inability, and measures being
taken to rectify the situation.
The overall foreign exchange risk exposure, as measured
using spot mid-rates and shorthand method, shall not exceed
20% of the institutions core capital.
The cash reserve ratio held with CBK should be maintained
at a minimum of 5.25% currently, or as CBK may prescribe
from time to time.
The regulatory consequences of non compliance include CBK
requirement for corrective board resolutions, acceptance of
a commitment letter outlining corrective actions, issuance
of a Memorandum of Understanding enforceable through
legal action, Issuance of Directives such as direction, advice
or appointment of a person, removal of officers and denial
of corporate approvals, CBK intervention in Management,
removal of Directors and levying of penalties, revocation
of Banking Licence, increased contributions to the deposit
protection fund of the institution, and termination of Deposit
Protection.

1.7 Banking supervision


Banking supervision is conducted by the Bank Supervision
Department (BSD) of the CBK through on-site and off-site
surveillance based on predetermined inspection programmes
and ratings criteria that takes into account the banks Capital,
Assets, Management, Earnings and Liquidity (CAMEL).

Eric Aholi
T: +254202806000
E: ericaholi@kpmg.co.ke

addition to submitting their audited financial statements under


Section 23(1), also submit global financial statements. The
global financial statements (audited balance sheet and profit
and loss account) should incorporate the foreign subsidiaries
and branches.

1.9 Deposit insurance scheme


The Deposit Protection Fund Board (DPFB) is a significant
player in the financial sector. Every institution licensed under
the CBK Act as a deposit taking institution, contributes the
higher of KES 100 000 (USD 1 190) or 0.4% of the average
of the institutions total deposit liabilities during the preceding
12 months period.
It pays up to KES 100, 000 per account.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
Broadly the process is:
Submit the proposed name to CBK for approval.
Register the proposed company name with the Registrar of
Companies at the Attorney Generals Chambers.
File the Memorandum and Articles of Association with the
Registrar of Companies who, upon satisfaction, will issue the
Certificate of Incorporation.
Apply in writing to CBK for an operating license.
On satisfaction, CBK will issue a letter to allow
commencement of operations, with a copy to the Treasury.

Frequency of inspection is determined by the risk assessment


of the institution and conducted at least once every year. CBK
adopts a Risk Based Supervision (RBS) Model, where high riskrated institutions are inspected more frequently.

A license of an institution shall be considered to have lapsed


if the institution fails to commence operations within one
year of the Ministers approval.

1.8 Global financial crisis response

Minimum Kenyan co-ownership in banks, insurance companies


and telecommunications companies is mandatory, while at
least 25% of the shares of companies listed on the Nairobi
Securities Exchange must be held by Kenyans.

In response to the global financial crisis, Kenya set up a task


force comprised of officials of the ministry of finance and
planning as well as the CBK to look into ways of cushioning
Kenyas economy from the negative effects of the crisis.
The specific responses included lower interest rates by CBK,
lowering the cash ratio and the Central Bank Rate, expanded
expenditures e.g. acquisition of shares by the government
or its agencies, to shore the stock market and lower the
remittance costs. Going forward, the CBK is undertaking steps
to enhance regulatory and supervisory oversight of the banking
system, to introduce required legislation to support and
enhance Deposit Protection Insurance and to increase the level
of financial inclusion.
All institutions, incorporated both in and outside Kenya, that
maintain subsidiaries or branches outside Kenya should, in

2.2 Foreign investment in local companies

2.3 Annual costs


External audits are mandatory for all banks in Kenya. The
following are payable to the CBK:
Granting of a license to an institution and each anniversary
thereof of KES 400 000 (USD 4 760).
Additionally, in respect of each branch of an institution within
a municipality, an amount of KES 150 000 (USD 1 785).
Additionally, in respect of each branch of an institution within
a town council area, an amount of KES 100 000 (USD 1 190).
Additionally, in respect of each branch of an urban council
area, an amount of KES 30 000 (USD 357).

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On application for a license to conduct business or open a


branch as an institution, an amount of KES 5 000 (USD 60).

2.4 Restrictions on foreign investment


Whilst there are no blanket restrictions on doing business in
Kenya, foreign investments in the telecommunication, banking
and insurance sectors are subject to specific requirements on
the percentage of ownership.
Further, at least 25% of the shares of companies listed on the
Nairobi Securities Exchange should be held by Kenyans.
Foreigners can be directors of companies.

2.5 Dividend remittance


No restrictions in place. 100% repatriation of profits is allowed.

2.6 Intellectual property rights

of 10% on dividend payment. Head office expenses are not


allowable for tax purposes, and head office payments are not
subject to withholding taxes.
In cases of local companies with a branch outside of Kenya, the
branchs profits are amalgamated for purposes of corporation
tax calculation but the company may get a tax credit, depending
on the country in which the branch operates.

2.11 Tax rates


Individuals have two applicable taxes, namely withholding tax
on professional services levied at 10%, and Pay as You Earn
(PAYE).
PAYE is levied against the individual according to their income
level. The applicable rate starts at 10% and increases up to
30% for all income earners earning in excess of KES 466 704
(USD 5 554).

The Intellectual property rights protection is governed by the


Industrial Property Act. The Act provides for the promotion of
inventive and innovative activities, facilitates the acquisition of
technology through the grant and regulation of patents, utility
models, technovations and industrial designs.

Employees who are tax resident in Kenya are entitled to a


personal relief of KES 13 944 per annum against their tax
liability

2.7 Sustainability and the environment

The employer should pay the tax via its bankers to the
Paymaster General by the 9th day of the month following the
month to which the income relates.

The Environmental Management and Coordination Act


(EMCA), provides a framework of environmental legislation
that establishes appropriate legal and institutional mechanisms
for the management of the environment. It provides for
improved legal and administrative co-ordination of the diverse
sectoral initiatives, in order to improve the national capacity
for the management of the environment. The National
Environment Management Authority (NEMA) is charged
with the implementation of the Act.

2.8 Anti-money laundering


Kenya has in place Anti-money laundering laws and regulations;
the Proceeds of Crime and Anti-Money Laundering (AML)
Act, became operational in June 2010. The Act stipulates
the obligations for financial players, amongst other reporting
entities, to ensure that the financial system is not used as a
conduit for money laundering, drug trafficking and other related
illicit activities.

2.9 Tax regime


The key types of tax applicable include Corporation Tax,
Withholding Tax, Value Added Tax (VAT) and Stamp Duty.
Corporation tax is charged at 30% while withholding tax is
charged at various rates depending on the type of income:
15% on offshore interest payment, 10% on dividends and
10% and 20% on local and foreign professional services
respectively. Value added Tax is charged at a standard rate
of 16%.

2.10 Branch taxation


Branches of foreign companies are charged corporation tax at
a rate of 37.5%. The branch profits are not subject to the WHT

The tax on emoluments earned by an employee is payable on a


monthly basis by the employer, through the PAYE system.

In addition to the monthly PAYE returns, the local company


will need to file annual PAYE returns by the 28th of February
following the end of each calendar year.

2.12 Tax returns


The income tax returns are prepared on a self assessment
basis, where the taxpayer assesses its tax liability and submits
a tax return based on the assessment. The tax return is to be
submitted to the revenue authority on or before the last day of
the 6th month following the year end.
Each company should file the SAR with the tax authorities
within six months following the end of the accounting period
for the taxpayer.
For incorporated persons, the year of income for purposes of
corporation tax is usually taken to coincide with the financial
year end; the financial year end for all banks in Kenya is 31
December.

Section 3
People
3.1 Skills availability
Kenya has a highly skilled workforce, and the banking sector
is able to secure banking staff with relevant training, including
university training and finance-related professional certification.
Additionally, Kenya has returning citizens with international
professional experience to add to an already diverse talent pool.

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3.2 Foreign nationals


While there are no blanket restrictions regarding hiring of
expats, one would need to demonstrate that the right skills
cannot be obtained locally. This stems from a ministerial policy
to prevent companies from giving foreigners work which
Kenyans can do.
Foreigners, who want to own, or run a business in Kenya, need
to have a work permit from the Ministry of Immigration. There
are generally two types of permits that foreigners would apply
for: a Class H permit or a Class A permit. The type of permit
applied for depends on whether the foreigner will be an owner
of the business or simply an employee.

3.3 Labour legislation


Employment is governed by the general law of contract, as
much as by the principles of common law.
Parliament has passed laws specifically dealing with different
aspects of the employer-employee relationship. These laws
define the terms and conditions of employment, and consist
mainly of four Acts of Parliament namely Employment Act,
the Regulation of Wages and Conditions of Employment Act,
Factories Act, Workmens and Compensation Act.
Employment contracts may be for fixed or unlimited periods of
time; in general, temporary and fixed-term employed workers
enjoy all the rights of an employee working on permanent
terms, except those that are excluded explicitly, or by the
nature of a short term assignment.

3.4 Trade union presence


Kenya does have a significant Trade union presence. The
formation, structure and organization of trade unions in Kenya
are clearly provided for in various national instruments, namely,
Trade Unions Act, Trade Disputes Act and the Industrial
Relations Charter. The bank workers union in Kenya is called
the Bankers Insurance Finance Union (BIFU).

3.5 Hiring and Firing of employees


Hiring and firing is required to be based on the terms and
conditions set out in the Collective Bargaining Agreement for all
unionisable/staff employees.
Further, each employees contract provides for the process to
be followed in case of resignation or termination of contract,
and the appropriate compensation/payment.

The compulsory medical fund is the National Hospital Insurance


Fund (NHIF) to which employees contributes KES 320
(USD 3.80) monthly. There are proposals to increase the
contributions to the medical fund on a graduated scale.

Section 4
Banking Environment
4.1 Major loan and deposit products
The loan products offered are mainly categorized as personal
loans and institutional (corporate) loans. Personal loans include
unsecured loans, secured loans and overdrafts, motor loans,
mortgages, home loans, premium financing, and salary
advances, while institutional loans include working capital
loans, commercial motor loans, invoice discounting, contract
financing and overdrafts.
Deposit products offered include call deposits, savings
accounts, current accounts, fixed deposit accounts, student
accounts, investment accounts and salary accounts.

4.2 Payments/clearing system


Kenya Real Time Gross Settlement System (RTGS) is called
Kenya Electronic Payment and Settlement System (KEPSS),
which transfers funds between banks in Kenya on a gross
basis in real time. The transactions are settled individually,
continuously and in real time in the accounts of the participants
in the central bank, provided that the sending participant has
sufficient covering balances or credit (settlement limit). The
money transfer takes place in the books of CBK, hence the
payment is taken as final and irrevocable.
Participation to the KEPSS is open to a bank or financial
institution or any participant, provided they meet all the
eligibility criteria and conditions provided by KEPSS. For the
purpose of the routing of payments in KEPSS, participants are
required to have a single SWIFT Bank Identifier Code (BIC)
on which all KEPSS payments are routed to.
The National Payment System (NPS) oversight section
is responsible for promoting the objectives of safety and
efficiency of payment systems, monitoring existing and
planned systems, assessing them against these objectives
and, where necessary, inducing change.

Increasingly, contract employment is gaining prominence in


the country.

CBK is a user of payment systems, facilitator of settlement,


provider of payment systems, supervisor, and provider of
liquidity, as well as being the overseer of the payment system.
Recent developments in the national payment system include
implementation of RTGS and cheque truncation.

3.7 Retirement and Medical Aid

4.3 Insolvency provisions

There is a compulsory social security scheme (National Social


Security Fund) to which employees and employers each
contribute KES 200 (USD 2.40) monthly.

it is deemed to be unable to pay its debts within the


meaning of section 220 of the Companies Act; or

3.6 Contractors

An institution shall become insolvent if:-

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20 | Africa Banking survey

a winding-up order is made against, or a resolution for


creditors voluntary winding-up is passed, under the
Companies Act; or

The fixed income investment segment, comprising of treasury


bonds and corporate bonds, is actively traded by banks in
Kenya.

it is unable to pay sums due and payable to its depositors;


or

In November 2011, FTSE and NSE collaborated on the FTSE


NSE Kenya index series, in an effort to give the local exchange
an international profile that attracts more foreign capital.

the Central Bank determines that the value of its assets is


less than the value of its liabilities.
If an institution becomes insolvent, the CBK may appoint the
Board, established under section 36 of Banking Act, to be a
liquidator of the institution; and the appointment shall have
the same effect as the appointment of a liquidator by the court
under the provisions the Companies Act.

4.4 The taking of Security


The process of taking of security must be transacted through
an accredited lawyer, and is subject to stamp duty and registry
fees.
Security creation, perfection and enforcement face restrictions
in terms of costs and time. This is due to the numerous
applicable statutes relating to collateral creation and perfection
that make the process cumbersome, expensive and complex.
Lenders cite the slow and expensive judicial process as
contributing to premiums they factor into their interest rates.
The presence of many manual and uncoordinated registries
makes the process laborious.

4.5 Banking branch and IT infrastructure


There are 1, 063 bank branches and 1, 974 ATMs in the country
as at 31 Dec 2010, showing significant growth in recent
years. E-banking has evolved to become the preferred mode
of banking rather than as an alternative channel. Some of the
e-banking services introduced by financial institutions include
the EFT, payments of utility bills, airtime top ups, balance
enquiries, loan applications, and cheque book requests.
Use of credit information sharing (CIS), and enables banks
to share credit information on their customers, to facilitate
better assessment of the risks associated with prospective
borrowers.
Mobile money transfer; Safaricoms MPESA is the most
prevalent distribution channel. Other mobile networks,
including Airtel, Essar and Orange telecom, have introduced
mobile money facilities. Most banks in Kenya have embraced
the use of mobile banking.

4.6 Active exchanges


The Nairobi Securities exchange (NSE) is the largest and
most developed in East Africa. It has 55 listed companies
(five cross-listed), a market capitalisation of about
USD 9.8 billion as at September 2011 and trading volumes of
USD 60.6 million (equities), USD 401 million (bonds) for the
month September 2011.

4.7 Banking sector overview


Kenya has a comparatively developed financial sector, when
compared to most African and other third world countries. The
financial sector has been one of the fastest growing sectors
in the economy in the last few years, driven by increased
customer awareness and demand.
The sector is defined by multinational institutions such as
Barclays and Standard Chartered, Pan-African banks, such as
Nigerias United Bank for Africa, and home-grown institutions,
such as Equity Bank which has expanded into neighbouring
nations Uganda, Rwanda and South Sudan.
Key developments in the sector includes the introduction of
agency banking, mobile banking, internet banking, increased
use of ICT, increase in the required minimum core capital and
Islamic banking products.
The dynamism and growth in the banking sector is expected
to continue into 2012 and beyond, as financial institutions
continue to seek new opportunities in the face of regional
integration and growth under the EAC platform and global
recovery. Further, Kenya has a significant unbanked population.
Challenges facing the industry include new regulations which
require banks and mortgage firms to build a minimum core
capital of KES 1 billion (USD 11.9 million) by December 2012.
The implementation of this requirement poses a challenge to
some of the existing banks, and they may be forced to merge in
order to comply. The global financial crisis affected the banking
industry in Kenya in regard to deposits mobilisation, reductions
in trade volumes and the performance of assets.
Fraud is a major challenge, with significant fraud cases being
reported.

Section 5
Physical Environment
5.1 Property ownership
Every person has the right, either individually or in association
with others, to acquire and own property of any description and
in any part of Kenya.
A person who is not a citizen may hold land on the basis of
leasehold tenure only, and any such lease, however granted,
shall not exceed ninety-nine years.

Shares and bonds are the securities currently available at the


NSE. However plans are underway to introduce derivatives.
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Financial Services | 21

5.2 Transport infrastructure

5.5 Economic overview

The current government has prioritised the rehabilitation and


development of a transport infrastructure, as part of Kenyas
Vision 2030. Domestic transport is heavily reliant on road
transport. There is a reasonable bus and commuter van service
between towns and within populated areas. Road safety
remains a major challenge to motorists, due to reckless driving
by small public transport operators.

The economy experienced some setbacks in 2008, resulting


in weak GDP growth of 2.6% (2009), but has since shown
recovery, albeit tempered by the recent hikes in oil prices.
The forecasted GDP growth for 2011 is 4.5% followed by a
rebound in 2012 to 5.9%. A strong macroeconomic policy is
also expected to manage the temporary shocks, which have in
the past caused rising inflation, weakened the Kenya Shilling
and dampened the stock market performance. Strong import
growth will keep the overall current account in deficit at 8% of
GDP in 2011, up from 7.5% of GDP in 2010.

There is a limited rail service from the port of Mombasa to


Nairobi, and this primarily serves commercial cargo from the
Port. The existing railway line is now under concession and
being rehabilitated, and the government has plans to build an
additional railway-line linking Lamu to South Sudan.
Jomo Kenyatta International Airport (JKIA) in Nairobi is the
regional hub for international and domestic air traffic. Other
airports are located in Mombasa, Eldoret, Nairobi and Kisumu,
and numerous other airstrips across the country.

5.3 Communications infrastructure


Mobile penetration in Kenya is over 60%, with about
25 million mobile lines and 0.5 million fixed lines. The
telecoms landscape is highly competitive, with four players.
There are two fibre optic cable connections, which are
transforming internet connectivity with faster and cheaper
services. Data and internet services are also widely available,
and used by businesses, institutions, a small segment with
access to home PCs and youth accessing social media on
cell phones.
Kenya has a vibrant print, audio and visual media sector with
at least five large TV stations and two leading local dailies, as
well as a plethora of radio stations in English and vernacular.
International programming is available through satellite TV,
with monthly subscription, ranging from USD 10 to USD 100.
Freedom of press is reasonably open.

5.4 Political environment


The last elections were held in 2007, and disputes over
the election results led to violence, which left many people
displaced. This greatly set back the economy in 2008.
Negotiations, led by Kofi Annan were held, and a grand
coalition was formed to contain the election violence and carry
out constitutional, legal and social reforms needed to restore
peace in the country. The resolution included the formation
of a coalition government, headed by the incumbent, and the
creation of a Prime Minister post.
Progress has been made politically, with the adoption of
the new constitution in 2010. This improved the image
and confidence in the country, both domestically and
internationally, that the new constitutional order will allow the
country to move past its previous instability.

Long-term growth prospects are favourable. Kenyas location


as a key regional hub, and the process of EAC integration,
will support average annual growth. Growth will also be
underpinned by new investment in infrastructure (especially
transport and power), pro-market reforms (including
deregulation and privatisation) and a gradual improvement in
governance and public-sector capacity, although drought will
remain a key risk.

5.6 Social environment


Free primary and secondary school education was introduced
in 2002 when a new government came in, and is still offered,
albeit under financial constraints. There is some access to
public healthcare at government clinics and hospitals for a
minimal fee.
Countrys literacy level is at 85%.
Kenya has made significant progress on the Millennium
Development Goals concerning HIV/AIDS, infant mortality and
achieving universal primary education.

5.7 Trading partners


Exports- Uganda 10.1%, Tanzania 9.8%, UK 8.8%,
Netherlands 8.2%
Imports- China 13.6%, India 13.4%, UAE 9.7%,
South Africa 8.4%

5.8 Crime and corruption


Corruption is still rife in the country, and attempts to strengthen
the Kenya Anti Corruption Commission are ongoing. The
country is perceived as the second least corrupt State in East
Africa, even as its police force takes the unenviable position of
being the most corrupt institution in the country.
Crime and petty theft have significantly reduced in the last
decade, owing to better economic prospects and previous
initiatives to move street families out of towns.

5.9 Language
English is widely spoken and the main language of doing
business. Kiswahili is the national language.

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Section 6
Governance and reporting Issues
6.1 IFRS implementation
Kenya Adopted the use of IFRS in 1999. All organizations, in
Kenya including banks, report based on the IFRS framework.
The Institute of Certified Public Accountants carries out
annual competitions covering IFRS, corporate governance and
Corporate Social Responsibility (CSR). Banks have consistently
won the first slot over the 11 years of the competition. This
indicates quite robust reporting standards in the banking sector.

6.2 Basel II and III


The Central Bank of Kenya (CBK) began a process in 2007 that
will lead to the preparation of a comprehensive roadmap for
implementation of Basel II. To date the implementation is in
progress.

6.3 FATCA
There is no evidence of FATCA implementation in Kenya
to date.

6.4 Anti Money Laundering (AML) laws/regulations


The Crime and Anti-Money Laundering (AML) Act became
operational in 2010. Accordingly, financial institutions
licensed under the Banking Act, the Central Bank Act, and the
Microfinance Act are required to adhere to the requirements.
The Act stipulates the obligations for financial players among
other reporting entities of ensuring that the financial system is
not used as a conduit for money laundering, drug trafficking and
other related illicit activities

6.5 Know Your Customer (KYC) laws/regulations


As per the CBK prudential guidelines, all institutions operating
within the financial sector are required to obtain basic
information on its customers.
The CBK prudential guidelines requires that a bank should
establish to its satisfaction that it is dealing with a person that
actually exists, and identify those persons who are empowered
to undertake the transactions, whether on their own behalf
or on behalf of others. When a business relationship is
being established, the nature of business that the customer
expects to conduct with the institution concerned should be
ascertained, so as to determine what might be expected as the
customers normal activity levels.

6.6 Annual financial reporting

6.7 Governance structures


The CBK prudential guideline provides for the minimum
standards required from directors, chief executive officers
and management of an institution, so as to promote proper
standards of conduct and sound banking practices, as well as
to ensure that they exercise their duties and responsibilities
with clarity, assurance and effectiveness.
The CBK requires all institutions licensed under the Banking
Act, to have at least five directors, at least three-fifths of who
should be non-executive directors, in order to achieve the
necessary balance.
As per the CBK prudential guidelines, each financial institution
should have in place the board audit committee, credit
committee, ALCO committee, risk management committee
and executive committee.

6.8 Government ownership and management


As at 31st December 2010, the banking sector comprised of
the CBK, as the regulatory authority, 44 banking institutions (43
commercial banks and one mortgage finance company), two
representative offices of foreign banks, five Deposit-Taking
Microfinance Institutions (DTMs) and 126 Forex Bureaus. 31 of
the banking institutions are locally owned, while 13 are foreign
owned. The locally owned financial institutions comprise three
banks with public shareholding, 27 privately owned commercial
banks, one mortgage finance company (MFC), while five DTMs
and 126 forex bureaux are privately owned.

6.9 External auditors


Every institution shall, in terms of the Companies Act appoint
annually, an auditor approved by the CBK, whose duty shall be
to audit and make a report upon the annual balance sheet and
profit and loss account which area to be submitted to the CBK.

6.10 Local regulatory developments or plans


The following continue to impact on Kenyan businesses:
Promulgation of the new constitution in 2010
Introduction of agency banking model in 2010
Roll-out of credit information sharing (CIS) initiative in
July 2010.
The continued geographic expansion of banks in Kenya,
both nationwide and across the East African region, which
was given further impetus by the signing of the EAC
Common Market Protocol in July 2010
Increase in minimum core capital to KES 1 billion by end
of 2012.

The year end for all banks is 31 December. All banks must
submit their Audited Annual Financial report to the Central Bank
by not later than 31 March.

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Financial Services | 23

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24 | Africa Banking survey

Section 1
Regulatory
1.1 Regulatory Regime
The Central Bank of Mauritania is the principle regulator of
the banking sector. The Institutional framework is used
in Mauritania.

1.2 Basel Accord status


Practices followed by the regulator are similar to Basel I but
a transition to Basel II is underway and planned for 2012.

1.3 Structure of supervisory body


Supervisory is under the control of the Central Bank through
the Financial and Banking Supervision Department. The
Bank Control Department collects the banks reporting and is
also in charge of the intelligence and risk management. The
Inspection Department is in charge of the audit/inspection
of banks.

1.4 Banking licence application


Applicants are required to submit to The Central Bank a
number of specified documents for application. The Central
Bank has six months to approve a banking license.

1.5 Regulatory reporting requirements


There are a number of reporting requirements. There are
extensive foreign currency reports which are required
to be submitted weekly. Financial control reports vary
but are largely required on a monthly basis. Credit report
requirements vary between monthly, quarterly and biannually. Trade finance reports are requested on an ongoing
basis, while financial statements are required annually.

1.6 Important banking regulatory requirements


Obligatory reserves in local currency and obligatory
reserves in foreign currency are required - 7% of the
average customer deposit. In case of non compliance,
penalties of MRO 200 000 (USD 740) per day + interest
based on CBM debit rate are payable.

1.8 Global financial crisis response


There are no specific supervisory responses being considered
in Mauritania in response to the global financial crisis, as the
latter did not affect the Mauritanian banking system.

1.9 Deposit insurance scheme


A deposit insurance scheme was implemented in 2008, and
the banks required contributions are as follows:
1.75% of the minimum capital for new approved banks,
0.1% of the average of deposits during the year for the
others.
A Compensation threshold will be determined on an annual
basis starting January 1, 2012.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
Registered parties wishing to invest in Mauritania use
a simplified form, attaching duly certified supporting
documents, and a file containing various required documents.
Foreign corporations are required to have a permanent
establishment able to represent them in accordance with the
laws of the Islamic Republic of Mauritania.
Any person is free to create a private company. In the case of
a business corporation, there must be a minimum of seven
shareholders with registered capital of at least MRO 5 million
(USD 18 500). Under Mauritanian law, limited companies
require a minimum of MRO 1 million (USD 3 700) and at least
two partners.
Foreigners wishing to invest in Mauritania must form
companies in accordance with corporate law in Mauritania.

2.2 Foreign investment in local companies

penalties equivalent to 2% of the excess amount are


payable for each following day.

The commercial code guarantees equal status to all national


and foreign shareholders. There is no shared jurisdiction
when it comes to investment. Therefore, regardless of the
amount involved, proponents are required to fill a simple
statement of investment at the Guichet Unique. A
certificate of investment is issued to the proponent within 30
days. Investors are equal, irrespective of nationality or origin.
This equality applies to the use of all rights and obligations
resulting from investment in Mauritania, and is normally
recognized by the certificate of investment.

Fixed assets/equity ratio: max 100%.

2.3 Annual costs

Daily exchange position should not exceed 10% of the


shareholders funds by currency and 20% for all foreign
currencies. In case of non compliance, and after a grace
period of 48hours.

Minimum capital requirement: MRO 6 billion


(USD 22.2 million).

1.7 Banking supervision

There are no particular mandatory costs associated with


owning a company. External audit by a Mauritanian chartered
accountant is compulsory.

Banking supervision is conducted on a solo basis.

2.4 Restrictions on foreign investment

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In the case of investment through a private company, exit


must occur through legal channels. In the event of liquidation,

Financial Services | 25

165
3.1 million (2009 estimate)

MRO 1 = USD 0.0037


MRO: Mauritanian Ouguiya

$4.4 billion (2011 estimate)

a liquidator is appointed to clear the companys liabilities


before distributing the balance of claims amongst the various
creditors.

2.5 Dividend remittance


The freedom to transfer capital is guaranteed under the
investment code. It is granted only to persons or companies
that have invested foreign or joint capital. In practice, the
transfer of capital is handled by the primary banks. Since
the sector was liberalized, banks do not need authorization
from the central bank to transfer funds abroad. There are no
exceptions to this freedom. As a result, investors can deal
directly with their banker when they need to transfer money.

2.6 Intellectual property rights


Mauritania has been a member of the World Intellectual
Property Organization and the African Intellectual Property
Organization (AIPO) for a significant period of time. Within
the framework of AIPO, various treaty provisions were
merged into a single document called the Bangui Agreement.
The Agreement was revised in 1999 to bring it into line
with various international agreements, such as the WIPO
Convention. Although intellectual property rights are not
very well developed in Mauritania, there has been renewed
interest in this area. Efforts have been made to raise
awareness among the population. Any matters pertaining to
the protection of intellectual property, including registration,
are handled by the Industrys Ministry.

Pape Bocar Gueye


T: +221338492727
E: pbgueye@kpmg.sn

VAT is at 14%.
Tax on dividends and interest at 10%.
Tax on royalties at 3%.

2.10 Branch taxation


Subsidiaries and branches are treated the same for tax.

2.11 Personal tax


Taxes on individuals are mainly salaries tax and they are
deducted and remittance to tax authorities by companies. The
rates applicable are 15% for monthly salary less than or equal
to MRO 22 500 (USD 83) and 40% for salaries above this
threshold.

2.12 Tax returns


In general, tax payments are annual.

Section 3
People
3.1 Skills availability
The educational system was affected by the political
instability of the country. Globalization requires a good
command of English. Unfortunately few managers are fluent
in this language.

2.7 Sustainability and the environment

3.2 Foreign nationals

The environmental code defines all the basic principles of


the national environmental protection policy, and acts as the
foundation for harmonizing economic imperatives with what
is required for sustainable economic and social development.
The coastal waters are among the richest fishing areas in
the world, and the country is threatened by the advance of
the desert. Local authorities are working with the main nongovernmental organisations to preserve the environment.

A working license is needed when hiring ex pats. Company


information, job description and the rationale of the hiring
should be documented and presented to the administration.
There is a two year, or four year working licence available.
There is no restriction on the renewal of licenses.

2.8 Anti-money laundering


Anti-money laundering laws were adopted in 2005, and
financial institutions are required to incorporate the risk of
anti-money laundering in their relations with customers and
foreign correspondents and institutions. A notification to the
Anti-money Laundering Authority is required for suspicious
transactions of more than MRO 2 million.

2.9 Tax regime


There are a number of applicable taxes in Mauritania,
including:
Income Tax is charged at 25%. The minimum income tax
payable is the higher of MRO 240 000 and 4% of turnover.

3.3 Labour legislation


The employment contract is an agreement by which the
worker is engaged to provide professional services for
payment, under the direction and authority of an employer.
The worker enters freely, and forced labour is prohibited. The
employment contract is individual. The working week is set
at 40 hours, and the retirement age is of 60 years for men and
55 years for women.

3.4 Trade union presence


It is very difficult to assess the significance of trade union
activity in Mauritania, due to a lack of accurate data regarding
the unionization rate. There are two major trades unions
in Mauritania, the CGTM (Confdration Gnrale des
Travailleurs de Mauritanie) and the CNTM (Confdration
Nationale des Travailleurs de Mauritanie).

Non commercial income tax is levied at 35%.

3.5 Hiring and Firing of employees

Land income tax is charged at 6%.

The only constraint when hiring employees is the working


license in case of ex pats workers. Before the layoff of any

Training tax is at 0.6%.

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permanent workers, the employer must inform the employee


in writing, stating the rationale and inviting him to provide
written explanations within forty eight hours. Any termination
is subject to a notice which shall be put in writing by the party
who initiates the break. The reason for the termination must
be mentioned in this notice.

3.6 Contractors
No employer can conclude with the same worker,
successively and without interruption, more than two
fixed-term contracts, or renew more than once a fixedterm contract. However this does not apply to hourly or
daily workers, seasonal workers hired for the duration of
agricultural, commercial, industrial or tourism campaigns,
casual dockers hired for handling work inside the port,
workers hired following increased activity of the company,
workers hired to provide temporary replacement of an
employee whose contract has been legally suspended, and
workers hired temporarily for the purposes of building and
construction works. Note also that the duration of a fixedterm contract cannot exceed two years, renewal included.

agencies are located in the major cities of Nouakchott and


Nouadhibou. The country is experiencing a development of
payment means (e-banking, ATM etc) following the economic
and financial liberalization.

4.6 Active exchanges


Treasury bills are the main exchanges in Mauritania. There are
no stock or bond markets.

4.7 Banking sector overview


There are currently 12 banks in Mauritania. Penetration of
banking services remains very low at 5%, and the privatization
and liberalization of the economy attract foreign investors,
especially mining companies, as the country has extensive
deposits of iron ore, which account for nearly 40% of total
exports. These companies need high quality modern financial
services.

Section 5
Physical Environment

3.7 Retirement and Medical Aid


The employer shall, within the framework of labour law,
ensure health care services are provided to its employees
and their family members. The employer also assumes the
payment of daily allowances in case of illness. Employers
are required to contribute to social security systems for
Occupational Medicine, Old Age, Disability, Death, Accident
at work, Occupational Disease, Family Benefits.

5.1 Property ownership


For the purposes of acquiring private property, foreigners
and nationals are equal in the eyes of the Law in Mauritania.
Consequently, any individual or corporation may freely acquire
or transfer personal or immoveable property, irrespective of
nationality.

5.2 Transport infrastructure

Section 4
Banking Environment
4.1 Major loan and deposit products
Loan Products
Real estate, auto, consumption, overdraft facilities, Islamic
finance products, letters of credit and guarantees and
acceptances.
Deposits
Current accounts, saving accounts and term deposits.

4.2 Payments/clearing system


The clearing system is not automated and cheques represent
the principal transactions (82% in 2010). A project was
launched in February 2008 in order to upgrade the Mauritanian
payments system to international standards regarding
automatic bills processing, cheque numbering, security
improvement, implementation of IBAN, among others.

4.5 Banking branch and IT infrastructure

The Mauritanian transport sector suffers from a series of


problems which are mainly related to the absence of an
overall strategic vision.
Studies conducted as part of the National Plan for Transport
showed that transport is dominated by road which accounts
for more than 90% of passenger traffic and 80% of goods
traffic. Total roadways represent more than 11 000 km, where
one third is paved.
There are 28 airports, with 1 being capable of handling
international traffic.

5.3 Communications infrastructure


There is a limited system of cable and open-wire lines
and there are minor microwave radio relay links, and
radiotelephone communications stations. Mauritel, the
national telecommunications company, is privatized, and
remains the monopoly provider of fixed-line services. Mobilecellular services are expanding rapidly, and are provided by
three companies. Internet is also expanding and is available
through fiber-optic and ADSL cables. However there are
some discrepancies between the capital Nouakchott, where
the level of market penetration is good, and the other regions.

The banking network is composed of more than 80 agencies


and covers the main cities of the country. However 45% of
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5.4 Political environment


The government of Mauritania was overthrown in 2008, in
a military coup. Mohamed Ould Abdel AZIZ is the current
president. Bicameral legislature consists of the Senate or
Majlis al-Shuyukh (56 seats - 53 members are elected by
municipal leaders and 3 members elected for Mauritanians
abroad, to serve six-year terms; a portion of seats is up for
election every two years), and the National Assembly or
Al Jamiya Al Wataniya (95 seats - members an elected by
popular vote to serve five-year terms). Meetings between the
ruling party and some opposition parties were held in 2011,
which indicates an easing of the politic tension following the
2008 coup.

5.5 Economic overview


Despite being rich in natural resources, Mauritania has one
of the lowest GDP rates in Africa. Mauritanias economy is
split between a traditional agricultural sector and a modern
mining industry. The majority of the population still depends
on agriculture and livestock for a livelihood. Mauritania has
extensive deposits of iron ore, which account for almost 50%
of total exports. GDP is estimated at USD 4.4 billion in 2011.

5.6 Social environment


Some improvements are being effected to the education
system. Growing fiscal pressure is a concern for education
financing in Mauritania, and education spending was out in
2009 and 2010. The budget is around two and a half times
the primary education budget. National average attendance
rate in pre-primary education is very low, at less than 10%,
and children from the wealthiest households are more than
seven times as likely as poor children to attend early learning
programs. Adult literacy rate is below 60%. The main health
indicators (communicable and non communicable diseases,
environmental risk, mother, newborn and child health,
health promotion) remain very low, and this reveals the poor
performance of Mauritanian health system.

5.7 Trading partners


Iron ore and fishery products are the two main items of
exports representing 36.8% and 14.1%, respectively
while crude oil accounts for 5.2%. The main customers of
Mauritania are China, Italy, France, Belgium and Spain. Its
imports are largely made up of equipment for mining and
mineral oil, capital goods, vehicles and food. Its main suppliers
are France, China, the United States, Belgium and Spain.
Mauritania has few commercial contacts with other African
countries. As an example, Egypt is its 19th largest supplier.

that are intended to provide checks and balances within the


system are generally under-resourced and lack independence.

5.9 Language
Arabic is the official language, bur French is also widely
spoken. Mauritanians are showing interest in learning and
speaking English.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
For statutory accounts, a Mauritanian chart of accounts is
used. But when reporting for international subsidiaries or
branches, IFRS are used.

6.2 Basel II and III


Currently the transition to Basel II is in progress.

6.3 FATCA
There is no evidence of FATCA implementation in Mauritania
to date.

6.4 Anti Money Laundering (AML) laws/regulations


Anti money laundering laws were adopted in 2005.

6.5 Know Your Customer (KYC) laws/regulations


In force, particularly in financial institutions.

6.6 Annual financial reporting


Financial reporting is not mandatory for all companies.

6.7 Governance structures


Governance structures, such as use of Audit Committees
and Boards are implemented in Banks and International
companies subsidiaries.

6.8 Government ownership and management


There is a Prevalence of Government ownership and
management in Banks and International companies
subsidiaries.

6.9 External auditors


Banks financial statements are to be certified by auditors
or chartered accountants.

5.8 Crime and corruption


Corruption remains one of the biggest challenges in
Mauritania. Public services are unevenly provided and of poor
quality, and civil servants are often so badly paid that they
resort to petty corruption in order to survive. The institutions

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Section 1
Regulatory
1.1 Regulatory regime

1.6 Important banking regulatory requirements


Regulatory capital requirement:
According to the Banking Act, all banks should have an
amount paid as stated capital and an amount of assigned
capital of not less than 200 million Mauritian rupees.

The Mauritian banking sector is regulated by the Central


Bank, the Bank of Mauritius (BOM). Non Banking
Financial Institutions are regulated by the Financial Services
Commission (FSC), who issue licences and act as the
regulator.

Furthermore, a minimum capital adequacy ratio of 10 % is


required for both banking and non banking deposit taking
institutions (calculated on the basis of weights attached to
the different risks faced by the entity).

1.2 Basel Accord status

According to the liquidity risk management guideline, banks


should secure a sound liquidity cushion and must set a
liquidity risk tolerance in the light of its business objectives,
strategic direction and risk appetite.

The Bank of Mauritius currently follows a Basel II approach.

1.3 Structure of supervisory body


The Bank of Mauritius is wholly owned by the Government of
Mauritius, with a stated and paid up capital of MUR 1 billion
(USD 32.9 million).
The Audit and Monetary Policy committees are present and
are highly active. They have a Board of directors constituting
of seven directors, and presided over by a chairman.

1.4 Banking licence application


The banking licence application process is guided and
regulated by the Mauritius Banking Act 2004 (the Act).
Any corporate body can apply for a banking licence.
Applications must be accompanied with documents such as
its constitutive documents, names and details of the directors
and CEO, a list of its shareholders, and a copy of financial
statements. The Central Bank will notify the applicant within
30 days whether the application is completed, and shall notify
the applicant if a licence will be granted within seven working
days after the decision has been taken.
An Annual licence fee (determined by the Central Bank) is
payable to the Bank of Mauritius.

1.5 Regulatory reporting requirements


A bank should disclose annually in its annual report,
information about country risk management.
As per its capital adequacy ratio guideline, NBDTIs (Non Bank
Deposit Taking Institutions) shall submit a quarterly return
together with an external auditors report to the Bank of
Mauritius.
Guidelines for calculation and reporting of foreign exchange
exposures of banks require banks to submit a daily return to
the Bank of Mauritius, and amounts reported should be in the
foreign currency recorded in the reporting banks books.
Banks shall disclose on an annual basis their approach to
corporate governance, in accordance with the requirements
of the guideline on corporate governance in their annual
reports.

The liquidity requirement:

Forex requirement:
Banks should maintain their overall foreign exchange risk
exposure as at the close of each business day to a limit of
15% of their Tier 1 Capital with effect from 4th January 2011.

1.7 Banking supervision


The Mauritian banking supervision is conducted on a solo
basis.

1.8 Global financial crisis response


The Bank of Mauritius has been monitoring commercial banks
very closely, requiring them to produce regular reports to
ensure that there is little or no spill-over effect of the crisis,
and that exposures to toxic assets and complex derivatives
are reduced.
Greater reliance was placed on deposit funding rather than on
money markets or external funding.
In response to tight liquidity conditions in global credit,
which might have exerted an adverse impact on the cost and
availability of short term trade finance, the Bank of Mauritius
took pre-emptive action by making available a special foreign
currency line of credit of USD 125 million. This allowed local
banks to maintain the flow of credit for international trade.
The Bank of Mauritius also reviewed its supervisory
structures and revisited most of its regulatory guidelines.

1.9 Deposit insurance scheme


Mauritius became a member of the International Association
of Deposit Insurers and is preparing the necessary steps to
establish a deposit insurance scheme.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
A company incorporated in Mauritius can be either a global
business company (GBC1 or GBC2 license) or a domestic
company.

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Financial Services | 29

20
1.2 million (2011 estimate)

MUR 1 = USD 0.03294


MUR: Mauritius Rupee

$10.3 billion (2011 estimate)

Ashish Ramyead
T: +2304069885
E: aramyead@kpmg.com

Appointment of a management company to assist with


incorporation, application of a licence and provide ongoing
compliance is advised. Applicants are required to submit an
application to reserve the proposed company name with the
Registrar of Companies (ROC), accompanied with various
prescribed documents. A GBC 1 is incorporated in 4 working
days, subject to all information being in order. A GBC 2
company is incorporated within 2 working days.

2.6 Intellectual property

2.2 Foreign investment in local companies

2.7 Sustainability and the environment

Mauritius offers a low tax jurisdiction and an investor-friendly


environment to encourage domestic and foreign companies
to set up a business.

There are certain laws in Mauritius which cover sustainability


and environment and these are amongst others, the
Building Act 1919, the Environment Protection Act 2002,
the Occupational Safety and Health Act 2005, the Radiation
Protection Act 2003 and the Beach Authority Act.

Features of this investor friendly environment include


harmonised corporate and income tax of 15%, tax free
dividends, no capital gains tax, 100% foreign ownership, free
repatriation of profits, dividends and capital, no minimum
foreign capital required, and 50% annual allowance on
declining balance for the purchase of electronic and computer
equipment.

2.3 Annual costs


Global Business Category One Company (GBC 1)
Annual licence fees USD 1 750, prorated licence fees to
be paid depending on the time the application is made.
Processing fees for the Financial Services Regulator
USD 500.
Annual ROC fees -USD 250,
Processing fees for the ROC USD 100,

In Mauritius, the legislative framework for IPR enforcement


took a new turn in 1995 when the TRIPS (Trade Related
Aspects of Intellectual Property Rights) Agreement of
the World Trade Organisation came into effect. In order
to conform Mauritian legislation with the principles and
obligations laid down the in the TRIPS agreement, new pieces
of legislation were adopted that guide the IP regime.

Furthermore, there is currently a project Maurice Ile


Durable under the aegis of the Government of Mauritius,
introduced as a long term vision aimed at promoting
sustainable development.

2.8 Anti-money laundering


The Financial Intelligence Unit (FIU) was established and
the Financial Intelligence and Anti Money Laundering Act
was established in August 2002. It is the central Mauritian
agency for the request, receipt, analysis and dissemination
of financial information, to relevant authorities regarding
suspected proceeds of crime and alleged money laundering
offences as well as the financing of any activities or
transactions related to terrorism.

Legal fees USD 500 to 8000 (depending on structure),

2.9 Tax regime

Ongoing administration USD 1 500 to 5 000,

Income Tax single rate at 15%.

Audit fee USD 1 200 to 5 000

Value added tax Standard rate of 15% with some, zero


rated, and exemptions.

Global Business Category Two Company (GBC 2)


Annual licence fees USD 235,
Processing fees for the Financial Services Regulator
USD 100,
Annual ROC fees USD 65,
Legal fees USD 500 to 8 000 (depending on structure),
Ongoing administration USD 1 500 to 3 000.

There is currently no state, local or national tax in place in


Mauritius.

2.10 Branch taxation


Branches and subsidiaries are taxed at the same rate and on
the same basis.

2.11 Tax rates

2.4 Restrictions on foreign investment

There is a single tax rate of 15%.

Foreign and domestic investors are treated equally, and


foreigners may control 100% of companies in most economic
sectors. A transparent and well-defined foreign investment
code makes Mauritius one of the best places in the region for
foreign investment. The domestic legal system is generally
non-discriminatory and transparent. Residents and nonresidents may hold foreign exchange accounts.

In the case of an employee, the employer is responsible for


retaining the appropriate amount of tax under PAYE on a
monthly basis and remitting it to the authorities.

2.5 Dividend remittance


There is no withholding tax or other taxes.

In the case of a self employed individual, he/she must file this


tax return under the Current Payment System (CPS) basis
and pay their tax accordingly.

2.12 Tax returns


All individuals have to file an annual tax return within three
months after end of the income year (that is by 31 March) and
pay their tax accordingly. If filing is made electronically, and

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payment is through internal banking, the deadline is extended


for an additional 15 days (that is by 15th April).
Self employed individuals must file their returns on a quarterly
basis, that is, within three months after the end of each
quarter.

Section 3
People

members, the Mauritius Trade Union Congress (MTUC),


with about 25 000 members, and the National Trade Union
Confederation (NTUC), with about 59 000 members (2008).

3.5 Hiring and Firing of employees


Procedures/restrictions are within the parameters of the
Employment Rights Act and the Employment Relations
Act 2008. Failing which, severe penalties can occur - from
payment of severance allowance to court hearings.

3.6 Contractors
3.1 Skills availability
Personnel employed in the banking sector in Mauritius tend to
be highly skilled.

The use of contractors in Mauritius is governed by the


Employment Rights Act. However, it concerns mostly job
contractors in the sugar industry sector.

Mauritius has educational institutions (the University of


Mauritius and the University of Technology) which both
provide undergraduate and postgraduate courses in banking.
Furthermore, banks, (such as the Mauritius Commercial Bank
and the Bank of Mauritius) provide internship opportunities to
school leavers, as well as to undergraduates.

3.7 Retirement and Medical Aid

3.2 Foreign nationals

Section 4

Generally, an occupation permit allows a non-national


to work in Mauritius. It is both a work and a residence
permit. A complete application is made through the Board
of Investment to the Passport and Immigration Office.
Applicants must register with the Board of Investment, and
registration is done at the same time that an application is
submitted. Expats can thus be said to be generally welcome
in Mauritius, particularly where they come to new or
expanded operations. Ex pats are taxed on the same basis as
residents, i.e. 15%.

3.3 Labour legislation


The two main pieces of legislation governing labour are
Employment Relations Act and the Employment Rights
Act 2008. The Employment Rights Act covers agreements,
minimum age for employment and hours of work,
remuneration and conditions of employment, workers in
the sugar industry, termination of agreement and workfare
programme, compensation and violence at work, job
contractors and labour advisory council.
The main principles of The Employment Relations Act cover
registration of trade unions, constitution and administration of
trade unions, property and funds, protection of fundamental
rights, collective bargaining, labour disputes and dispute
settlement procedures, strikes and lock outs, employment
relations Institutions, offences and penalties.

3.4 Trade union presence


Mauritius was a founding member of the World Trade
Organization (WTO) in 1995 and belongs to the International
Trade Union Confederation, the worlds largest trade union
federation. The three primary trade unions in the country are
the Mauritius Labour Congress (MLC), with about 30 000

Membership to a retirement fund is not compulsory. All


employees and employers should contribute to the National
Pension Fund. Medical insurance is optional, as medical
services in Mauritius are free.

Banking Environment
4.1 Major loan and deposit products
Banks in Mauritius usually offer the full spectrum of deposit
products from current accounts to term deposits in most
currencies. Advances are offered over and above traditional
overdraft facilities, and most banks provide financing for both
corporate and private requirements. These range from short
to long term loans and multi currency lending facilities.
Others include home loans (limited), fixed deposit, current
accounts, savings accounts, credit cards, online accounts,
mobile banking.

4.2 Payments/clearing system


The Bank of Mauritius operates the Mauritius Automated
Clearing and Settlement System (MACCS). The system
electronically links all Commercial Banks in Mauritius to the
Bank of Mauritius. MACCS is used to send funds from any
commercial bank account to another and there is no exchange
of paper, as in with paper money or cheques. This makes the
system very secure.

4.3 Insolvency provisions


Liquidation in Mauritius can be initiated using four processes,
namely
Initiation by creditors for voluntary winding up; Petition filed
at the Supreme Court of Mauritius by a creditor, or
Conduct of watershed meeting following a voluntary
administration, or

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Or by a shareholder/shareholders via a voluntary members


winding up or a petition filed in the Supreme Court of
Mauritius by a member, or

Mauritius has a widespread bus network with around 220


bus lines and roughly 900 bus stops. They are operated by a
number of major companies.

The company wishing to file a petition of winding up may


also do so.

There are five airports, one of which is capable of handling


international traffic.

Liquidators in Mauritius must be registered as insolvency


practitioners and hold proper qualification. The Insolvency Act
2009 governs the above.

4.4 The taking of Security


There are very limited restrictions in the taking of security.
Perfecting security occurs on default, unless blocked by a
court order.

4.5 Banking branch and IT infrastructure


Banks in Mauritius are now integrating IT at a high level in
their system. Mobile and online banking is becoming more
common. Banks work in close collaboration with Internet
Service Providers to be able to attend to customers needs.
There is limited use of mobile phone banking. This is an area
which still lacks awareness.

4.6 Active exchanges


Stocks and bonds traded on the Stock Exchange of Mauritius.
Treasury Bills and Government bonds are also traded.

4.7 Banking sector overview


There are approximately 20 licensed commercial banks in
Mauritius.
Banks have an important role to play in the economy of
Mauritius. They act mainly as financial intermediaries and
provide a platform for providing finance to both individuals and
corporate and taking deposits. The Banking services offered
are very varied, and banks are also being encouraged to lend
to small and medium enterprises.

Section 5
Physical Environment
5.1 Property ownership
Property ownership is regulated by the Registration Duty Act
and the Land (Duties and Taxes) Act.
Foreigners are entitled to purchase and own land in Mauritius.

5.2 Transport infrastructure


Roads in Mauritius are generally considered to be in good
condition, especially in the urban regions. Congestion is
a problem, as the number of cars on the road is steadily
increasing. As a result, there has been recent road
development conducted by the Government of Mauritius.
Congestion has decreased, but remains a big issue.

5.3 Communications infrastructure


Telecommunications in Mauritius have developed
considerably in the last two decades. Most Mauritian
households have a landline. Possession of a mobile phone is
also becoming more common.
Mobile and internet services are provided by two main service
providers, namely Mauritius Telecom and Emtel.
Different prices are offered for different internet services, and
they are generally affordable.
Internet connection is good. The Government of Mauritius
plans to introduce fibre optic cable around the island.

5.4 Political environment


Mauritius is a democratic country whereby a by the people
for the people approach is adopted. Every five years,
there are general elections held in the country. As a result,
members of different parties are voted to have a seat in
Parliament. Different ministries will be allocated to a number
of elected members.
Mauritius offers a stable political environment, and there are
no ethnic tensions in the country.

5.5 Economic overview


Mauritius has moved considerably from an agricultural
economy to a more tourism and textile -oriented economy.
The provision of financial services is also growing in
importance in the country.
The IT sector is growing rapidly, tourists are being encouraged
to visit the country, and the textile industry is performing well.
GDP is estimated at USD10.3 billion in 2011.

5.6 Social environment


Amenities provided in Mauritius (housing, schooling,
medicine, transport) can be described as being fair.
Medical services and healthcare services are provided free
of charge by hospitals in Mauritius. Education in Mauritius
is mandatory until the age of 16. Education is free in
government schools and colleges, but there are also private
schools. Children usually attend the pre-primary, primary
and secondary levels, and tertiary education often comes
as a choice. The University of Mauritius is subsidised by the
Government of Mauritius.

5.7 Trading partners


Mauritius has a number of trading partners. They key trading
partners to Mauritius are India, China, Africa and Europe.

There is no railways system in Mauritius.


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5.8 Crime and corruption


The crime rate in Mauritius is low compared to industrialized
countries. Whilst there are incidents of corruption, Mauritius
is considered one of Africas least corrupt countries.

Under the Banking Act 2004, financial institutions may open


accounts for deposits of money only where they are satisfied
that they have established the identity of the person in whose
name the funds are to be credited.

5.9 Language

6.6 Annual financial reporting

For business purposes, mostly English and French language


is used.

Companies having their accounts audited should submit their


audited accounts within six months after their financial year
end to the Registrar of Companies. Where the company is
a regulated entity, it must submit the same to the Financial
Services Commission.

However, Creole, the mother tongue is widely used at home,


among friends and families. Most schools in Mauritius are
English medium, English is a widely understood language in
Mauritius.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
IFRS is widely adopted for the preparation of accounts of
Mauritian Companies. The Mauritian Accounting Standards
also are derived from IFRS.

6.2 Basel II and III


Mauritian banks are currently applying Basel II. Basel II
is compulsory, with the guidelines issued by the Bank of
Mauritius.

6.3 FATCA
Mauritius has not yet implemented FATCA.

6.4 Anti Money Laundering (AML) laws/regulations


Anti Money Laundering is governed by the Financial
Intelligence and Money Laundering Act (FIAMLA). The act:
provides for the offences of money laundering and the
liability for a MUR 2 million fine, and a term of imprisonment
not exceeding 10 years.
reporting institutions have a duty report suspicious
transactions to FIU.
caters for the exchange of financial intelligence information
with the respective overseas FIUs or comparable bodies.

6.5 Know Your Customer (KYC) laws/regulations


In order to combat money laundering and the financing of
terrorism, every financial institution must take measures to
ensure that neither it nor any services offered by it are capable
of being used to commit or facilitate the commission of a
money laundering offence.

6.7 Governance structures


In October 2003, the Code of Corporate Governance for
Mauritius was launched. Compliance with the Code, which
is based on the OECD Principles, is on a voluntary (comply
or explain) basis, and applies to listed companies, banks
and non-bank financial institutions, large public and private
companies, and state-owned enterprises (including statutory
corporations and parastatal bodies).
The Bank of Mauritius also provides guidelines on Corporate
Governance for banks, which was implemented as from
1 June 2001.

6.8 Government ownership and management


Ownership and management in Mauritius tend to be varied
between private and state ownership. The government
administers law and order and owns the National Transport
Corporation and the State Trading Corporation (responsible for
import of essential commodities such as rice and petroleum).
The government contributes to free health through public
hospitals and dispensaries, free education, and has shares in
parastatal (partly private and partly state owned) bodies such
as the Mauritius Institute of Training and Development.

6.9 External auditors


According to the Mauritius Companies Act 2001, Small
private companies (turnover less than MUR 50 million) are
permitted to submit a financial summary in compliance with
the Companies Act, or any other accounting standards under
the Mauritius Accounting and Auditing Standards Committee
Act 1989. Such companies do not have a statutory obligation
to have their accounts audited.
Companies with turnover of above MUR 50 million are
required to have their accounts audited.

In addition, in terms of the FIAMLA, financial institutions


have a duty to verify the true identity of customers and other
persons with whom they conduct transactions.

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34 | Africa Banking survey

Section 1
Regulatory
1.1 Regulatory Regime
The principal regulator of the banking sector in Morocco is the
Central Bank (Bank Al Maghrib). Exchange transactions are
regulated by the Exchange Authority. The Moroccan Capital
Authority controls organisations that engage in any activity
related to the capital market.
A legal entity could have several different regulators,
depending on the type of business it conducts. Therefore,
the framework used is a Functional approach.

1.2 Basel Accord status

Each quarter, banks should communicate to Bank AlMaghrib on the risks relating to counterparty exposures,
where the amount is equal to or higher than 5% their equity.

1.6 Important banking regulatory requirements


Banks are required to comply with various requirements as
determined by the regulator. Included in these requirements
are the following:
Maximum coefficient of division of the risks of the
financial companies:
Financial companies are required at all times to hold a
maximum risk exposure of 20% of total equity on any one
borrower.
In case of non compliance with this provision, the lending
banks are liable to sanction.

The regulator (Bank Al Maghrib) reinforced the regulation


framework by the adoption of the Basel II approach in 2007.
The application of the rules of Basel II are anticipated to be
completely adopted by Moroccan banks by 2012.

Solvency coefficient:

1.3 Structure of supervisory body

Liquidity coefficient:

The Central Banks governance bodies are composed of


Administrative and management bodies, namely the Bank
Board, the Governor and the Management Committee.

Banks are required to have a minimum coefficient of 100%


between their assets available and realizable in the short
term, and their current liabilities at sight and short-term.

The most important departments of the Central Bank board


structure are as follows:

1.7 Banking supervision

Monetary operations and exchange department


Economics and international relations department
Banking supervision department
Network and corporate relations department
Audit and risk prevention department
Financial department.

1.4 Banking licence application


To exercise any banking activities in Morocco, authorization is
required from the Ministry of Finance and Bank Al Maghrib.

Banks are required to have, at all times, a minimum


coefficient of solvency of 8% of the total of their equity, and
the total of their balanced credit and market risks.

The Central Bank (Bank Al Maghrib) conducts its


supervisory function on both a solo and consolidated process.

1.8 Global financial crisis response


There have been no specific supervisory responses to the
global financial crisis. However, Bank Al-Maghrib) was
mobilized to evaluate the impacts of the crisis on the banking
system, whilst reinforcing its process of prudential monitoring
and continuous watch. It carried out investigations on direct
and indirect exposures, and asked the banks for more detailed
and frequent communication of reporting on these exposures.

Authorisation or refusal is notified within a maximum period


of four months, as from the date of final acceptance of all
documents and necessary information.

1.9 Deposit insurance scheme

Non-bank entities in a banking group do not require any


regulatory approval.

Section 2

1.5 Regulatory reporting requirements


Banks are required to report the financial statements for
each semi-annual period.
Banks are required to periodically report to the management
of the banking supervision of Bank Al-Maghrib specifically
reporting on the risk management of liquidity.
Each semester, banks should communicate the statements
of calculation of the minimum coefficient of solvency.

There is no specific deposit insurance scheme in Morocco.

Commercial, Legal and Tax Environment


2.1 Process for establishing a new company
The setting up of an entity (i.e. a bank) is subject to several
formalities prescribed by Moroccan legislation. Credit
institutions located in Morocco should be constituted as a
limited company with fixed capital. To exercise any banking
activities in Morocco, authorisation is required from the
Bank Al Maghrib after consulting the Committee of Credit
Institutions.

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Financial Services | 35

114
35.7 million (2012 estimate)

MAD 1 = USD 0.117


MAD: Moroccan Dirham

$100.3 billion (2011 estimate)

When the request for approval is made by a credit institution


having its headquarters abroad, either for subsidiary or
branch, the request must be accompanied by an opinion of
the relevant supervisory authority in the country where the
headquarters are located.

2.2 Foreign investment in local companies


There is no specific process for foreigners seeking to
purchase local companies. Foreign companies and individuals
are entitled to hold 100% of the share capital of Moroccan
companies. Approval is required should the transaction
involve:
The merger of two or more credit institutions, or

Jamal Saad El Idrissi


T: +212537633702
E: jsaadelidrissi@kpmg.com

protection issues, such as biodiversity, climate change,


endangered species, marine dumping, marine life
conservation, nuclear test ban, ozone layer protection,
protection of world cultural and natural heritage and the
protection of the wetlands. It has also signed agreements
for the establishment of a General Fisheries Council for the
Mediterranean, and the Commission for Controlling the
Desert Locust in the Near East.

2.8 Anti-money laundering


Central Bank has an issued circular on the due diligence to be
carried out by credit institutions. This circular regulates antimoney laundering.

The absorption of one or more credit institutions by another


institution.

2.9 Tax regime

2.3 Annual costs

Corporate Tax - 37% for credit institutions.

Within the banking sector, the credit institutions receiving


public funds are required to contribute to financing the
collective deposit insurance, by paying an annual fee. These
fees cannot exceed 0.25% of deposits and other repayable
funds.

Value added Tax (VAT) - common rate is 20%, with some


goods and services attracting a reduced VAT rate between
7-14%.

For credit institutions, an external audit is mandatory, and they


have to designate at least two auditors. The annual audited
reports are not required for tax filings.

Withholding tax of 10% on dividends, or after tax profits


paid.

2.4 Restrictions on foreign investment


There are no restrictions on foreign investors. Foreigners may
freely invest in Morocco in any business activity which is not
illicit under Moroccan law.

2.5 Dividend remittance


Exchange controls are in place over Moroccan currency.
Foreign investors may, however, freely invest into Morocco,
including the transfer of investment income derived from
their investments and transfer of disposal proceeds from
their investments. However, the Foreign Exchange Office
must be notified within six months following the realisation
of any investment, by completing a comprehensive set of
documents.

2.6 Intellectual property rights


The competent authority in relation to intellectual property
is Office Moroccan de la Proprit Industrielle et
Commerciale.
Morocco has a relatively comprehensive regulatory and
legislative system for the protection of intellectual property.
Intellectual property laws in Morocco cover areas such as
domain names, traditional knowledge, transfer of technology,
patents/copyrights, etc.

2.7 Sustainability and the environment


Morocco has active environmental law. Morocco is party to
various international agreements regarding environmental

Major taxes applicable to companies include:

Professional taxes vary between 10-30%, depending on the


type of business or activities.

Communal tax on land and buildings dependent on location.

2.10 Branch taxation


From a fiscal point of view, the taxation treatment of a
branch is different from that of a subsidiary only when these
branches provide administrative services and then produce
no turnover.

2.11 Tax rates


Individuals who are tax residents in Morocco are liable for
income tax on all their income from Moroccan and foreign
sources. Individuals who are taxable in Morocco are required
to submit an annual income tax return.
Income tax is calculated by applying a progressive tax rate to
the taxable income base. This scale extends from 0% to 38%
for individuals earning in excess of MAD 180 000
(USD 26 000).

2.12 Tax returns


Moroccan companies and branches of foreign companies are
required to file their tax returns by the end of the 3rd month
after the end of the financial year, and pay any remaining tax
due within this same period. Moroccan branches of foreign
companies are also obliged to make four provisional tax
payments by the end of each quarter of the financial year,
each payment being equal to one fourth of the previous years
tax liability.
Employees are required to file an annual declaration of
salaries before the end of February of each calendar year.

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Section 3

Section 4

People

Banking Environment

3.1 Skills availability

4.1 Major loan and deposit products

Currently, Morocco has many efficient training courses with


regard to the banking sector. In addition, there are facilities
for Moroccan students to pursue financial studies outside
Morocco.

Loan products

3.2 Foreign nationals

Savings accounts, fixed term deposits and current accounts.

According to Moroccan law, any Moroccan employer who


wants to hire foreign employees must request on their behalf
a work permit. A foreign employee cannot work in Moroccan
without such authorization.

3.3 Labour legislation


There is labour legislation which contains clauses that include
the hiring and firing of employees, remuneration, legal
duration of working days, paid holidays, redundancy rules,
maternity leave and sick leave.

3.4 Trade union presence


Moroccan trade unions played a crucial role in the
independence movement. Since independence, this once
powerful movement has shrunk considerably. Three unions
hold the majority of union influence.

3.5 Hiring and Firing of employees


According to Moroccan labour legislation, companies have
some restrictions regarding the hiring and firing of employees.
For the hiring of Moroccan employees, there is no legal
restriction. However, and as explained above, the hiring of
foreign employee is subject to some restrictions in Morocco.
Furthermore, the firing of an employee is subject to the
Moroccan labour law, and could imply redundancy allowances
for the employee.

3.6 Contractors
Companies are authorised to hire contractors, subject to
certain conditions. There is an applied time limit period not
exceeding 12 months, and in exceptional cases 24 months.
When opening a business for the first time, or a new
establishment within the company, or when launching a new
product for the first time in a sector other than agriculture, the
contract can be entered into for a fixed-term of employment
of a maximum period of one year, renewable once.

Short, medium and long-term loans (i.e. consumer credit,


mortgage), credit lines and leasing.
Deposit products

4.2 Payments/clearing system


The authorities have put in place the Moroccan Interbank
Clearing and Settlement System (SIMT) for mass
operations on all means of payment, excluding credit cards.
This system, which replaces the system of physical exchange
of payment by the channel clearing houses, ensures the
exchange clearing and settlement is automated for the whole,
country.

4.5 Banking branch and IT infrastructure


Implementation of the strategic plan for the payments system
has allowed for modernisation of the payment system.
Therefore all payment instruments including cheques, drafts,
and bills of exchange are paperless, which has led to a
reduction in settlement periods.
A platform for on-line payments has been established.
In close co-operation with the local market, a large value
settlement system in real time and in secure manner has
been put in place.
Currently, the local Banks provide many internet services for
individuals and corporates (i.e. order transfers, on-line access
to the bank account, management of stock portfolio).

4.6 Active exchanges


The Casablanca Stock Market is the countrys main exchange.
There are other types of financial markets, including the bond
market.

4.7 Banking sector overview


There are 84 credit institutions, 19 of which are classified
as banks. There are 4425 branches, including 887 for Bank
Al-Maghrib. There are 4,144 ATMs.

3.7 Retirement and Medical Aid


Membership of a retirement and medical aid fund is
mandatory in Morocco. All employers must register their
employees with the Social Security authorities. Companies
established before 2005 can subscribe to private health
companies on behalf of their employees.
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Financial Services | 37

Section 5
Physical Environment
5.1 Property ownership
Property ownership in Morocco is governed by a number
of laws. Buildings and land are recognized by law as private
(freehold) ownership, only, if they are entered on special
registers, called land books.

5.2 Transport infrastructure


Morocco has committed billions of dollars to the
improvement of the countrys infrastructure. Morocco has
a developed public transport sector in the main cities of the
kingdom. Morocco is considered to have one of the most
dynamic transport infrastructures in Africa.

5.3 Communications infrastructure

5.6 Social environment


The current social environment is characterized by social
and regional inequality, poverty and exclusion. However,
the Moroccan government is focusing on the social sector.
In 1963, education became compulsory for Moroccan children
between the ages of 7 through 13. However, enrolment was
only at about 85% in 2000. Many children, particularly girls,
still do not attend schools. The illiteracy rate remains very
high, reaching up to 90% in certain rural areas. One of the
priorities of the Moroccan government is that of developing
the skills, training and qualifications in order to meet the
countrys needs.
Major efforts have been made during the past 30 years to
improve the health system, but much work remains to be
done to provide a decent health service, and to providing
more access to health services for its citizens, especially
in rural or poor areas.

Telecommunications services in Morocco are thoroughly


modern and have greatly improved in recent years. Most
telephone and internet service is provided by the countrys
three largest service providers. Those companies provide
services, including fixed and mobile telephony and internet,
including 3G internet.

5.7 Trading partners

The country had 3.5 million fixed line subscribers and


36 million mobile subscribers by the end of September 2011.

Morocco is considered a safe country, but corruption remains


one of its main issues.

At the end of September 2011, the internet accounts reached


2.8 million and recorded a very, significant growth by taking
advantage of the dynamics provided by 3G access.

5.9 Language

5.4 Political environment


The politics of Morocco take place in a framework of a
parliamentary constitutional monarchy, whereby the Prime
Minister of Morocco is the head of government, and head of a
multi-party system.

Morocco has signed many international trade agreements


with countries, especially with the European Union, United
States and countries located in the Mediterranean zone.

5.8 Crime and corruption

Moroccans speak Arabic. However the language used for


local business is French. English remains predominant for
international businesses (especially in multinational firms,
financial and banking sectors).

Section 6

Executive power is exercised by the government. Legislative


power is vested in both the government and the two
chambers of parliament, the Assembly of Representatives
of Morocco and the Assembly of Councillors. The Moroccan
Constitution provides for a monarchy, with a Parliament and
an independent judiciary.

Governance and reporting Issues

5.5 Economic overview

6.2 Basel II and III

Moroccans economy is considered to be relatively liberal, and


is governed by the law of supply and demand. Since 1993,
the country has followed a policy of privatization of several
economic sectors which used to be the property of the
government. Morocco has become a major player in African
economic affairs.
Sectors showing the highest growth include tourism,
telecoms and textiles.

6.1 IFRS implementation


Banking groups have been required to apply IFRS since
January 2008.

As part of its second strategic plan for 2007-2009, Central


Bank has set the regulatory framework applicable to the
banking sector in line with international standards for banking
supervision, and in accordance with most of the Basel
Committees recommendations.
In recent years, the prudential regulatory framework for
credit institutions has seen the implementation of large-scale
reforms, including, in particular, the adoption of Basel II.

GDP was estimated at USD 100.3 billion in 2010.

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38 | Africa Banking survey

In this respect, credit institutions are required, by virtue of


Central Banks relevant circulars and directives, to comply
with a set of prudential ratios and quality standards.

6.3 FATCA
FATCA has not yet been addressed.

6.4 Anti Money Laundering (AML) laws/regulations


Recognizing the seriousness of the situation, Morocco is
armed with an arsenal of legal defences against money
laundering. Penalties under the Act range from two to five
years in prison for individuals, in addition to fines. These
sentences and fines are doubled in case of facilities provided
by a business or profession for acts attributed to an organized
gang.

6.5 Know Your Customer (KYC) laws/regulations


There is no specific regulation in relation Know your
Customers in Morocco. However, a Circular issued by Central
Bank specifies that credit institutions have to identify and
know their customers through documentary evidence. The
institutions are required to follow up and monitor customer
transactions, and update this information regularly.

6.6 Annual financial reporting


Banking law requires that financial companies produce
financial statements at the end of each accounting period.
Banks are also required to draw up these documents at
the end of first semester of each accounting period. Those
financial statements are transmitted to Central Bank under
the conditions stipulated.

6.7 Governance structures


Under the provision of banking law, credit institutions are
required to adopt an appropriate internal control system to
identify, quantify and monitor all the risks, and develop tools
that allow them to assess the profitability of their operations
and transactions.

6.8 Government ownership and management


The Moroccan banking system is composed of six banks,
mostly domestically privately owned, and five banks mostly
foreign owned. There are a further 5 which are publicly
owned.
In 2008, the government controlled, directly or indirectly,
about 23% of the banking sector. This was down from 40%
in 2002.

6.9 External auditors


Financial companies are required to appoint two statutory
auditors, as approved by Central Bank.
After two consecutive terms of office, the renewal of the
term of statutory auditor can only be for a further three year
period.
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Financial Services | 39

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40 | Africa Banking survey

Section 1
Regulatory
1.1 Regulatory Regime
The Bank of Namibia is the Central Bank of Namibia and
regulator of the banking sector.

1.2 Basel Accord status


Following the Banks successful migration to the Basel II
Capital Adequacy Measurement on 1 January 2010, Namibia
has officially become a Basel II regime. The Central Bank
continues to monitor the impact of Basel II, especially the
local banking institutions risk management capabilities, with
the aim of eliminating any weaknesses identified. 2011 will
mark the first anniversary of the Basel II adoption in Namibia,
and the Central Bank intends to allow for third party review in
order to assess the effectiveness of Basel II implementation
in the country.

1.3 Structure of supervisory body


The Governing Board of the Central Bank consists of a
governor, a deputy-governor and such other members of
the Board as shall be prescribed by Act of Parliament; all
members of the Board are appointed by the President in
accordance with procedures prescribed by such Act of
Parliament. The Board comprises seven members. Directors
are appointed for five year terms by the President and may be
reappointed at the end of their terms.

1.4 Banking licence application


All prospective license applicants will be provided with an
application package. The applicant is required to complete
and submit a comprehensive application for the banking
license for consideration. The application should contain,
amongst others, the required supporting information and
documentation outlined in the application forms.

statements in a newspaper as may be approved, and in the


form specified, by the Bank of Namibia.
The Bank of Namibia may, in order to determine whether
a banking institution is in a sound financial condition and
whether compliance to acts or any other legal requirements
pertaining to banking business have been, and are being
complied with by the banking institution, and without prior
notice, at any reasonable time, conduct an examination of
the affairs of a banking institution.
Commercial banks in Namibia are required to submit
monthly statutory returns.

1.6 Important banking regulatory requirements


Minimum Capital Funds:
The minimum capital funds, unimpaired by losses, of a
banking institution shall not be less than the greater of An amount of NAD 10 million (USD 1.3 million); or
An amount which represents a percentage of the risk
weighted assets and other exposures of a banking
institution as the Bank may determine. Bank of Namibia
(BoN) currently requires banking institutions to hold a
minimum amount of capital equal to, or more than, 10%
of the calculated risk weighted assets in terms of the
standardised approach of Basel II.
Minimum Liquid Assets:
The Central Bank may determine the minimum or minimum
average liquid assets which a banking institution shall hold
at any time, or over the period of time as specified in the
determination.
Capital Adequacy Ratios (minimum regulatory
requirements)
Total capital adequacy ratio 10%
Tier I capital adequacy ratio 7%
Leverage ratio 6%
Credit Risk

The process involves a critical evaluation of the application


to determine whether it meets the minimum licensing
requirements as set out in the Banking Institutions Act.
Based on the results of the assessment, the Bank of
Namibia will make recommendations to the Minister of
Finance on whether the application should be approved or
not. Thereafter, the Bank informs the applicant of the final
outcome of its application.

There are three approaches under Basel II for credit risk, the
standardised approach, the FIRB approach, and the AIRB
approach. The FIRB and AIRB approaches are collectively
referred to as the internal ratings based (IRB) approaches.

1.5 Regulatory reporting requirements

Banking Supervision in Namibia is conducted on a


consolidated approach.

Banks broad reporting requirements:


Within a period of three months after the end of its financial
year, the bank must submit a copy of its audited annual
financial statements to the Bank of Namibia.
Within a period of one month from the date of acceptance
of the financial statements at an annual general meeting of
the banking institution, the bank must publish the financial

The Bank of Namibia requires commercial banks to use the


standardised approach.

1.7 Banking supervision

1.8 Global financial crisis response


There have been no specific responses to the global financial
crisis.

1.9 Deposit insurance scheme


Spurred by neighbouring South Africas debate on whether
or not to adopt deposit insurance, the Central Bank of

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Financial Services | 41

69
2.1 million (2009 estimate)

NAD 1 = USD 0.13084


Silvia Rosado
T: +26461387500
E: srosado@kpmg.com

NAD: Namibia Dollar

Namibia formally investigated the desirability and feasibility


of implementing deposit insurance in Namibia. The Namibian
banking system is dominated by a few South African banks.
The study concluded that domestic banks were too small and
too few to warrant an insurance scheme. Hence, no explicit
Deposit Insurance system is in place. The vision of the Bank
of Namibia states they are working in the public interest
and have regulations in place to protect depositors and
stakeholders.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
Registering a new company in Namibia requires the applicant
to obtain approval for a company name from the Registrar of
Companies.
Applicants are required to pay the registration fees and buy
revenue stamps at the Receiver of Revenue. Applicants must
hire an attorney to register the company with the Registrar of
Companies and obtain the certificate to commence business.
Various documents are required for submission to the
Registrar of Companies. A trading license must be obtained
from the local municipality. Applicants are also required to
register with the Receiver of Revenue for both VAT and PAYE.

2.2 Foreign investment in local companies


Namibia has a highly competitive incentive and fiscal regime
which adds to its attractions for foreign investors. The
cornerstone of this is the Foreign Investment Act (The Act)
and its provision for a Certificate of Status Investment (CSI).
A CSI certificate can be obtained from Namibias Ministry of
Trade and Industry. A foreign national may invest and engage
in any business activity in Namibia which any Namibian may
undertake. Where the investment is for the acquisition of
shares in a company incorporated in Namibia, the investment
shall qualify as an eligible investment only if Not less than 10% of the share capital of the company is
held or will, following the investment, be held by the foreign
national making the investment; or
The Minister is satisfied that the foreign national making
the investment is or will be actively involved in the
management of the company.
The last minimum value set out in a Government Gazette
indicated that the minimum value of foreign assets required
to constitute an eligible investment under The Act shall be the
equivalent NAD 2 million (USD 261 680).

2.3 Annual costs


There are various mandatory costs on an annual basis:
Annual return (CM23) payment of annual duties to keep the
company alive. Failure to submit this form will lead to the

cancellation of the company from the Registrars records.


Minimum amount of NAD 80 (USD 11) is payable.
Licensing fees where applicable (depending on the type of
company and the industry in which it operates).
Audit fees (external audits are required for all companies as
laid down in the Companies Act).
Annual external audit is compulsory and the company is
expected to file its audited accounts with the tax authorities
annually, along with its tax returns, and as well as with its
annual returns for each year.

2.4 Restrictions on foreign investment


The Namibian Constitution expressly encourages foreign
investment. Realising the importance of foreign investment
to the country, the Namibian government passed the Foreign
Investments Act.

2.5 Dividend remittance


Trading profits and dividends earned on investments are
transferable to non-resident beneficiaries. Such transfers
may be authorised by authorised dealers without reference
to exchange control. However, if the Namibian company is
availing of any local financial assistance, an application should
be lodged with Bank of Namibia, accompanied by an auditors
certificate confirming that monies arise from normal trading
profits, as opposed to disposal of fixed assets.

2.6 Intellectual property rights


Rights to intellectual property are protected under Namibian
law, largely by statute, but also by common law. The existing
statutes applicable are being reviewed in order to ensure
eventual compliance with international agreements to which
Namibia is party.

2.7 Sustainability and the environment


In Namibia, a wide number of enactments have an impact,
directly or indirectly, on the environment. Environmental
framework legislation of cross-sectoral nature such as
the Environmental Management Act20 or the Nature
Conservation Ordinance21 are rather broad in scope, while
sectoral legislation such as the Forest Act22 or the Water
Management Act23 cover specific environmental issues.

2.8 Anti-money laundering


The Financial Intelligence Centre (FIC) is mandated on
behalf of the Bank of Namibia, to manage Namibias national
money laundering risk by its administration of the Financial
Intelligence Act.

2.9 Tax regime


Namibia levies, inter alia, the following taxes:
Income tax is source-based at a rate of 34%.
VAT applies to the supply of goods and services at a rate
of 15%.
Municipal taxes are payable on the value of fixed property.

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Stamp duty (on documents and marketable securities).


Transfer duties payable on property transactions.
Customs and Excise duties.
Withholding tax on royalties.

skills sector, where Namibia is currently experiencing severe


staff shortages.
Expatriates taking up employment in Namibia will be subject
to Namibias comprehensive tax rules.

Non-residents shareholders tax.

3.3 Labour legislation

2.10 Branch taxation

The Labour Act is applicable to all employees in the private


sector, and stipulates basic conditions of employment,
prohibits discrimination on various grounds in relation to
a persons employment or occupation, and authorises
affirmative action. Affirmative action is regulated by the
Affirmative Action (Employment) Act.

Normal company income tax rules also apply to the Namibian


branch tax profits of overseas companies.

2.11 Tax rates


Individuals are taxed under the same statute as companies,
i.e. the Income Tax Act. Generally, the income of a nonresident which derives from Namibia is taxed in the same
manner as that of a resident. Only income from a source
within Namibia will be included in taxable income. Profits
of a capital nature are not taxed. All individuals are taxed on
income at progressive marginal rates over a series of income
brackets. Tax rates vary from 0% to NAD 236 200
(USD 31 000) plus 37% on amount exceeding NAD 750, 000
(USD 98 000).

2.12 Tax returns


Company tax returns:
The tax year is the same as the financial year of the
company. Tax liabilities are calculated on a self-assessment
basis.
The annual tax return needs to be submitted within seven
months after the companys year end.
The collection of taxes is made as follows:
Provisional Payments (1st and 2nd) are due after the first
six months of the financial year and on the last day of the
financial year.
A top-up payment is payable on due date for the return of
Income seven months after the end of the financial year.
Penalties and interest are levied on late submissions.

Section 3
People

3.4 Trade union presence


There are two main trade union federations in Namibia
representing workers:
The National Union of Namibian Workers (NUNW),
which is affiliated with the ruling SWAPO party, represents
workers organised into seven affiliated trade unions; and
The Trade Union Congress of Namibia (TUCNA), which is
not affiliated with any party, is a national trade union centre
in Namibia.

3.5 Hiring and Firing of employees


There are restrictions on hiring and firing employees.
Restrictions on hiring employees include prohibitions
and restrictions of child labour, prohibition of labour hire/
contractors, and expatriates need work permits.
Restrictions on firing employees are based on the principle of
fairness by the Namibian courts, in determining if a dismissal
is lawful. Any employee who is dismissed without a valid and
fair reason and not in compliance with fair procedure, shall
be regarded to have been dismissed unfairly. In order to be
able to dismiss an employee, the internal process needs to be
substantially fair.

3.6 Contractors
The Namibian government has amended legislation to
severely limit or prevent labour hire companies from
operating in the country. This severely impacts on the use of
contractors.

3.7 Retirement and Medical Aid


3.1 Skills availability
A pervasive perception, largely based on experience is that
Namibia is facing a critical shortage of professionals with
degrees. It is possible that the situation could worsen over
the next five years.

There is no law that requires compulsory membership to a


retirement or medical aid fund. Membership of a retirement /
pension fund or medical aid fund is company specific.

3.2 Foreign nationals


Expatriates are generally welcome in Namibia (subject to their
complying with the Immigration laws of the country,
and obtaining a work permit), especially in the specialized
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Section 4
Banking Environment
4.1 Major loan and deposit products
Loan products
Mortgage loans / home loans, infrastructure financing in urban
and semi-urban areas, term loans, vehicle and assets finance
(instalment sales), personal loans, student loans and credit
cards.
Deposit products
Savings account, cheque accounts, call accounts / investment
accounts and fixed deposit accounts.

4.2 Payments/clearing system


The Central Bank provides banking services to the
Government for State Account and certain donor accounts.
This consists of cheque and EFT clearing and settlement. All
domestic transfers exceeding NAD 5 million (USD 654 000)
are made through the real time settlement system NISS
(Namibia Interbank Settlement System) to ensure timely
and irrevocable payment.

4.5 Banking branch and IT infrastructure


In 2010 the Central Bank authorised MobiCash Payment
Solutions (Pty) Ltd to provide mobile payment services in
Namibia. MobiCash Payment Solutions is the first mobile
payment service provider in Namibia. Research has shown
that one of the key methods to reach the unbanked or under
banked communities in developing countries is through
mobile phone technology.
In 2010, the Common Monetary Area (CMA) governors
re-affirmed their commitment towards developing the
CMA cross-border payment system infrastructure with
active development continuing in the year 2011. The CMA
central bank payments representatives have agreed that
the CMA payment infrastructure will be developed with a
view to become a platform for the development of the SADC
(Southern African Development Community) cross-border
payment system infrastructure. At this stage, the four national
real-time gross settlement systems (RTGS); electronic funds
transfers (EFT) and card payments in the CMA are the only
payment channels that are considered to be adequately
regionally integrated. However, this excludes the clearing and
settlement of cross-border cheque payments.

The Central Bank, in collaboration with NamClear and the


banking industry, implemented NamSwitch through a phased
approach, whereby the Automated Teller Machine (ATM)
solution and the Point-of-Sale (POS) solution was rolled out.
The Switch is hosted at BankservAfrica in South Africa, and
settlement files are submitted on a fund settlement value day
to the Bank via NamClear in Namibia. Once debits and credits
have been posted in the books of the Bank, the settlement
of domestic ATM, debit card and credit card transactions is
considered final and irrevocable.

4.6 Active exchanges

4.3 Insolvency provisions

4.7 Banking sector overview

The Companies Act makes the Insolvency Act applicable to


the winding-up of Companies unable to pay their debts. The
winding up of a company may be either:
by the Court; or

Bonds
Treasury Bills
Equities traded on the Namibian Stock Exchange
The Stock Exchange Control Amendment Act introduced a
stock exchange in Namibia (NSX) which opened in September
1992 and which currently has thirty-seven listings, with a
continually increasing market capitalisation which presently
totals NAD 417.7 billion (USD 54.6 billion).

Namibias banking sector is still mainly in the hands of foreignowned companies, mostly South African. The Central Bank,
the Bank of Namibia, regards Namibian banks as still serving
simply as branches of their South African parent banks.

voluntary; or
subject to the supervision of the Court.
In the event of a company being wound up, every present
and past member shall be liable to contribute to the assets
of the company an amount sufficient for payment of its
debts and liabilities, and the costs, charges, and expenses
of the winding up, and for the adjustment of the rights of
the contributories among themselves, subject to certain
provisions in the Companies Act.

4.4 The taking of Security


There are very limited restrictions on the taking of security.
Perfecting security occurs on default, unless blocked by a
court order.

Section 5
Physical Environment
5.1 Property ownership
The Namibian Constitution guarantees all persons the right to
acquire, own and dispose of all forms of property in any part
of Namibia.
From a conveyance perspective, once legally allowed to be in
the country and official permits provide proof thereof, foreign
residents and citizens of Namibia are generally regarded
as having equal status when it comes to the purchase and
possession of land/real estate with the important exception of
agricultural land.

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44 | Africa Banking survey

5.2 Transport infrastructure

5.6 Social environment

The infrastructure in Namibia is considered to be one of


the countrys competitive advantages. International air
connections for both passengers and freight are available
at Windhoeks International Airport. All Namibias main
towns and tourist resorts have airports, landing strips and/or
heliports.

Poverty and inequality remain high in Namibia. The upper


20% of the population lives on 78.7% of the countrys total
annual income, while the bottom 20% lives on a mere 1.4%.
Approximately 35%-40% of the population depends on
subsistence agriculture for its livelihood.

Walvis Bay, with its world-class standard of cargo handling


and sheltered deepwater harbour, is poised to become the
most important port on Africas west coast, and puts the port
on a par with South African ports.
Namibia has a well developed road network covering more
than 40,000 kms and providing access to the majority of
towns, as well as tourist resorts and nature reserves. The
primary routes are tarred.
A network of railways covering 2,382 kms connects Walvis
Bay and Ludertiz with key destinations in Namibia and South
Africa.

5.3 Communications infrastructure


International satellite services link Namibia to
telecommunication services worldwide. Telecom Namibia Ltd
is the countrys national communications operator. Namibia
boasts a 98% digital telecommunications infrastructure,
which provides direct dialling to most places in the world.
Namibia has mobile telephony coverage in most towns and
road coverage along virtually all of the major routes in the
country.

The government considers education as the most important


long-term investment. Accordingly, it continues to allocate the
largest share of the budget, 23%, to this sector, followed by
health with 12% in 2010. The quality of education is low.
Life expectancy was 62.1 years in 2010. Namibia has an
effective anti-retroviral (ARV) programme.

5.7 Trading partners


As per the World Trade Organisation Namibias main trading
partners are South Africa, Angola, European Union (EU), UK,
U.S., Canada, China, India, Russia and Japan.

5.8 Crime and corruption


Crime is a becoming a serious concern in Namibia. The most
common crimes are poverty-motivated crimes of opportunity,
including pick-pocketing, purse snatching, vehicle theft,
vehicle break-ins and house break-ins. Such crimes most
commonly occur in the central business districts of cities, or
other areas frequently visited by foreign tourists.
The World Bank has said that Government corruption is a
bigger problem than any other form of organised crime and
fraud in Namibia.

5.4 Political environment

5.9 Language

Namibia is a multiparty, multiracial democracy, with a


president who is elected for a five year term. The constitution
establishes a bicameral Parliament, and provides for general
elections every five years and regional elections every six
years. The judicial structure in Namibia comprises a Supreme
Court, the High Court, and lower courts. Roman-Dutch law is
the common law. Namibias unitary government is currently
in the process of decentralization.

English is the official language of Namibia, and is taught in all


Namibian schools.

5.5 Economic overview


The Namibian economy has a modern market sector, which
produces most of the countrys wealth, and a traditional
subsistence sector. Although the majority of the population
depends on subsistence agriculture and herding, Namibia has
more than 200 000 skilled workers, as well as a small, welltrained professional and managerial class.
The countrys sophisticated formal economy is based on
capital-intensive industry and farming. However, Namibias
economy is heavily dependent on the earnings generated
from primary commodity exports in a few vital sectors,
including minerals, livestock, and fish. Furthermore, the
Namibian economy remains quite tied to the economy of
South Africa, as the bulk of Namibias imports originate there.
GDP estimated is USD 11.9 billion at 2010.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
All domestic listed companies in Namibia are required to
comply with International Financial Reporting Standards
(IFRS) effective 1 January 2005, under the requirements
of the Namibian Stock Exchange Act. Unlisted Namibian
companies have the option to apply IFRS or Namibian GAAP.

6.2 Basel II and III


Following the Banks successful migration to the Basel II
Capital Adequacy Measurement on 1 January 2010, Namibia
has officially become a Basel II regime.
The Bank continues to monitor the impact of Basel II,
especially the local banking institutions risk management
capabilities, with the aim of eliminating any weaknesses
identified.

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Financial Services | 45

6.3 FATCA
There is no evidence of FATCA implementation in Namibia
to date.

6.4 Anti Money Laundering (AML) laws/regulations


The Financial Intelligence Centre (FIC) is mandated on
behalf of the Bank of Namibia, to manage Namibias national
money laundering risk by its administration of the Financial
Intelligence Act (FIA). In particular, the FIC is mandated to:
Receive and analyse suspicious transaction reports
(STRs) pertaining to money laundering, which are
received from accountable institutions and supervisory
bodies designated in the FIA;
Disseminate intelligence so gathered from the analysis
conducted, to local law enforcement agencies, foreign law
enforcement agencies and foreign financial intelligence
units, in order to combat money laundering in the country
and abroad; and
Ensure that accountable institutions and supervisory bodies
comply with their obligations under the FIA.

6.5 Know Your Customer (KYC) laws/regulations


KYC requirements are being enforced by the Bank of Namibia.

6.6 Annual financial reporting


Annual financial reporting is mandatory for all companies in
terms of the Companies Act of Namibia.

6.7 Governance structures


Unless otherwise prescribed or determined, a banking
institution shall comply with the standards of corporate
governance generally practiced, or required to be so
practiced, by companies listed on any stock exchange
established in Namibia under the Stock Exchanges
Control Act.

6.8 Government ownership and management


State-owned enterprises operate in many key sectors of
the Namibian economy. The government has stakes (often
100% ownership) in companies in the following sectors:
telecommunications (fixed and mobile voice and data
services), energy, water, transport (air, rail, and road), postal
services, fishing, mining, and tourism.

6.9 External auditors


It is a legal requirement for all companies registered in terms
of the Companies Act of Namibia to appoint an external
auditor.

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46 | Africa Banking survey

Section 1
Regulatory
1.1 Regulatory Regime
The principal regulator is Central Bank of Nigeria (CBN)
with other regulatory support by the Securities and Exchange
Commission and the Nigeria Deposit Insurance Corporation.
A Hybrid approach is practiced in Nigeria.

1.2 Basel Accord status


Nigeria follows International practice. The CBN is currently
in the process of implementing Basel II and III in Nigeria.

be addressed was banks doing businesses other than core


banking activities.
As a result of this, it was made clear to the major banks that
only core banking related activities could be handled by them.
Those who had other non-banking subsidiaries would have to
sell them off or the company would be required to register as
a holding company.
Other recent regulatory changes by the CBN include the new
banking model, a 10 year tenure for external auditors, and
maximum tenures for bank managing directors of 10 years,
and 12 years for non executive directors.

1.9 Deposit insurance scheme

1.3 Structure of supervisory body

There is deposit insurance in Nigeria. It is called the Nigerian


Deposit Insurance Corporation (NDIC).

The supervisory role falls under the CBN. A single person is


not responsible for supervision, rather, there is a unit within
the CBN responsible for bank supervision.

Section 2

1.4 Banking licence application


All banking licensing applications pass through the CBN. The
interested party will make a formal application for the grant
of a licence to carry on the business of banking in Nigeria and
address the request to the Director of Banking Supervision
Department, CBN with the various prescribed fees and
documents. The time frames are variable.

1.5 Regulatory reporting requirements


Bank reporting is done monthly and is automated.

1.6 Important banking regulatory requirements


Capital Requirement for Banks
Regional USD 64 million
National USD 160 million
International USD 320million
Liquidity
Cash reserve ratio 8%
Liquidity ratio 30%
Credit
Loans to Deposit 80%
Forex

Commercial, Legal and Tax Environment


2.1 Process for establishing a new company
The government agency responsible for the incorporation
of new companies in Nigeria is the Corporate Affairs
Commission (CAC).
The process for registering a company involves reserving the
proposed name, and submitting a completed application with
prescribed documents to the CAC.

2.2 Foreign investment in local companies


The process of Portfolio investments by foreign investors
can be achieved through the allotment of shares from the
company, or a transfer of shares. Either option requires
the preparation and submission of documents and the
entry of the name of the new shareholder into the register
of members. The CAC is to be notified of the change in
ownership the company.

2.3 Annual costs


Relevant taxes and levies include companys income tax,
education tax, national information technology development
levy, industrial training fund levy.

Appropriate sanctions are determined by the level of violation.

An annual external audit is compulsory, and the company is


expected to file its audited accounts with the tax authorities
annually along with its tax returns.

1.7 Banking supervision

2.4 Restrictions on foreign investment

Net open position 3% of the Shareholders funds.

Banking supervision is conducted in a consolidated process.

1.8 Global financial crisis response


Following on from the near total collapse of the banking
sector in Nigeria in 2009, the banking regulator (Central
Bank of Nigeria) conducted an audit. After the audit of the
sector, it found that one of the key issues which needed to

There are no restrictions on investments and divestments


in Nigeria. All investors are to obtain a certificate of capital
importation (CCI) from their bankers, which should be
designated as equity contribution for the foreign companys
investments in Nigeria. The CCI will be used to repatriate
dividend and capital, at the point of divestment.

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Financial Services | 47

137
170.1 million (2012 estimate)

NGN 1 = USD 0.00632


NGN: Nigerian Naira

$247.1 billion (2011 estimate)

Bisi Lamikanra
T: +23412718962
E: bisi.lamikanra@ng.kpmg.com

2.5 Dividend remittance

2.11 Personal taxes

Dividends are capable of being remitted abroad in any


currency through a Nigerian Bank, on the submission of all
required documentation to the bank.

Individuals are liable to pay tax, dependant on their income


level. Rates extend from 5% to 25% for income earners
earning in excess of NGN 160 000 (USD 1 012).

2.6 Intellectual property rights


Intellectual Property (IP) rights can be protected through
the registration of such rights with the relevant government
departments. These rights include copyrights, patents and
trademarks. The applicable registries for IP registration are
maintained by the Nigerian government.

2.7 Sustainability and the environment


There is no official regulation on this. However there is a law
being proposed by the legislature.

2.8 Anti-money laundering


The enabling Acts & Regulations seek to achieve the AML
objectives by requiring individuals, banks and other financial
institutions to render politically exposed persons returns and
currency transaction reports (CTRs) to the CBN (AML/
CFT Office in Financial Policy & Regulation Department) and
Nigerian Financial Intelligence Unit (NFIU). The intention is
to properly identify persons conducting transactions and to
maintain a paper trail by keeping appropriate records of their
financial transactions.

2.9 Tax regime


The following taxes are inter alia applicable:

The employer is designated as the agent of government for


the collection of personal income taxes, which should be
deducted at source and remitted to the relevant tax authority
on or before the 10th of the following month.

2.12 Tax returns


The broad process for the submission of returns is as follow:
For new companies, the tax return is to be submitted within
18 months of incorporation or six months of its year end,
whichever is earlier.
New companies are expected to file their tax returns based
on the commencement rules set out in the Companies
Income Tax Act for their first three years of business.
Tax returns, along with the audited accounts of the
company, are to be submitted within six months after the
companys year end.
Tax returns of the company are filed annually.
Provisional tax will be paid by companies based on the tax
paid in the prior tax return.

Section 3
People

Companies income tax at a rate of 30% of taxable income.


Education tax at the rate of 2% of assessable profits.

3.1 Skills availability

Value added tax at a rate of 5% of the cost of goods and


services supplied.

Key skills/knowledge gap areas in Nigerian banking sector


include risk management, project finance and product loyalty
schemes. There is also limited depth of skills in Consumer
Banking. Islamic Banking is relatively new, and would require
significant capacity building.

Withholding tax at varying rates (5% or 10%) on qualifying


transactions.
Petroleum profit tax at a rate of 85% of chargeable profit
of Oil Companies.
NITDA levy at 1% on profit before tax.
ITF levy at 1% of turnover.
Employees Compensation Act at a minimum of 1% of
the companys monthly payroll.
If your office will be in Lagos, business premises levy
of NGN 10 000 (USD 64) in the first year and NGN 5 000
(USD 32) for subsequent years.

2.10 Branch taxation


Nigeria does not operate a branch system for companies.
All companies are expected to incorporate and form a local
company (subsidiaries). All Nigerian companies (including
subsidiaries) are expected to register for and pay all the
relevant Nigerian taxes.

3.2 Foreign nationals


There is no negative attitude to the use of ex-pats in the
Nigerian banking sector but there is a restriction to the total
percentage that any company can have, not necessarily a
bank. The law stipulates a maximum of 40% for foreigners in
any organisation.

3.3 Labour legislation


Passed in 1974, the Labour Act sets general employment
rules for the country of Nigeria. For employees, it includes
protection on wages, contractual requirements and provides
guidance on conditions of employment.

3.4 Trade union presence


There is an active Nigerian Labour Congress and Trade Union
Congress in Nigeria.

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3.5 Hiring and Firing of employees

4.7 Banking sector overview

There are no specific restrictions on hiring; however labour


laws must be adhered to in the recruiting and termination
employment process.

The banking sector currently comprises 20 local banks and


foreign banks.

Either party to a contract of employment may terminate


the contract on the expiration of notice given by him. The
terminating party must indicate to the other party of his
intention to do so.

3.6 Contractors
Contractors are tolerated, but all contracts pass through a
bidding process.

3.7 Retirement and Medical Aid


Membership of a retirement fund is compulsory. It is a
contributory system in which an employee and the employer
contribute 7.5% of the employees monthly emolument
respectively. Membership of a medical aid fund is not
compulsory.

The top four banks are: First Bank of Nigeria, Guaranty Trust
Bank, Zenith Bank and UBA and they account for 44% and
42% of industry assets and deposits respectively.
Hindrances in the current environment include decline in
middle income class, poor risk management, high operating
costs, lack of credit information and a lack of accessible
consolidated financial sector data.
Opportunities in the current environment include finance of
small and medium enterprises, untapped agriculture finance
and the high number of unbanked citizens.

Section 5
Physical Environment
5.2 Transport infrastructure

Section 4
Banking Environment
4.1 Major loan and deposit products
Loan products
Term loans, overdraft, lease financing and invoice discounting.
Deposit products
Early saver account, call deposit account and standard savings
account.

4.2 Payments/clearing system


The clearing system in Nigeria is done through private
switching companies. The Central Securities Clearing
System Limited (the clearing system of the Nigeria capital
market) relies on Nigerian Inter-Bank Settlement System
(NIBSS) for the settlement of operations. The settlements
of these companies are transmitted electronically to NIBSS
daily (over the NIBSS secure payment network). The NIBSS
settlement engine processes receive data and aggregates
it and processes it through the CBN. Appropriate electronic
advices are provided to banks and other stakeholders in each
processing cycle.

Nigeria Transport Infrastructure is sub standard. Nigeria has a


fairly extensive infrastructure of roads, railroads, airports, and
communication networks. The road system is by far the most
important element in the countrys transportation network,
carrying about 95% of all the nations goods and passengers.
Currently, many of the roads are in disrepair because of poor
maintenance and years of heavy traffic. The Nigerian rail
transport system is presently undergoing rejuvenation.

5.3 Communications infrastructure


Nigeria Telecom sector has been experiencing an
astronomical growth in the last few years, with MTN being
the market leader with over 40 million subscribers. There are
five GSM providers in Nigeria. Internet users are estimated
at 22.1%. The sector is ranked among the fastest growing
sectors in the country.

5.4 Political environment


The country has adopted a Presidential system of democratic
government, with more power at the centre. There are over
20 registered political parties, with three of these parties
considered as the dominant players.

5.5 Economic overview

IT Infrastructure in Nigerian banking is still evolving. However,


mobile money services, extensive ATM machine deployment
across the country, internet services for banks, branch
network, customer processing centres and call centres, are all
currently in place.

Nigeria is the United States largest trading partner in subSaharan Africa, largely due to the high level of petroleum
imports from Nigeria. Nigeria has an abundant supply of
natural resources, and is the largest producer of oil in Africa.
Nigeria has one of the fastest growing telecommunications
markets in the world, and a highly developed financial
services sector.

4.6 Active exchanges

5.6 Social environment

The Nigerian Stock Exchange is the main exchange in Nigeria.

Nigeria is the most populous country in Africa with over 250


ethnic groups. The major tribes are: Hausa (29%), Yoruba

4.5 Banking branch and IT infrastructure

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Financial Services | 49

(21%) and Igbo (18%). 56% of the population are between


the ages of 15 64 years. 48% of the total population reside
in the countrys urban areas. The literacy level is estimated to
be at 68%. Nigeria has a number of religions: it is estimated
that Muslims make up 50%, Christians 40% and others 10%.

5.7 Trading partners


Nigeria has interactions and a number of trading partners
globally. The key partners are the United States of America,
China, Russia, Switzerland, and Norway.

5.8 Crime and corruption


The crime rate in Nigeria is at manageable levels, while
corruption levels are high. Crime syndicates are generally less
formal and more organized along familial and ethnic lines,
thus making them less susceptible by infiltration from law
enforcement. Police investigations are further hampered by
the fact there are at least 250 distinct ethnic languages in
Nigeria.

5.9 Language
English is the predominant language in Nigeria and it is widely
spoken and understood for business.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
2010 was a period for awareness, assessment, legislative
changes, training and planning. In 2011 entities prepared IFRS
Opening Statement of Financial Position (SFP), dry runs of
IFRS statements were compiled for listed and SPEs.

6.2 Basel II and III


The adoption of IFRS would facilitate the implementation of
Basle III requirements by banks in Nigeria.

6.3 FATCA
Nigerian banks are generally aware of the major requirements
of the FATCA regulations, as the provisions could impact
their businesses. However, the banks are yet to implement
measures to enable them to comply with the requirements of
the FATCA.

information. The Central Bank has stated that those banks


and other financial institutions that violate this order, by way
of allowing the operation of customers account without
evidence of an update, shall be subjected to appropriate
regulatory sanctions, while non-compliant account holders
would not be permitted to operate the accounts.

6.6 Annual financial reporting


Listed companies are mandated to prepare and make public
their annual reports a maximum of three months after
financial year end.
The Nigerian Stock Exchange is entitled to suspend from
trading, shares of companies whose annual reports are due,
but not made it available to the exchange.

6.7 Governance structures


Different corporate governance structure and requirements
include:
The number of non-executive directors should be more than
that of executive directors, subject to a maximum board
size of 20 directors.
At least two non-executive board members should be
independent directors, appointed by the bank on merit.
The internal control system should be documented and
designed to achieve efficiency and effectiveness of
operations reliability of financial reporting, and compliance
with applicable laws and regulations at all levels of the bank.
External auditors should render reports to the Central Bank
on the banks risk management practices, internal controls
and level of compliance with regulatory directives.

6.8 Government ownership and management


Three of the banks currently operating in Nigeria are
government owned. Government ownership was brought
about by the inability of the banks to recapitalise after the
expiration of the deadline given by the CBN.

6.9 External auditors


It compulsory for a company to have an external auditor. The
external auditor of any bank in Nigeria has a limit of 10 years
to audit that particular bank, after which it must rotate.

6.4 Anti Money Laundering (AML) laws/regulations


Anti Money Laundering laws/regulations are very active in
Nigeria. There is an agency saddled with the responsibility
of prosecuting offenders (among its other responsibilities),
called the Economic and Financial Crimes Commission.

6.5 Know Your Customer (KYC) laws/regulations


This is a serious issue in Nigeria. The Central Bank recently
mandated all the banks to update their customers
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Section 1
Regulatory
1.1 Regulatory Regime
The Senegalese banking system is regulated as follows:
the Council of Ministers, which defines the monetary and
credit policy;
the Central Bank of West African States (BCEAO), which
implements the monetary policy, draws up the prudential
and accounting requirement, and monitors the banking
system;
the Banking Commission, which oversees the organization
and the control of banks and financial institutions; and
the Ministry of Finances.

1.6 Important banking regulatory requirements


There are a number of regulatory requirements applicable to
the Senegalese banking system. Of these the most important
include:
Net effective equity is to be held at a minimum XOF 5 billion
(USD 10.1 million).
Risk ratio to be held at a minimum of 8%.
Exposure on the same client may not exceed 75% of net
effective equity.
Total commitments may not be greater than 25% of net
effective equity, and may not exceed 8% of net effective
equity
Liquidity ratio is to be maintained at a minimum of 75%.

1.7 Banking supervision

The framework used is similar to Twin Peaks.

Banking supervision is conducted on a consolidated process.

1.2 Basel Accord status

1.8 Global financial crisis response

The banking sector is governed by the banking law applicable


to the West African Monetary Union (WAMU) zone. The
clauses of this law come from national laws (business law),
community law (banking law, banking chart of accounts,
prudential regulation) and international conventions (including
the recommendations of the Basel Committee). The second
pillar of Basel II is in implementation.

There are no specific supervisory responses being considered


in Senegal in response to the global financial crisis, as the
latter did not affect the Senegalese Banking System.

1.9 Deposit insurance scheme


A deposit insurance scheme is in implementation, and
negotiations are under way regarding contribution and
compensation terms.

1.3 Structure of supervisory body


The WAMU Banking Commission is a supervision and control
organ, which was created by an Agreement that came into
force on 1st October 1990. The Commission is governed by
the provisions appended to the Agreement.
The Banking Commission is an organ of WAMU. It meets
at least once every quarter. It has a permanent Secretariat
composed of officers.

1.4 Banking licence application


Banks and financial institutions must be authorised and
registered on the list of banks and financial institutions, to be
able to operate. This authorisation is granted by the Minister
of Finance, after BCEAO has examined the application and
the WAMU Banking Commission has certified its conformity
with applicable laws. Typical licence approval takes up to six
months.

1.5 Regulatory reporting requirements


There are a number of reporting requirements.
Daily foreign currency position.
Monthly, quarterly, biannual and annual financial statements
and prudential ratio.
Quarterly internal control reports.
Biannual loans portfolio review reports.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
In Senegal, start-up times have been considerably shortened
and procedures simplified. The APIX Administrative
Procedures Facilitation Centre (CFPA) can simplify and
perform, on your behalf, all procedures with government and
local authorities, as well as relevant public institutions, all in a
guaranteed time frame. When you (or your agent) present the
deeds and other documents of incorporation, a receipt will be
issued, and 24 hours later you will have registered articles of
organization, the register of commerce and movable capital,
your companys tax registration identification number and the
declaration of establishment.

2.2 Foreign investment in local companies


Foreign individuals or companies (physical or moral persons)
receive the same treatment as those individuals or companies
(physical or moral persons) of Senegalese nationality, with
the reservation of reciprocity and without prejudice to any
measures that may concern all foreign nationals, or may result
from the dispositions of treaties or agreements to which the
Republic of Senegal is party.

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Financial Services | 51

152
12.9 million (2011 estimate)
$13.5 billion (2010 estimate)

XOF 1 = USD 0.00202


XOF: Communaute Financiere
Africaine franc

2.3 Annual costs


There are no particular annual mandatory costs associated
with owning a company. External audits are compulsory
for limited companies and limited liability companies in the
following cases:
Capital of XOF 10 million (USD 20 200) and more.
Turnover of more than XOF 100 million (USD 202 000) or
Staff of more than 50 people.

2.4 Restrictions on foreign investment


Some activities such as baking, shipping lines and fish
wholesaling are reserved for Senegalese nationals. There are
also restrictions on certain professions (lawyer, doctors and
accountants). Divestment must occur through legal means.

2.5 Dividend remittance


The freedom for the enterprise to transfer revenue or any
products of any nature whatsoever that may result from
its operations, to cede any part of its assets or to go into
liquidation is guaranteed, according to the laws currently
in force. The same guarantee is extended to investors,
entrepreneurs or associates, whether they be individuals or
companies (physical or moral persons), who are not citizens
of Senegal.

Pape Bocar Gueye


T: +221338492727
E: pbgueye@kpmg.sn

of West African States (ECOWAS) is responsible for


facilitating the adoption and implementation of Anti-Money
Laundering and Counter-Financing of Terrorism (CFT) in
West Africa.

2.9 Tax regime


Single Tax Payment (Contribution Globale Unique)
Senegal applies a global representative system of taxation
for: industrial and commercial profits, minimum fiscal tax,
licenses, value added tax, lump-sum payroll taxes and alcohol
sales licenses.
Corporate Tax is levied at 25%.
Income Tax is levied against individuals fiscally domiciled
in Senegal, whatever their nationality. They are subject to
income tax on their entire income, Senegalese and foreign.
This includes income from property, movable capital, loans
and deposits and funds.
Lump Sum payroll tax is established each year by
individuals, corporations and organizations that pay salaries
to their employees, and cannot exceed 50% of the taxable
salaries.
VAT is levied at 18% in general, 15% for tourism, and
10% for local products and imported consumer goods and
services.

2.6 Intellectual property rights

2.10 Branch taxation

In the conditions provided for in the laws and regulations in


force, the right of private ownership of all assets, whether
fixed or movable, and whether material or immaterial,
is protected in all legal and commercial aspects, in all its
constituent parts, however divided, its transfer and any
contracts of which it forms the object.

Double taxation can be avoided for branches when an


agreement is concluded with the parent country. Deductibility
of certain financial expenses, interest and royalties are not
applicable to branches.

2.7 Sustainability and the environment


Senegal entered into bilateral and multilateral cooperation
agreements with the international community. As such, it
seeks through the implementation of development strategies,
to comply with international standards in terms
of socioeconomic development indicators.
In this context, the institutions of the UN system are
important partners of Senegal. Each institution contributes
to the establishment of mechanisms for monitoring the
recommendations of global conferences, for fighting
desertification and pollution and for protecting nature.

2.8 Anti-money laundering


Anti- money laundering laws were adopted by the Council of
Ministers of the WAMU in 2003. The laws make provision for
administrative and criminal sanctions applicable to individuals
and companies, as well as preventive measures which may
be carried out by a judge.
An anti-money laundering Authority was created in 2004
(CENTIF), and Senegal is host to the head office of GIABA
(Inter Governmental Action Group against Money laundering
in West Africa). The institution of the Economic Community

2.11 Tax rates


Taxes on individuals are mainly salaries tax, and they are
deducted and paid to tax authorities by their companies. The
rates applicable are progressive, and vary according the family
members in charge and cannot exceed 50%.

2.12 Tax returns


In general, the tax payment is annual. The corporation tax is
payable in three installments during the year following the
financial year.

Section 3
People
3.1 Skills availability
Long convinced that educating and training men and
women creates invaluable wealth for the country, Senegal
spends over a third of its national budget on education. The
country has many primary, secondary and higher education
institutions, public and private. Education is mostly in
French, but also in Arabic or English. Prestigious universities
and foreign schools offer high quality initial and ongoing

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training, locally or abroad, through partnerships with foreign


institutions. The curricula match the high-level needs of
all sectors, and are particularly strong in agribusiness and
services (banking sector included).

Section 4

3.2 Foreign nationals

4.1 Major loan and deposit products

An approval is required when hiring ex pats as a director,


executive or manager. Note that ex pats refers to a non
citizen of the WAMU area. The request is to be sent to the
Ministry of Finance and the Central Bank, accompanied by
various required documents.

Loan Products
Real estate, auto, consumption, overdraft facilities, Islamic
finance products, letters of credit and guarantees and
acceptances.

3.3 Labour legislation

Current accounts, saving accounts and time deposits.

The Senegalese Constitution states the basic principles of


employment law, such as the principle of non-discrimination,
prohibition of forced labour, regulation of employment
contracts, working conditions and the establishment of
conflict settlement procedures. The conclusion of a definitive
employment contract may be subject to a trial period, which
shall be written down either separately or in a clause of the
contract. The trial period, cannot exceed six months. The
working week is set at 40 hours, and the retirement age is
60 years in public sector and 58 years in the private sector.

4.2 Payments/clearing system

3.4 Trade union presence


Education, health and transport are the main sectors where
union presence is prevalent.

3.5 Hiring and Firing of employees


Fixed-term contracts may be terminated before their term,
as a result of circumstances making it impossible for the
continuation of the contract, or by mutual agreement of
parties involved, or due to gross negligence of either party,
or considered as such by competent court, or following the
death of the worker. Any termination of contract is subject to
a notice which shall be put in writing down by the party who
initiates the break. The reason for the termination must be
mentioned in this notice.

3.6 Contractors
The duration of a fixed term contract cannot exceed
24 months.

3.7 Retirement and Medical Aid


The employer is responsible of the declaration and
the payment to IPRES (National Retirement Agent) of
its retirement contribution, as well as the employees
contribution, which is deducted from their monthly salaries.
Employers are obliged to affiliate employees to a social
security scheme in order to ensure their health coverage.

Banking Environment

Deposits

The automated transfer and settlement system within the


WAMU, implemented since 2004, is designed for large value
interbank transfers. Each transaction is settled on a gross
and real time basis. It is characterised by rapid transaction
processing, great safety and availability, and also affordable
costs.
The automated interbank clearing system within the WAMU,
which is operational in all the Union member countries, is a
major innovation compared to the manual clearing system. It
is characterised by the dematerialisation and the transmission
through electronic files of the values to be exchanged within
the clearing system. This system is the infrastructure for low
value payments between participating institutions which are
banks, the BCEAO, the Treasury and postal financial services.

4.5 Banking branch and IT infrastructure


Approximately 300 branches have been established all across
the country. A significant number of these are located in
the economic and political capital, Dakar. ATM and internet
banking services are provided by the majority of the banks,
and two mobile-cellular operators are testing mobile banking.

4.6 Active exchanges


A regional stock market was created in 1996, Bourse Regional
des Valeurs Mobilieres SA (BRVM), and a representation is
implemented in each country member of the WAMU. Bonds
represent the main exchange producer in the region.

4.7 Banking sector overview


The Senegalese banking sector has expanded significantly
in the last few years. 19 banks are in operation. The banking
sector is now split in two. Historical players such as Socit
Gnrale, CBAO Groupe Attijariwafa Bank, Ecobank, Banque
de lhabitat, and BICIS represent 75% of market share. New
players, are attracted by good prospects of economic growth,
political stability, housing boom and lower penetration
of banking services (represent about 20%, microfinance
institutions included).
Some consider that the market is now saturated, and that a
consolidation process is inevitable in the future. But others

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Financial Services | 53

remain optimistic, encouraged, for example, by the approval


of a new law requiring payment of salaries of more than XOF
100,000 (USD 202) by bank transfer.
However, the lack of accurate data, and the suspicious
attitudes of a part of the active population, regarding banking,
are the main restraints on the banking system.

Section 5
Physical Environment
5.1 Property ownership
Individuals or companies (physical or moral persons),
whatever their nationality, within the framework of the laws in
force, may acquire any rights of whatever nature in property,
concessions or administrative authorizations.

5.2 Transport infrastructure


Senegal has a dense and quite well maintained road network
compared to other West African countries. This ensures the
smooth movement of people and goods.
Senegal boasts three international airports: Dakar, Saint Louis
and Ziguinchor.
The existing 1060 km railway provides great potential for the
transport of goods and raw materials, especially on the DakarBamako (Mali) line, which gives access to the wider West
African sub-region.

5.3 Communications infrastructure


Senegal has a fully digitized network of efficient
telecommunication, with more than 2,200 km of fibre optic
wiring. It is linked to Europe, America, Asia and the Middle
East through permanent cable connections. Internet and
telephone services penetration levels are high, both in
companies and amongst the general public.
There are currently three providers of mobile-cellular services.

5.4 Political environment


Senegal remains one of the most stable democracies in
Africa, and has a long history of participating in international
peacekeeping and regional mediation.
Senegal was ruled by a Socialist Party for 40 years, until
current President Abdoulaye Wade was elected in 2000. He
was re-elected in February 2007. Presidential elections last
took place in February 2012.

5.5 Economic overview


Senegals major economic contributors are agriculture,
industry and services. The countrys key export industries
are phosphate mining, fertilizer production, and commercial
fishing. The country is also working on iron ore and oil

exploration projects. GDP is estimated at USD 13.4 billion


in 2010.

5.6 Social environment


Senegal is experiencing a boom in its real estate sector.
Hotels, luxurious houses and apartments are under
construction. However, this boom has some drawbacks,
as access to housing is becoming more difficult for
middle households. This has led to overcrowding in some
neighbourhoods.
Pre-primary school participation has increased in Senegal, but
it remains very low as the pre-primary gross enrolment ratio is
around 10%. However the number of children not attending
school is declining, and the primary education adjusted net
enrolment ratio is around 80%.
Senegal is experiencing some delays on health targets, due
to the difficulty of access to health services and shortages of
vaccines in some rural areas.

5.7 Trading partners


Exports are mainly made up of fish, groundnuts (peanuts),
petroleum products, phosphates, and cotton. The main
customers include Mali, India, France and Gambia.
Imports are largely made up of food and beverages, capital
goods and fuels. Main suppliers are France, UK, China and
Nigeria.

5.8 Crime and corruption


Corruption remains one of the biggest challenges in Senegal.
As in many other sub-Saharan countries, public services are
unevenly provided and of poor quality, and civil servants often
resort to petty corruption. The institutions that are intended to
provide checks and balances within the system are generally
under-resourced and lack independence.
Whilst there are some incidents of crime, Senegal is still
considered to be a country with low crime statistics.

5.9 Language
French is the official and business language. Senegalese are
showing interest in learning and speaking English.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
For statutory accounts, the SYSCOA chart of accounts is used
(regional chart of accounts). But when reporting to group for
international subsidiaries or branches, IFRS is used.

6.2 Basel II and III


Currently the transition to Basel II is in progress.

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6.3 FATCA
There is no evidence of FATCA implementation in Senegal to
date.

6.4 Anti Money Laundering (AML) laws/regulations


Anti money laundering laws were adopted in 2003.

6.5 Know Your Customer (KYC) laws/regulations


In force particularly in financial institutions.

6.6 Annual financial reporting


Mandatory for banks, for Limited Companies, and for Limited
Liability Companies in certain conditions.

6.7 Governance structures


Governance structures such as use of Audit Committees,
Boards are implemented in Banks and International
companies subsidiaries.

6.8 Government ownership and management


Prevalence of Government ownership and management is
noted in Banks and International companies subsidiaries.

6.9 External auditors


Financial statements are to be certified by auditors for banks,
for Limited Companies, and for Limited Liability Companies in
certain condition.

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Financial Services | 55

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56 | Africa Banking survey

Section 1

1.7 Banking supervision

Regulatory

Consolidated basis. Other financial institutions (e.g. Insurers)


have their own regulators.

1.1 Regulatory Regime

1.8 Global financial crisis response

South Africa currently has an Institutional approach to


regulation, but is moving towards a Twin Peaks methodology.
Currently regulation of the banking sector is the responsibility
of the South African Reserve Bank, under the authority of the
Registrar of Banks.

1.2 Basel Accord status


The Regulator follows international best practice. South
Africa is Basel II compliant, and is moving to adopt the Basel III
framework.

1.3 Structure of supervisory body


The South African Reserve Bank has responsibility for the
supervision of banks, and this falls into a department called
Bank Supervision, which is headed by a senior executive
called the Registrar, who reports to a Deputy Governor
of the Central Bank.

Yes: the regulatory framework being proposed will broaden


supervision to a Twin Peaks methodology, which will then
include the establishment of oversight regulatory bodies,
macro-prudential supervision, a separate regulator for
market conduct, i.e. Treating the Customer Fairly (TCF),
amongst others. In addition, adherence to the Liquidity
recommendations of Basel III is being considered (probably
with adjustment for local conditions).

1.9 Deposit insurance scheme


No deposit insurance scheme currently exists, but this is being
considered as part of the changes mentioned above.

Section 2
Commercial, Legal and Tax Environment

1.4 Banking licence application

2.1 Process for establishing a new company

Application must be made to the Registrar using a prescribed


format, together with a fee. Information required would
include business plans, capital structure, funding profile, risk
management frameworks, human resources, technology
infrastructure and governance. Typically a foreign exchange
licence would also need to be applied for, through the Financial
Surveillance Department. The process can take from three to
six months.

Broadly; the process would include:

1.5 Regulatory reporting requirements


South African banks (and branches) are required to submit
monthly returns in a prescribed format. There are also annual
meetings, after the AFS are produced, with banks, their board
and their auditors. Returns may be submitted electronically.
Banks are also required to submit daily market risk reports,
and there are also various quarterly and six-monthly returns
required.

1.6 Important banking regulatory requirements


Other than requiring separate banking and foreign currency
licences, the following apply:
Minimum capital of R250 million (or 9.5% of risk-weighted
assets), whichever is the greater, the Regulator requires
add-ons for individual banks.
Minimum reserve balance of 2.5% of adjusted liabilities.
Liquid assets of 5% of adjusted liabilities.
Non-compliance could result in penalties, including
annulment of the banking licence.

Decide on the corporate structure required.


Obtain necessary regulatory approvals (e.g. banking licence).
Lodge specified formation documentation with the
Companies and Intellectual Property Commission
(CIPC).
Open a bank account.
Register with the tax authorities (SARS) for income tax, VAT,
employees taxes.
Register with the Department of Labour.
Register with the authorities for Occupational Health and
Safety.

2.2 Foreign investment in local companies


Foreign investment is generally encouraged, and the process
would be the same as for locals. There are some ownership,
competition, black economic empowerment and control
restrictions, and some sectors (e.g. banking) require specific
authorisations. There are also Exchange Control regulations to
be aware of.

2.3 Annual costs


There is an annual fee payable by each company, within 30
days of its year end. The amount depends on the size and
nature of the company. There are also costs associated with
the annual audits or reviews.

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Financial Services | 57

34
50.5 million (2011 estimate)

ZAR1 = USD 0.13050


ZAR: South African Rand

$422.037 billion (2011 estimate)

Richard Buchholz
T: +27 (0)11 647 6204
E: richard.buchholz@kpmg.co.za

2.4 Restrictions on foreign investment

2.11 Tax rates

There are very few restrictions on investment in South Africa,


but investors should be aware of local requirements in terms of
inter alia, the Competition Act, Black Economic Empowerment,
and industry-specific approvals.

Individuals are taxed on taxable income at rates from 18% to


40%, depending on the amounts. Certain age thresholds and
rebates apply.

2.5 Dividend remittance

(Note: these are subject to change).

All foreign payments (i.e. out of South Africa) are regulated


by the S A Reserve Banks Exchange Control department.
Generally, dividends are freely transferable, as long as they
are supported by an auditors certificate, a board resolution,
a directors representation letter and financial statements.

2.6 Intellectual property rights


Yes. Intellectual property rights are protected through a
number of laws as well as through Common Law (legal
precedent). Registration of rights is done through the
Companies and Intellectual Properties Commission (CIPC).

2.7 Sustainability and the environment


There are laws regarding the protection of the environment,
the most significant of which is the National Environmental
Management Act (NEMA). South Africa hosted the 17th
Conference on climate change in Durban (COP17) in December
2011, and is committed to the agreement reached at that
conference. There is a growing corporate awareness of the
environment, and companies responses to the sustainability
challenges. Listed companies are required to provide
Integrated Reporting in their financial statements.

2.8 Anti-money laundering

Trusts are taxed at 40%.


Taxes on employees are collected by the employer on a Pay
As You Earn (PAYE) basis, and paid over to SARS on a monthly
basis.

2.12 Tax returns


Individuals and companies are required to submit tax returns
annually. Companies and certain individuals are required to
submit provisional returns at least every six months, and pay
any taxes due at that time.

Section 3
People
3.1 Skills availability
South Africa has a reasonably well structured Primary,
Secondary and Tertiary educational system. The challenges
are:
Trying to develop a skills base that is representative of the
demographics of the country.
Developing appropriate skills to meet the challenges of a
rapidly developing country.

Yes. The Financial Intelligence Centre Act (FICA) and


Prevention of Crime Act (POC) were established to regulate
money laundering, including stringent Know Your Customer
(KYC) principles required on financial transactions.

Retaining existing skills and preventing a skills flight.

2.9 Tax regime

There are requirements for ex-pats to obtain the necessary


work permits, and the authorities generally prefer that local
resources are employed and developed where practical.

There are several important taxes, the most important of which


are (rates are indicative only and subject to various provisions) :
Corporate Income Tax: 28%
Capital Gains Tax: Up to 20% effective
Value Added Tax: 14%
Secondary Tax on Companies (STC) : 10% on dividends
(note: to be replaced by a new tax on 1 April 2012).
Various Excise Duties and Levies.
Note: It is important to obtain detailed advice on applicable
taxes, as this is by no means comprehensive, and they are
subject to change.

2.10 Branch taxation


Yes. Branch profits are taxed at a rate of 33%.

By and large, in the banking sector, there is a reasonable base


of skills and experience.

3.2 Foreign nationals

3.3 Labour legislation


The principal labour law is embodied in the Labour Relations
Act of 1995 and Basic Conditions of Employment Act of 1997.
They aim to promote economic development, social justice,
labour peace and democracy in the workplace, as well as
regulating various labour processes and practices. As such,
they regulate the relationships between the employer and
employee, as well as specifying the rights and obligations
of both.

3.4 Trade union presence


Yes there are a number of active unions, including in the
banking sector. The umbrella organisation, COSATU, is a
strong political influence in the country.

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3.5 Hiring and Firing of employees

4.5 Banking branch and IT infrastructure

There are generally no restrictions on the hiring of employees,


although it is necessary to be cognisant of the countrys Broad
Based Black Economic Empowerment (B-BBEE) requirements
in terms of racial mix. Firing of full time employees is strictly
regulated by the various applicable labour laws.

3.6 Contractors

The major banks in South Africa have a very comprehensive


physical branch infrastructure. Several of the smaller players
have also developed reasonable branch footprints. Access
to banking services is across a wide number of channels,
including internet, mobile telephones, chain stores and various
agencies. The technology is sophisticated, and penetration is
increasing.

There are no restrictions on the use of contractors, but


applicable taxation and labour laws need to be considered.

4.6 Active exchanges

3.7 Retirement and Medical Aid


Most employers require employees to become members of
an approved Medical Aid Scheme.
Membership of a registered Retirement Fund is required for
all employees.

Section 4
Banking Environment
4.1 Major loan and deposit products
The major lending products are loans, overdrafts, structured
finance, vehicle and asset finance and home loans.
The major deposit products are current accounts, overnight,
money market notice, call and fixed term deposits.

Equities, bonds, derivatives (including commodities) are all


traded on-exchange through the Johannesburg Stock
Exchange (JSE). South Africa follows G30 principles in terms
of trade settlements (through the Strate system).

4.7 Banking sector overview


South Africa has a well-developed and sophisticated banking
sector, regulated by the South African Reserve Bank. There
are around 18 registered local and foreign banks operating
in South Africa, as well as a large number of branches and
representative offices of foreign banks.
The sector is dominated by 4 large full service banks, with
significant branch footprints, and a number of others operating
in niche markets.
The sector is extremely competitive, both at a wholesale and
retail level.

Most banks offer a full range of treasury and forex products.

Section 5

4.2 Payments/clearing system

Physical Environment

The payments system is regulated by the National Payments


System (NPS), under the oversight of the Reserve Bank.
Clearing is effected through various clearing houses (PCH),
depending on the nature of the transaction, and settlement
takes place through either SAMOS (owned by the Reserve
Bank) or CLS (for foreign transactions).

5.1 Property ownership


There are very few restrictions on the ability to buy and hold
property on a freehold basis. Property ownership is a legal right
enshrined in the countrys Constitution.

There are rules governing the participants of all of the above.

5.2 Transport infrastructure

4.3 Insolvency provisions

South Africa has, by and large, an excellent infrastructure, with


well-maintained major road routes across the whole country.
There is also a good rail network, and a number of reasonablysized seaports (Durban has recently launched its own Trade
Port). There is also a well-established and comprehensive air
transport network, with passenger and freight terminals in all
major centres, and a number of International Airports.

The insolvency of individuals and companies is regulated by


the Insolvency and Companies Acts, and, in particular, the
Business Rescue provisions of the Companies Act.
There are very specific requirements contained in both,
designed to protect creditors and businesses, as well as
employees.

4.4 The taking of Security


Whilst there are generally no restrictions on the taking of
security (and its perfection), one needs to be mindful of
Insolvency and Companies Act provisions relating to the taking
of security, various which are particularly applicable at or near
insolvency.

5.3 Communications infrastructure


South Africa has a regulated telecommunications industry,
supported by the long-established landline infrastructure,
dominated by Telkom, the local telecoms parastatal.
However, recent years have seen a rapid growth in mobile
telephony and broadband connectivity. The network is nearly
100% digital, and is probably the most developed in Africa.

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With the commissioning of improved undersea cabling, linking


South Africa to the rest of the world, and improvements in
broadband etc, internet usage has also grown exponentially.
Local connectivity is gradually being improved with the
development of fibre optic cable networks.

5.4 Political environment


South Africa became a fully fledged multi-party democracy in
1994, when all citizens gained the franchise.
The country has a Westminster-based parliamentary system,
and elections are held every 4 years.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
All listed companies are required to prepare their financial
statements in accordance with IFRS. Unlisted companies and
certain others may apply IFRS or SA GAAP (which is consistent
with IFRS), for SMEs.

6.2 Basel II and III

The rights of individuals are enshrined in the countrys


Constitution.

South African banks were required to adopt Basel II by January


2008. Most are preparing for Basel III, but there is no finality
yet on the application of some of the requirements (e.g.
liquidity).

5.5 Economic overview

6.3 FATCA

The practical landscape is dominated by the majority party,


the ANC, with the DA being the official opposition.

South Africa is regarded as a middle income emerging market,


with a GDP of around USD 560 billion. It is rich in natural
resources, and has a thriving industrial base.
The major contributors to GDP are Finance, Real Estate and
Business Services; wholesale, retail motor trade and services.

South African banks are still considering the implications of


FATCA.

6.4 Anti Money Laundering (AML) laws/regulations

South Africa has a high level of formal unemployment, at over


20%, and GDP per capita of around USD11 000.

There are very strict AML laws in South Africa, most specifically
the Financial Intelligence Centre Act (FICA) and the Prevention
of Organised Crime Act (POCA), and all banks are required to
have processes to address the requirements of these.

5.6 Social environment

6.5 Know Your Customer (KYC) laws/regulations

The biggest challenge currently facing South Africa is the


provision of social services to the majority of its people.

The KYC requirements for South African companies are set


out in the Financial Intelligence Centre Act (FICA), and all banks
(and many other businesses) are required to verify certain facts
about their customers.

The system of Apartheid, which ended in 1994, meant that


the vast majority of South Africans did not have unfettered
access to housing, schooling, hospitals and the like, and the
country is now having to play catch-up in these areas.
Similar problems face the electricity supplier, Eskom, where
the rapid growth in demand is causing strains on the power
network.

5.7 Trading partners


China, Japan, USA, European Union (specifically the UK,
Germany, Netherlands, Spain and Belgium), and Africa.

5.8 Crime and corruption


Crime and corruption continue to be an ongoing issue for all
South Africans, but government has taken steps to improve
the statistics and/or eliminate the problem. The September
2011 S A Police Services report shows that overall crime levels
are down 24% over the previous year. Fraud and corruption,
however, continue to attract widespread media attention.

5.9 Language
English is the main business language in South Africa. There
are 10 other official languages, as recognised in the countrys
Constitution.

6.6 Annual financial reporting


All South African companies are required to publish financial
statements at least annually. All public and state-owned
entities require external audit. Certain other companies require
independent reviews, whilst others are exempt from such
review.

6.7 Governance structures


South Africa is generally in compliance with international
governance standards, including integrated reporting. The
King Code on Corporate Governance is widely applicable.
All banks are required to have, inter alia, an independent Audit
Committee.

6.8 Government ownership and management


Government and parastatal bodies play a significant role in the
economy. Principal parastatals are Telkom (communications),
Eskom (energy), Transnet (logistics), Development Bank
(DBSA), SABC (broadcasting) amongst a host of others,
including airports.

6.9 External auditors


See previous paragraphs

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Section 1
Regulatory
1.1 Regulatory regime
The principal regulator in the country is the Central Bank (known
as the Bank of Tanzania) which monitors the operations of all
commercial banks in the country.
The major framework used for monitoring commercial bank is
the Hybrid, whereby the Institutional as well as the Functional
approaches are used. All Banks are monitored by the Bank of
Tanzania. In addition, banks that are listed on the Dar es Salaam
Stock Exchange are also under the supervision of the Capital
Markets and Securities Authority.

1.2 Basel Accord status


The Bank of Tanzania (BOT) follows International practice and,
as of now, Basel I and II have already been implemented and are
operating. Basel III is in the pipeline, but there is no set date for this
implementation.

1.3 Structure of supervisory body


The Bank of Tanzania is the sole authority responsible for
supervising commercial banks under its directorate of banking
supervision, which holds direct supervisory responsibilities for the
commercial banks.

1.4 Banking licence application


Prospective investors are required to apply to the Central Bank for
a license. License approval will normally depend on how quick the
applicant is in fulfilling the licensing procedures, as stipulated by the
Central Bank from time to time.
Like banks, non-bank entities also require regulatory approval
and licensing. Procedures are more or less the same as those for
banking entities.

1.5 Regulatory reporting requirements


The Bank of Tanzania has daily, weekly, monthly quarterly and
annual returns which are mandatory for every bank to submit on
prescribed deadlines.
The returns have recently been automated, but there is still a
requirement for banks to submit hardcopy as evidence and for filling
purposes to Bank of Tanzania.

1.6 Important banking regulatory requirements


The most important regulatory requirements include:

Capital requirement:
To start a commercial bank, one should have a total capital not
below TZS 5 billion (USD 3.1 million) which shall be contributed
by at least five people. The limit is in the process of being revised
to TZS 15 billion (Usd 9.3m).
Every bank shall maintain, at a minimum, a core capital and total
capital equivalent to 10% and 12% respectively of its total risk
weighted assets and off balance sheet exposures.

Liquidity:
Every bank shall maintain minimum liquid assets amounting to
not less than 20% of its demand liabilities.
Every bank shall maintain at all times its gross loan portfolio at
levels not exceeding 80% of its total deposit liabilities. Total
deposits shall include local and foreign exchange deposits of
customers, banks, and special deposits.

Credit:
The total amount of credit accommodation which any bank, other
than a microfinance company and financial cooperative, may
grant, directly or indirectly, to any person and his related parties,
is required to be monitored against a number of stringent criteria.

1.7 Banking supervision


Banking supervision in Tanzania is performed on both a solo and
consolidated basis.

1.8 Global financial crisis response


The global financial crisis did not directly affect commercial banks
in Tanzania. The effect was indirectly felt through certain sectors
of the economy and its interaction with commercial banks. The
Bank of Tanzania is in the process of investigating the possibility
of increasing capital requirements to allow for unexpected losses.
There is a move to increase the capital requirement for commercial
banks to around TZS 15 billion (USD 9.3 million).

1.9 Deposit insurance scheme


Tanzania does have a deposit insurance fund. The fund is managed
by the Deposit Insurance Board and it is the obligation of every
licensed bank or financial institution to contribute to the fund
an annual amount determined by the Deposit Insurance Board.
Currently the, amount of contribution is 1% of the total deposit
liabilities of the commercial bank, during the period of 12 months.
The funds responsibility is to protect depositors in case of a bank
going bankrupt.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
An application is made to the Registrar of Companies for the
reservation of a name, accompanied by various prescribed
documents. Once approved, a Certificate of Incorporation is issued.
Applications are made to the Registrar of Companies
in the required format. This process takes approximately
one month.
Once the company is appropriately registered with the Registrar of
Companies, it should be registered for tax purposes. This requires
completion of the respective tax registration forms and submission
of various specified documentation. Thereafter, a business license
must be obtained from the municipal authorities. This takes
approximately five to eight weeks.

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Financial Services | 61

128
43.2 million (2010 estimate)

TZS 1 = USD 0.00062


TZS: Tanzanian Shilling

$29 billion (2012 estimate)

2.2 Foreign investment in local companies


Foreigners may buy local companies, either by purchasing the
shares of the said company, or by establishing an entity which will
buy the assets and liabilities of the local company. It is important
to have a board resolution of the local company, authorising the
sale of shares, and a sale agreement. Depending on the size
and importance of a transaction, additional approvals by the Fair
Competition Commission (FCC) may be required.

2.3 Annual costs


There are mandatory annual costs, such as filling fees (of annual
returns etc) and audit fees. It is compulsory to have an external
audit every year.

2.4 Restrictions on foreign investment


Investment is encouraged in Tanzania. Investment issues
are regulated by Tanzanian investment laws. There are some
restrictions on foreign investments where registration is sought
under the Tanzania Investment Authority, e.g., investment capital
is not permitted to be less than USD 300,000.

2.5 Dividend remittance


In most cases, dividends may be remitted abroad freely. In specific
instances, regulatory approvals may be required before dividends
are declared. There are no restrictive foreign currency regulations
or laws.

2.6 Intellectual property rights


Intellectual property rights are well protected in Tanzania. The work
that is subject to protection has to be registered with the Registrar
of Trade and Service Marks for it to have legal force,
in order to enjoy that right.

2.7 Sustainability and the environment


Environmental issues are regulated by the National Environmental
Policy and Environmental Management Council Act.

2.8 Anti-money laundering


There are very restrictive anti- money laundering laws. There are
AML regulations issued by the Central Bank requiring every bank to
comply.

2.9 Tax regime


Tanzania has a number of applicable taxes, including:
Corporate tax.
Resident corporation 30%.
Non-resident corporation 30% (a non-resident corporation
with a permanent establishment also has to account for tax of
10% on repatriated income).
Newly listed Companies have reduced rates of 25% for 3 years
provided at least 30% of shares are publicly issued.
Alternative minimum tax is charged on turnover where a
corporation makes tax losses for 3 conservative years as a result
of tax incentives 0.3%.

Ketan Shah
T: +255 22 2118866
E: kshah@kpmg.co.tz

Withholding tax depends on the nature of the tax payers


residency status, and the nature of the item on which tax applies.
VAT - 18%
Other taxes include custom duty, skills and development levy,
PAYE, social security, stamp duty and city service levy.

2.10 Branch taxation


Branches and subsidiaries are taxed at the rate of 30%. However,
branches also have to account for tax of 10% on repatriated
income.

2.11 Tax rates


The collection of individual tax is made by the employers, and
remitted to the Tanzania Revenue Authority not later than the
seventh day of the following month after the month of deduction.
Tax rates vary from 0% to 30% of individuals taxable salary. Any
amount in excess of TZS 8.6 million (USD 5,356) on annual taxable
salary is taxed at the higher rate of 30%.

2.12 Tax returns


Provisional returns are filed and payment is made to the Tanzania
Revenue Authority (TRA) within the first quarter of the
accounting period of the company. Final returns are filed with the
TRA within the six months after the end of the accounting period.
VAT returns are filed with the TRA on the last working day of
the following month. Withholding tax returns are filed within
30 days after each six months period. Stamp duty is required to be
paid within 30 days of execution.

Section 3
People
3.2 Foreign nationals
Under the Licensing regulations of 2008, The Bank of Tanzania
restricts the employment of non Tanzanians to not more than five at
any point in time, for institutions that are under its regulation.

3.3 Labour legislation


Employment of citizens remains the first priority. Expatriates are
encouraged to coach/mentor local staff so that local staff become
skilled to perform the job.

3.4 Trade union presence


Trade unions, which are industry based, have a significant presence
in Tanzania.

3.5 Hiring and Firing of employees


There are various pieces of labour legislation in place. These have
introduced restrictions and procedures to follow when hiring and
firing employees.

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3.7 Retirement and Medical Aid


Provision of medical assistance to employees is compulsory,
through either medical insurance, medical fund, medical allowance
or reimbursement of actual expenses. Social Security Schemes for
employees are also compulsory. Employers contribute between
10-15% of gross pay, whilst employees contribute between 5-10
of gross pay.

Section 4
Banking Environment
4.1 Major loan and deposit products
Loan products
Overdraft Facilities, term loans, unsecured loans, auto loans,
mortgages (recently introduced), asset finance / equipment loans,
structured agri-finance, structured trade finance, SME loans, letters
of credit, guarantees and bills for collection.

Deposit products

Where security is a matrimonial property, free consent of both


spouses has to be obtained for the transaction to have legal force.

4.6 Active exchanges


The relevant and active exchange in Tanzania is the Dar es Salaam
Stock Exchange.

4.7 Banking sector overview


The financial services industry in Tanzania is regulated by the
Banking and Financial Institutions Act, 2006 and the various
banking regulations that are issued by the Bank of Tanzania under
powers granted to it by the Act. Banks are supervised by the
bank supervision directorate of the Bank of Tanzania. The Act also
supervises the Bank of Tanzania in relation to policy formulation
and other related matters. The banking sector continues to perform
strongly, with growth in assets and loan portfolios liabilities and
profits. There is a trend towards the establishment of more
community banks which are reaching out to communities outside
Dar es Salaam. There are a number of micro-finance institutions that
have entered the market over the past few years.

Individual accounts, partnership accounts, corporate accounts,


call accounts, time deposits, and currents account for business.

Section 5

4.2 Payments/clearing system

Physical Environment

The Bank of Tanzania initiated efforts to automate the clearing


house operations in order to replace manual processing. The NPS
automation developments include are but not limited to:

5.1 Property ownership

The Tanzania Inter-bank Settlement System (TISS) is an


on-line system that processes high value and time sensitive
payments, that enable real time and gross settlement of payment
instructions between banks. The system facilitates settlement of
inter-bank transfers and clearing house balances, money market
and foreign exchange market transactions.
The Bank of Tanzania implemented the Electronic Clearing House
(BOTECH) System to facilitate inter-bank electronic debit
clearing.
Members of the Dar es Salaam Clearing House have installed
the Magnetic Ink Character Recognition (MICR) equipment
for processing paper encoded payment instruments.

4.3 Insolvency provisions


Insolvency provisions for companies are contained in the
Companies Act. The liquidation process for companies begins
either by court order (compulsory liquidation), or by members
passing a resolution to wind up (voluntary liquidation).

4.4 The taking of Security


Assets that that can be advanced/ treated as collateral for security
include personal and real estate such as land, houses, equipment
etc. The restrictions are as follows:
Property which is offered as security must have a title to be
effective. If the property bears the title of a third party, there has
to be evidence that the owner of the property provided consent
for his property to be used as security for the loan of borrower.

Ownership of property is a constitutional right. Thus, if a person


owns a property; he/she is entitled to a title for it. However there are
some restrictions relating to freehold title of land. The land is vested
in the President, and citizens only have a right to occupy the land for
a certain period (subject to renewal and revocation of the said right).
Foreigners are not allowed to own land.

5.2 Transport infrastructure


Tanzania offers a road network of approximately 85,000 kms of
which about 5% is paved and the remaining is unpaved. Tanzania is
currently in the middle of a 10 year Integrated Roads Programme,
which is designed to upgrade 70% of the country`s road network,
and to build some 3,000 km of new roads.
Tanzania has more than 3,685 km of railroads. There are two railway
networks which provide both freight and passenger services.
Tanzania has three international airports, and more than 30 official
airports and airstrips. The Tanzania Port Authority (TPA) operates
three major ports.

5.3 Communications infrastructure


Tanzania Telecommunication Company Ltd (TTCL) is the main
gateway to international exchanges and is jointly owned by the
Tanzanian government and private investors. Currently there are
six cellular mobile network operators licensed by the Tanzania
Communication Regulatory Authority. All mobile phone companies
operate on both the mainland and on Zanzibar. Currently there are
nine Public Data Communication Service Providers.

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Financial Services | 63

5.4 Political environment

5.9 Language

The Government of the United Republic of Tanzania has authority


over all Union matters in the United Republic, and over all other
matters concerning Mainland Tanzania. The Revolutionary
Government of Zanzibar has authority over all matters, which are
not Union matters in Zanzibar. Tanzania is democratic and operates
a multiparty political system.

Swahili and English are the official languages, with the national
language being Swahili. English is encouraged as the business
language in the corporate environment. Higher education is
conducted in English.

There are 16 permanently registered political parties in Tanzania.


Multiparty elections are usually conducted after every five years,
with the Presidents mandate limited to a maximum of two fiveyear terms. The Constitution of the United Republic of Tanzania
(1977) provides that Tanzania aims at building a democratic society,
founded on the principles of freedom, justice, fraternity and
concord, in which the Executive is accountable to a Legislature,
composed of elected members and representatives of the people.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
All companies are required to prepare financial statements using
International Financial Reporting Standards (IFRS) as prescribed
by the National Board of Accountants and Auditors.

5.5 Economic overview

6.2 Basel II and III

Over the past two decades, Tanzania has been transformed from
a centrally planned/command economy to a market oriented
system, through successful implementation of trade liberalization
measures. The Government has taken deliberate steps to
encourage private sector-led growth through restoration of market
forces, and less interference in commercial activities. These
measures include the privatization of state owned companies,
reduction of tariff and non-tariff barriers. Fiscal/monetary reforms
have opened doors for expansion of private sector operations in all
spheres of business. GDP is estimated at USD 29 billion in 2012.

Basel I and II have been implemented.

5.6 Social environment

6.5 Know Your Customer (KYC) laws/regulations

Medical treatment is free, or highly subsidized, in company


clinics as well as hospitals. The pyramid structure of Tanzanias
national healthcare system, stressing primary care at an affordable
cost, makes it a pioneer in sub-Saharan Africa. In 2000, 54% of
the population had access to safe drinking water and 90% had
adequate sanitation. Even in rural areas, more than 90% of people
live within 10 kms of a basic clinic. While access is not a problem,
however, waiting times, lack of medicine and high costs continue
to be stumbling blocks to effective healthcare.

There are various pieces of legislation governing KYC procedures.


Banking institutions have a responsibility to carry out KYC
procedures for all its customers.

The state owns all land in Tanzania. Therefore, no private


(freehold) ownership is allowed for either citizens or non-citizens.
Nevertheless, the Government grants rights of occupancy of land.
There is also the option of obtaining sub-leases on land, which has
been granted to the private sector through a right of occupancy.
Foreigners can only occupy land for investment purposes.

5.7 Trading partners


Tanzania has a large number of trading partners. China, Germany,
Japan, India, the European Union, United Arabic Emirates, United
Kingdom, Kenya, Japan, India and South Africa are all considered to
be the key trading partners.

5.8 Crime and corruption


Crime in Tanzania is generally not violent, but it is a growing
concern. The Government of Tanzania continues to battle with
corruption, and has made strong commitment to eradicate
corruption at all levels in society.

6.3 FATCA
Tanzania has not implemented FATCA.

6.4 Anti Money Laundering (AML) laws/regulations


The Anti-Money Laundering Act is in force, and through this
legislation a Financial Intelligence Unit (FIU) was created. The Act
empowers the FIU to receive, analyse and disseminate suspicious
transactions.

6.6 Annual financial reporting


Audited financial statements are required to be published once
annually. The Companies Act places this responsibility on the
directors.

6.7 Governance structures


There are Board of Directors guidelines issued by the Central Bank
in 2008 which stipulate a number of requirements.

6.8 Government ownership and management


Since the economy was privatised at the beginning of 2000, the
banking sector has been fully privatised, with the Government
owning minority stakes in a limited number of banks where the
private sector is the major shareholder. The Government does
wholly own a limited number of banks for strategic or legacy
reasons.

6.9 External auditors


All commercial banks and financial institutions, which are regulated
by the Central Bank, are required to appoint independent auditors.
Failure of the commercial bank to appoint an independent auditor
could result in the Central Bank appointing an auditor on behalf of
the commercial bank.

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Section 1

Capital Requirements:

Regulatory

All banks should have a minimum paid up capital of


UGS 25 billion (USD 9.2 million) by 31 march 2013.

1.1 Basel Accord status

The total capital of financial institution is not permitted to


be less than 12% of total risk adjusted assets.

The principle regulator for commercial banks in Uganda is the


Bank of Uganda. The Bank of Uganda is the central bank for
the country.

The core capital of the financial institution is not permitted


to be less than 8% of total risk adjusted assets.

The country uses a framework of an Institutional regime.

All banks are required to have ALCO committees,


monitored by the regulator. The committees are mandated
to set acceptable liquidity parameters.

1.2 Basel Accord status


The Central Bank uses a phased approach to Basel and has,
since 2004, been implementing the recommendations of the
three pillars in Basel II.

1.3 Structure of supervisory body


The Central Bank is the supervisory body. It performs its role
of oversight of the banking sector through the supervision
department, headed by an executive director and assisted by
a deputy.
The Central Bank itself is headed by a governor and has
several departments through which it carries out its monetary
sector roles and banking sector supervision. The Central
Bank has a board of directors, comprising four non-executive
directors and two executive directors who provide oversight
to its operations.

1.4 Banking licence application


All entities that are under a banking group would require
approval from the Central Bank. The procedures are set out
in the Financial Institutions (Licensing) Regulations.
An application for a licence is made in duplicate, in the
prescribed format, and is accompanied by the necessary
supporting documents. The supervision function of the
Central Bank will, within 10 days, send the applicant a
formal letter of acknowledgement, or a letter of deficiency.
The Central Bank will, within six months after receipt of a
complete application, prepare a detailed report in respect of
each application. The report will indicate the decision of the
Central Bank whether to grant or refuse the license.

1.5 Regulatory reporting requirements


The Central Bank requires all banks to submit weekly, monthly
and quarterly returns. These returns are standardised, and the
formats can be found on the regulators website.
In addition to the periodical returns, every bank should submit
its annual financial statements for approval before publishing
them.

Liquidity Requirements:

Credit Requirements:
A financial institution may not grant credit facilities to a
single or a group of individuals which is more than 25% or
more of its total core capital.
A financial institution may not have exposures that exceed
800% of its total capital.
A financial institution should not grant credit facilities to
any of its affiliates and associates, directors, persons with
executive authority, substantial shareholders, or to any of
their related persons or their related interests, except on
terms which are non-preferential.
Non compliance with regulatory requirements results in the
imposition of penalties by the regulator.

1.7 Banking supervision


Generally, banking supervision in Uganda is conducted on a
solo process.

1.8 Global financial crisis response


In response to the global financial crisis, the Bank of Uganda
(the Central Bank) has increased capital requirements for all
commercial banks to UGS 25 billion (USD 10 million) by
March 2013.

1.9 Deposit insurance scheme


The Deposit Protection Fund in Uganda was established in
1994, following the first Bank closure in November 1993. All
deposit-taking financial institutions are required to maintain
a certain amount of cash (deposit protected) for each period
(determined by the Central Bank) and this is communicated
to the accounting officer by the supervision department. This
amount is deposited with the Central Bank.

Section 2
Commercial, Legal and Tax Environment

1.6 Important banking regulatory requirements


There are several regulatory requirements. Important
requirements include:

2.1 Process for establishing a new company


Every new company is to be registered with the Registrar of
Companies.

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Financial Services | 65

122
32.3 million (2009 estimate)

UGX 1 = USD 0.0004


UGX: Uganda Shilling

$17.7 billion (2010 estimate)

Benson Ndungu
T: +256414340315
E: bndungu@kpmg.com

To set up as a limited company in Uganda, several prescribed


documents and forms are required to be completed and sent
to the Registrar of Companies. This takes on average 17 days.

PAYE - This is paid by employees and is according to


income bands.

2.2 Foreign investment in local companies

2.10 Branch taxation

To facilitate a foreigner buying a local company, the following


requirements must be met:

There is a difference in the taxation of branches and


subsidiaries. Branches are taxed based on a formula stated
in the Uganda Income Tax Act.

A special resolution authorising the sale.


A sale of shares agreement must be drawn up and signed
by both the buyer and local company.
A sale of shares agreement is to be registered with the
Registrar of Companies.
A transfer of shares stock form is completed and filed with
the Registrar of Companies.
A share certificate must be issued by the Registrar of
Companies to the new owners of the company.

2.3 Annual costs


There are annual trading license fees payable to the
city authority, and these may vary from year to year. All
companies are required to file audited financial statements.

2.4 Restrictions on foreign investment


There are no restrictions. The Ugandan government set up an
Investment Authority to encourage direct foreign investment.

2.5 Dividend remittance


Dividends may be remitted abroad, and there are no
restrictive currency regulation laws.

2.6 Intellectual property rights


The Copyright Act was in enacted to protect intellectual
property (IP) but, in practice, it is poorly enforced, and IP
rights are poorly protected.

2.7 Sustainability and the environment

Various withholding taxes.

2.11 Tax rates


There are two types of taxes for individuals i.e. Pay as You
Earn (PAYE) and Local Service Tax (LST). These are
based on a progressive scale.
For collection purposes, the employer is obliged to withhold
these taxes and remit them to the tax authority.

2.12 Tax returns


PAYE, V.A.T and withholding tax must be submitted by the
15th day of the following month.
Generally, a final corporation tax return is required to be
submitted not more than six months following the financial
year end of a company. In addition, a provisional return is
required to be made at the half year. A filing extension may
be obtained from the Uganda Revenue Authority.

Section 3
People
3.1 Skills availability
There are generally no major skills gaps in the market for
low and mid entry points. Most of the low level staff are
university graduates, who learn on job. Skilled resources
can be expensive, and it is sometimes difficult to find senior
experienced bankers.

The National Environment Management Authority (NEMA)


regulates the legislation. The regulations are relatively new,
and enforcement is not uniform.

In order to improve skills, the Uganda Bankers Association


(UBA- the body that unites all banks) decided to tailor a
diploma that is recognised internationally for the local market.

2.8 Anti-money laundering

3.2 Foreign nationals

There is currently a bill in parliament for anti-money laundering


that is yet to be passed into a law. However, the Central Bank
has enforced the Basel accords on operational risk, therefore
requiring all commercial banks to enforce KYC and AML
procedures.

2.9 Tax regime


Major taxes applicable to companies include:
Corporation Tax - 30% of a companys taxable profits.
Value added Tax (VAT) - 18%, financial services are exempt
from VAT with the exception of leasing products.

Companies may use ex pats. However they will require a


work permit granted by the Department of Immigration.
For financial institutions specifically, the Central Bank has to
approve the appointment of any resources (both local and
foreign expatriates) in managerial positions as well as board
members.

3.3 Labour legislation


There is an Employment Act, and it contains clauses that
regulate the employee-employer relationship, including leave,
pension and conditions of employment.
There is, however, no minimum wage prescribed in the bill.

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3.4 Trade union presence

4.4 The taking of Security

Uganda does not have a significant trade union presence.

Generally, there are no restrictions on the taking and


perfecting of security, except for the following:

3.5 Hiring and Firing of employees


There are no specific restrictions on hiring or firing employees.
However, precedence has been set that employers have to
compensate employees if they have to terminate employment
contracts, even if the employee is in the wrong.

3.6 Contractors
Generally there are no restrictions on the use of contractors.
However, the regulator regularly monitors the employment
contracts of all managerial positions for commercial banks.

3.7 Retirement and Medical Aid


All employers with more than five employees are required to
contribute to the National Social Security Fund. The employer
contributes 10% and employee 5%. Some companies,
including banks, have established in-house pension funds
in addition to the statutory social security contribution. It is
not a requirement to have a medical aid fund; however most
employers, including banks, have medical insurance cover for
their employees and their immediate families.

Section 4
Banking Environment
4.1 Major loan and deposit products
Loan products
Mortgages, working capital loans, personal loans (unsecured
loans based on salary) and card products (card products are
new in the market, and quickly becoming popular).
Deposit products
Current accounts (corporate and individual) and fixed deposits
(time deposits).

4.2 Payments/clearing system


Settlement in Uganda can occur in the following ways:
Manual Banks go through a clearing house to settle their
payments or receive bills due to them.
Electronic Fund Transfer (EFT). Whereas this is electronic,
it takes the same number of days as the manual process.
Real Time Gross Settlement (RTGS).This is, as the name
suggests, the fastest means of settlement.

4.3 Insolvency provisions


The liquidation process is usually slow in Uganda. This is
because of the slow court proceedings (this applies to the rest
of the judicial system) in Uganda. On average it takes two to
five years to complete a liquidation process.

There is a restriction on offering listed banks shares as


security to the same bank;
Any loan that is between 25% to 50% of the core capital,
will require qualifying liquidating assets as security. These
qualifying assets include government securities, fixed
deposits held by the bank and secured by a lien, and other
qualifying assets as prescribed by the central bank.

4.5 Banking branch and IT infrastructure


Over the last four years, there has been increased branch
penetration in the country side with commercial banks
opening up more branches in the rural areas. This has been
enabled by an improvement in the IT infrastructure, as telecom
companies invest more in fibre optics, thus improving better
internet access.
Internet banking is relatively new in the market, with 7 banks
out of the 23 offering this service to customers. It is generally
still seen as a white-collar product, given the relatively
limited internet usage.
There is limited use of mobile phone banking. This is an area
which still lacks awareness.

4.6 Active exchanges


Government securities (T-bills and T-bonds) and corporate bonds.

4.7 Banking sector overview


There are 23 banks in the market, with the top four banks
claiming over 70% of the market share and profitability.
The sector is dominated by multinationals, who have an edge
over the local banks in terms of capital support and skills.
The formal sector is dominated by multinationals, and these
prefer to bank with fellow multinationals. The country is largely
rural, with about 29 million out of the 32 million people being
unbanked. The most banked area is the central business
district, with the most bank branches in a small area. Oil and
gas was recently discovered in the country, and this will
present an enormous opportunity for growth in the Banking
sector. The discovery of oil has caused many companies (even
those that are non energy related) to register, awaiting the
production of oil.

Section 5
Physical Environment
5.1 Property ownership
Anyone may own property in their own right irrespective of
their nationality. The only exception relates to land, whereby
a non-Ugandan can only own a leasehold land (this includes
foreign-owned companies).

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5.2 Transport infrastructure


Roads are the most commonly used transportation
infrastructure in Uganda, accounting for more than 90% of
cargo freight and passenger transportation. Uganda has about
78,100 km of roads. Only 3,000 km are paved, and most roads
radiate from Kampala.

the world. Uganda has the second youngest population in the


world, with about 50% of its population in their teen age.
The government introduced universal primary education
in 2006, and universal secondary education in 2011 to help
alleviate the levels of illiteracy. Between 2003 and 2008, 74%
Ugandans were literate.

The railway system has broken down and now has only
one route that connects the capital Kampala to the port of
Mombasa in the neighbouring Kenya. There are, however,
efforts by the East African governments to revitalise the
railway system.

Life expectancy is 52.7 years. There are several ethnic groups


in Uganda. Uganda has freedom of worship, with the majority
of the population practising Christianity.

Uganda has one international airport Entebbe international


Airport - with several other regional airstrips.

There is a slow but steady growth of a middle class, which has


led to demand for better health and housing.

5.3 Communications infrastructure

5.7 Trading partners

The communications infrastructure is regulated by the Uganda


Communication Commission (UCC), which is responsible
for overseeing the communication sector players in the
country.

Kenya provides the nearest reach to the coast for Uganda


(which is a land-locked country) and several services and
products are imported from Kenya.

There are currently five major telecommunication companies


carrying out mobile phone and internet services in the country.
There has been a recent decrease in quality of services
provided by the larger telecom companies, due to large
unanticipated growth in the number of subscribers.

America supplies technological products, and South Sudan is


the main Importer from Uganda.

5.4 Political environment


After decades of internal strife, Uganda has experienced
more than 20 years of relative political stability and economic
growth. However, rampant corruption and one of the worlds
highest population growth rates present challenges to the
countrys continued economic growth and political stability.
Ugandas constitution provides for freedom of speech,
religion, and movement. Press and civil society enjoy relative
freedom.

5.5 Economic overview


Uganda has substantial natural resources, including fertile
soils, regular rainfall, small deposits of copper, gold, and
other minerals, and oil was recently discovered. Agriculture
is the most important sector of the economy, employing
over 80% of the work force. Coffee accounts for the bulk of
export revenues and more recently, repatriations of funds by
Ugandans in the diaspora have also contributed significantly to
revenues.
Oil was discovered in Uganda, and oil experts estimate
Ugandas Albertine Basin has at least two billion barrels of
recoverable oil, positioning Uganda to become one of subSaharan Africas top oil producers. This could potentially
double current government revenues within 10 years.
GDP at was estimated at USD 17.7 billion in 2010.

5.6 Social environment


The population of Uganda in 2009 was 32.7 million people,
growing at an estimated rate of 3.3%, one of the fastest in

The official language is English, but Luganda (local dialect) is


widely used.

China is key for general accessories and fabrics, while most of


the 35 000 imported cars come from Japan.

5.8 Crime and corruption


The press reports that there is rampant corruption involving
government officials as well as private entities. The
government has set up departments to fight graft and
corruption.
In the last three years there has been a rise in white collar
crime involving bankers. However, the amounts involved are
not significant. On average, they range from (USD 500 to
USD 50 000 est.).

5.9 Language
English is the official language and is the one used for business
transactions.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
Uganda has adopted International Financial Reporting
Standards (IFRS) fully and has no areas of deviation.

6.2 Basel II and III


Uganda is implementing the Basel II accord in a phased
approach.

6.3 FATCA
FATCA has not yet been addressed.

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6.4 Anti Money Laundering (AML) laws/regulations


Whereas financial institutions are mandated by the regulator
to put in place procedures to track anti- money laundering,
there is currently no enacted law against money laundering.

6.5 Know Your Customer (KYC) laws/regulations


The regulator (Central Bank) requires banks to set up and
comply with KYC policies.

6.6 Annual financial reporting


It is a requirement by the Companies Act of Uganda for all
companies, including financial institutions, to have audited
accounts, and to submit them to the Registrar of Companies.

6.7 Governance structures


The Companies Act requires that companies have board
members and make annual returns of directors that held office
during the year. All financial institutions that are regulated by
the central bank are required to have board committees such
audit, risk and compensation. The board members have to be
vetted by the central bank.
Otherwise, there is no requirement for other companies to
have sub committees. This is only done in accordance with
best practise.

6.8 Government ownership and management


As a measure of reform, the government embarked on
divestment of all government-owned entities, to concentrate
on the provision of public services and regulatory functions to
the private sector. They are few non-regulatory or public goods
companies that the government still has a stake in.

6.9 External auditors


The Companies Act of Uganda requires all companies to have
annual financial statements audited by an external auditor
certified by the Institute of Certified Public Accountants
(ICPAU). In addition, the tax authority requires that all
companies registered for tax submit audited books of
accounts when making the final annual tax return.

6.10 Local regulatory developments or plans


The central bank is in consultation for the implementation of
Basel III pillars, and this may have an impact on the capital
required to open up a bank in Uganda.
The central bank is also in consultation for the opening up of
Islamic Banking in Uganda.

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Section 1
Regulatory
1.1 Regulatory regime
The Bank of Zambia (BOZ) is the Central Bank of Zambia,
and the regulator of the financial services sector.

1.2 Basel Accord status


The current statutory instruments were modelled around
Basel I requirements. However there is an upgrade planned to
bring the regulatory framework in line with the guidance
in Basel II and III.

1.3 Structure of supervisory body


The Board of the BOZ is appointed by the Minister of Finance
and National Planning. It is composed of seven members,
responsible for the formulation and implementation of
bank policy. Meetings are chaired by the Governor who is
supported by six directors.
The board members represent a cross section of academic,
professional and business with interests and experience in
financial, economic and other matters. With the exception
of the chair, all members of the board are non-executive
directors who serve renewable three year terms. One of
the six directors is the secretary to the Treasury who is
described as an ex-officio or non voting member. BOZs
management team is led by the Governor, who has two
deputies responsible for operations and administration
respectively.

1.4 Banking licence application


In order to acquire a banking license, the promoters of the
bank must complete and submit various prescribed forms
and documents to the Registrar of Banks and Financial
Institutions. BOZ pledges to reach a conclusion on the status
of the license within 180 days from the date that a completed
application is submitted.
Non-bank entities from a banking group require independent
regulatory approval. They are required to disclose that they
form part of a larger group structure. A decision on whether
or not to grant the license will be reached within 180 days.

1.5 Regulatory reporting requirements


The BOZ conducts regular spot visits to ensure compliance
with the Banking and Financial Services Act (BFSA). All
banks are mandated to submit monthly prudential returns to
BOZ. The necessary forms are standard and electronic. Banks
are required to publish quarterly financial statements in a daily
newspaper with national circulation.

1.6 Important banking regulatory requirements


Banks are required to comply with various ratio requirements
determined by the regulator. Included in these are:

Capital and liquidity:


Banks are required to have a minimum start up capital of
ZMK 12 billion (USD 2.4 million).
Bank and financial institutions shall maintain a minimum
total capital equivalent of not less than 10% of its total riskweighted assets and off balance sheet exposures.
Primary or tier one capital shall be a minimum of 5% of the
banks or financial institutions total risk-weighted assets.
Foreign exchange:
Banks shall maintain their overall foreign exchange
risk exposure as at the close of each business day to a
maximum of 25% of its regulatory capital.
At no time shall the total of the foreign exchange risk
exposure exceed 40% of the bank or financial institutions
regulatory capital.
Reserves:
All banks must maintain a reserve fund that is no less than
50% of distributable profits insofar as the reserve does not
exceed half of the paid up capital of the bank, or 20% of
such profits, up to the level of paid up share capital.
Breaches can result in de-registration of the bank, or the
regulator can take possession of the bank.

1.7 Banking supervision


Banking supervision is conducted on a consolidated basis.

1.8 Global financial crisis response


There have been no specific supervisory responses
implemented in Zambia as a result of the global financial
crisis.

1.9 Deposit insurance scheme


There is no specific deposit insurance in Zambia.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
The initial step towards incorporating or registering a
company is to complete a name clearance form requesting for
a particular proposed name to be cleared with the Registrar.
There are a number of required forms and fees payable to the
Registrar. Upon receipt of completed application, the BOZ will
within 180 days make a decision on granting or refusal of the
license.
To operate a bank in Zambia, the bank must be licensed by the
Registrar of banks and financial institutions (the Registrar)
at the BOZ.

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76
12.9 million (2009 estimate)

ZMK 1 = USD 0.00019


ZMK: Zambian Kwacha

$13 billion (2009 estimate)

2.2 Foreign investment in local companies


At least 50% of the directors must be resident in Zambia.
Payment of Property Transfer Tax is levied on the greater of
5% of the market value of the shares or the nominal value of
shares. Upon calculation by the Zambia Revenue Authority,
VAT will be charged on the value of assets purchased.
Registration of the share transfer is required with the
Companies Registrars office.

2.3 Annual costs


External Audits are compulsory, and annual submission of
financial statements is a requirement. Annual returns of
ZMK 60 000 (USD 12) are payable.

2.4 Restrictions on foreign investment


With respect to companies, there are no restrictions on
ownership and shareholder levels. There is no distinction
in Zambian law between foreign and domestic investors.
Investors are free to invest in any sector of the economy and
are entitled to incentives. In the privatization process, foreign
investors are eligible to bid on state-owned companies.
Non-Zambians may also invest in the Lusaka Stock Exchange
without restriction and on terms comparable to those
received by Zambians.

Dumi Tshuma
T: +260211372900
E: dumitshuma@kpmg.com

the Act in relation to mining companies. They argue that the


ECZs supervisory function is inconsistent, and the penalties
for breaches are too low to deter polluters.

2.8 Anti-money laundering


Anti-money laundering in Zambia is governed by the
Prohibition and Prevention of Money Laundering Act. The
Bank of Zambia has the authority to act as the regulatory
authority giving effect to anti-money laundering regulations.
Procedures are in place, however monitoring is inconsistent.
To cite an example of this, at non bank financial institutions,
such as bureau de changes, it is possible to purchase
USD 5 000 over the counter, from multiple institutions,
without being detected.

2.9 Tax regime


Zambia has a number of taxes applied to companies,
including:
Corporate taxes of 35%. There are exceptions applied to
this, dependant on the industry and company - specific
turnover.
Withholding tax at 15% is payable on dividends,
management & consultancy fees and services from non
resident contractors.

Commercial banks have a separate set of rules detailed in the


Banking and Financial Services Act. Highlights include:

VAT of 16% is payable on services and most processed


goods.

A person with de-facto control of a bank may not own


shares in another bank.

Turnover tax for small businesses at 3%.

No single person may own more than 25% of bank. The


only exception to this is an organisation that is listed on an
international exchange such as the FTSE, NYSE or the JSE.

2.10 Branch taxation


No, treatment for branches and subsidiaries from a tax
perspective is the same in Zambia.

2.5 Dividend remittance

2.11 Tax rates

Dividends are capable of being remitted abroad. Zambia


has no restrictions on conversions of Kwacha into foreign
currencies. Foreign exchange is freely available at market
determined rates.

Individuals are taxed under the Pay as You Earn (PAYE)


system. Individual tax for employees is collected by the
employer through the payroll system on a monthly basis.

2.6 Intellectual property rights


Copyright and related rights are protected under the Copyright
Act under the Ministry of Information & Broadcasting. The
Patents and Companies Registration Agency (PACRA) is
mandated with the administration of three statutes under
Intellectual Property.

2.7 Sustainability and the environment


The regulator who covers issues of sustainable development
is the Environmental Council of Zambia (ECZ). Through
the Environmental Protection and Pollution Control Act they
have a comprehensive framework for management of the
environment.
The ECZ has been criticised by the media and key
stakeholders for their inability to enforce the provision of

Self employed individuals submit voluntary tax returns at the


year end and pay the corresponding tax. The tax bands extend
from 0% to 35% for individuals earning in excess of
ZMK 50.4 million (USD 9 500).

2.12 Tax returns


An estimate of the tax due for the tax year is made, and
an annual provisional tax return is submitted by 30 June.
Provisional tax payments are made quarterly. Annual tax
returns are due for submission by 30 September. Companies
whose financial year ends are after 30 June are required
to submit their income tax returns by 30 September of the
following.
PAYE returns and payments are due by the 14th day of the
month following the month on which is being reported.
VAT returns and payments are due by the 21st day of the
month following the transaction month.

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Turnover tax returns and payments are due by the 14th day of
the month following the transaction month.

Section 3
People
3.1 Skills availability
Skills are readily available, and training is offered at a number
of training institutions and colleges offering banking and
finance training. Banks in Zambia have a history of offering
good management development programmes.

3.2 Foreign nationals


Expats are generally welcome in Zambia, particularly where
they come to work in either new or expanded operations.
The new Government have stated their intention to make
companies that bring in expatriate staff commit to longer term
skills transfer programmes. Employers seeking to employ
expatriate staff are required to apply for work permits from
Immigration Headquarters.

3.3 Labour legislation


The labour legislation is comprised of three key statutes, the
Employment Act Cap 268, The Industrial and Labour Relations
Act Cap 269 and The Minimum Wages and Conditions of
Employment Act Cap 276.
Principles embodied therein are fair treatment, the equal
opportunity of women and the laws of natural justice that
provide for the other side to be heard and demand a process
to key employment decisions, such as termination.

3.4 Trade union presence


There are established unions in Zambia. However their
activities and importance have diminished over the course of
the last two decades. Outside of the Zambia National Union
of Teachers (ZNUT) and other civil service unions, strike
actions or go slows are uncommon. The largest of the unions
is the Zambia Congress of Trade Unions (ZCTU).

3.5 Hiring and Firing of employees


Zambian law places certain restrictions on the hiring and firing
of employees. There are restrictions on the hiring of persons
under the age of 15 years. There is prohibition of termination
of employment for reasons connected with pregnancy. There
is a general requirement to comply with both the provisions
of individual employment contacts and globally accepted
procedural norms.

3.6 Contractors
There are no specific laws on the use of contractors.

3.7 Retirement and Medical Aid


The only compulsory requirement is the membership to
National Pension Scheme Authority (NAPSA) which is the
national body partly owned by the government. All employees
in Zambia are required by law to be a member of NAPSA.
Membership to a medical aid fund is optional.

Section 4
Banking Environment
4.1 Major loan and deposit products
Loan products
Bonds, home loans (limited), car loans (limited), personal
loans and credit Cards (limited).
Deposit products
Fixed deposit, current accounts, savings accounts,
transaction accounts, online transact accounts (limited) and
mobile banking (limited).

4.2 Payments/clearing system


Zambia has an Electronic Clearing House (ZECH) which is
a joint venture between member commercial banks and the
Central Bank. It is also used as an Inter-bank clearing facility.
The main services currently offered by the Zambian
electronic clearing house are direct debits and credits clearing
(DDAC), Physical Interbank Clearing and Cheque Truncation
System.

4.3 Insolvency provisions


The insolvency provisions relating to the winding up of a
company are covered in the Companies Act. A company can
be wound up by the court or on a voluntary winding up basis.
When a company is wound-up, every member at the time
of the commencement of the winding-up shall be liable to
contribute to the assets of the company an amount sufficient
for payment of its debts and liabilities and the costs, charges
and expenses of the winding-up and for the adjustment of the
rights of the members among themselves.

4.4 The taking of Security


There are very limited instances on the restriction of taking
security. Perfecting security occurs on default, unless
prevented by a court order.

4.5 Banking branch and IT infrastructure


Zambian banks lack in serving customers efficiently. Only five
of the 18 commercial banks in Zambia offer internet baking.
Awareness of online and other services remains poor, even
among customers of the banks that offer them.

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Despite the technological evolution, many banking processes


remain either partially or entirely paper based, which requires
individuals to physically go to the bank.

4.6 Active exchanges


Government bonds, treasury bills and stocks traded on the
Lusaka Stock Exchange.

4.7 Banking sector overview


There are currently 18 registered commercial banks. The
banking sector in Zambia is based more on historical rather
than competitive factors, with many workers over 30 banking
with a particular institution because they opened their first
account there, rather than any differentiation in service or
product quality.
The Zambian banking sector has expanded rapidly over a short
period of time, as multinational banks invest in the country in
an attempt to tap into the large unbanked population.

Section 5
Physical Environment
5.1 Property ownership
In order to buy property, the buyer must be a Zambian
National, or hold permanent Zambian residency.
A limited company, or a foreigner with written permission
from the Commissioner of Land (who is the custodian of all
land),is also entitled to purchase property).

5.2 Transport infrastructure


Within urban areas, and Lusaka in particular, the road
infrastructure is reasonable. Closer to the CBD the roads are
quite good and are currently being redeveloped. However,
in squatter and peri-urban settlements, the roads and other
services are poor. The public transport network is not well
co-ordinated.
Within towns, public bus routes are generally poorly run,
and the routes are not clearly defined. Trains are poorly
maintained, and are primarily used for cargo haulage. Air
transport is efficient, but expensive.

5.3 Communications infrastructure


Zambias telecommunications infrastructure is controlled
by three networks. Mobile subscriber numbers have grown
rapidly over the last five years, and are believed to be in the
region of 6 million users. The voice network quality of the
service is variable, and congestion is a growing concern.
Internet access is intermittent and deteriorates outside of the
major urban areas.
In recent years, both pricing and penetration have improved.
Two of the service providers are rolling out fibre optic
networks and interlinks to undersea cables, that are

expected to increase bandwidth and improve the reliability


of the services offered. Two of the mobile networks have
announced plans to roll out 3G services before the end of
the year.

5.4 Political environment


The political environment can be described as very stable.
The United National Independence Party (UNIP) ruled
from 1964 to 1991, when the Movement for Multi Party
Democracy ousted it in polls that ended years of a one party
state.
The MMD ruled through four terms and a further two
Presidents. The 2001, 2006 and 2008, elections won by
the ruling MMD were closely contested, and they lost the
Presidency to the Patriotic Front in 2011. In a peaceful
transition, the president accepted electoral defeat and handed
over power.

5.5 Economic overview


Key economic activities are mining, agriculture, transport and
financial services. The Zambian economy has historically
been based on copper mining, however this has shown a
sharp decrease in more recent times. Agriculture plays a very
important role in the Zambian economy.
Zambias recorded GDP for the year 2010, was USD 20 billion.
On average, Zambias GDP has grown at a rate of 6% over the
past 11 years to 2010, whereas the world economys GDP
has grown an average of 3.8% over the same period.

5.6 Social environment


Zambia is described as a middle income country. However
social amenities have not developed at the same rate as the
population, or the economic gains of the last decade.
According to the Ministry of Local Government and Housing,
there is a housing deficit of two million units.
The healthcare infrastructure, most of which was constructed
in the 1970s, is run down and requires expansion.
There are not enough primary, basic and secondary schools.
There are only two publicly funded Universities in Zambia vs.
a population of close to 13 million people.

5.7 Trading partners


Zambias major trading partners are led by South Africa
with whom it is estimated they hold a 51% share of trade.
Other trading partners include Switzerland, China, DRC and
Zimbabwe.

5.8 Crime and corruption


Zambian crime levels are low. Armed robberies and other
violent crimes do occur, but the frequency does not create a
source of concern for most Zambians. Access to firearms and
other weapons is tightly regulated.

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5.9 Language
The official language of Zambia is English. English is the
medium of instruction in schools, and is used to conduct
official business.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
International Financial Reporting Standards (IFRS) is widely
applied, as it is the only universal accepted financial reporting
framework in the country.

6.2 Basel II and III


Currently Zambian banks operate under Basel I, although the
central bank is planning to upgrade to Basel II and III in the
near future.

6.3 FATCA
FATCA has not yet been addressed.

6.4 Anti Money Laundering (AML) laws/regulations


Anti-money laundering in Zambia is governed by the
Prohibition and Prevention of Money Laundering Act. The
Bank of Zambia has the authority to act as the regulatory
authority giving effect to anti-money laundering regulations,
by having in place anti-money Laundering measures and
adopting such practices as are necessary for the detection
and prevention of money laundering.
Though the procedures are in place, the monitoring is
inconsistent.

6.5 Know Your Customer (KYC) laws/regulations


KYC requirements are enforced by Bank of Zambia.

6.6 Annual financial reporting


Annual financial reporting is a mandatory requirement for all
companies, under the Companies Act of Zambia.

6.7 Governance structures


Most companies have appropriate governance structures,
including audit committees. However in most instances these
structures are not effective, except in large corporates and
the banks regulated by the Bank of Zambia.

6.8 Government ownership and management


Government ownership in Zambia remains very high. Key
power, water, insurance and other market leaders are either
partially or entirely government owned.

6.9 External auditors


Zambian law requires all companies following under the
Companies Act of Zambia to appoint an external auditor.
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Section 1
Regulatory
1.1 Regulatory Regime
The single regulator in Zimbabwe is the Reserve Bank of
Zimbabwe (RBZ).
Zimbabwe predominantly uses an Institutional approach,
as all registered banks are regulated by the single regulator.
Where banks are part of a group which includes, for example,
building societies, leasing operations and stock broking
entities, further regulation may be applicable, and thus a
functional approach may be used. For example, stock broking
firms are regulated by the Securities Exchange Commission.

1.2 Basel Accord status

Regulatory capital:
For commercial banking institutions, minimum tier-1 capital
of USD 12.5 million is required.
Liquidity:
Banks should maintain a liquid asset ratio of 30% as a
minimum, sound liquidity and a quality asset book.
Other:
There is currently no predetermined loan to deposit rate
for the market, but banks are persuaded to use internal risk
management processes in deploying resources to quality
assets, pursuant to economic growth.
Currently the country does not have the luxury of using its
own currency.
The functional currency is the United States Dollar. The
other major currency is the South African Rand.

The regulator follows international best practice, although


the current operating environment has restricted the pace
of adoption of some international best practices. Basel II
implementation is currently in progress, using the modified
standardised approach. Full Basel II compliance is expected
by 31 December 2012.

The regulator requests full compliance, and non-compliance


may trigger withdrawal of the banking licence or persuasion
to merge with another banking institution.

1.3 Structure of supervisory body

1.8 Global financial crisis response

Bank supervision is the prerogative of the Central Bank. The


bank supervision unit is within the Central Bank, under a Bank
Supervision Divisional Chief. This office reports directly to
the Governor of the Central Bank. On-site bank investigations
are carried out every five years, whilst desk top audits are
performed annually.

There was no specific response, except to learn from the


global financial crisis. The market is expected to exercise
caution and apply sound judgement when dealing with
institutions and regional blocs in, or experiencing, financial
turmoil.

1.4 Banking licence application

Zimbabwe has a deposit protection scheme through the


Depositor Protection Board (DPB) chaired by the governor
of the Central Bank. Membership is mandatory, and it
includes all deposit taking institutions i.e. commercial banks,
building societies and merchant banks. Deposits with asset
managers and the Post Office Savings Bank are currently not
covered by the DPB. DPB will strive to compensate at least
90% of depositors in full in the event of a bank failure.

An application is required to be submitted to the Registrar of


Banks. The RBZ can issue a banking license, provided that the
party concerned meets the licensing criteria. A decision on
the status of the licence can take up to three months.
Foreign applicants are considered for licensing, only if
they are authorised to conduct banking business in their
home countries and are subject to adequate regulation and
supervision in their home countries.
Non-banking entities in a banking group require regulatory
approval.

1.5 Regulatory reporting requirements


The Central Bank requires weekly statutory and liquidity
returns, monthly management accounts, quarterly and interim
financial statements (90 days following reporting date).
The returns are standard across banks and automated i.e.
submitted electronically to the Central Bank.

1.6 Important banking regulatory requirements


The following are the most important banking regulatory
requirements:

1.7 Banking supervision


Banking supervision is performed on a consolidated basis.

1.9 Deposit insurance scheme

Currently the maximum insurable limit is pegged at


USD 150 per depositor per bank.

Section 2
Commercial, Legal and Tax Environment
2.1 Process for establishing a new company
An application is made to the Registrar of Companies for the
reservation of a name, accompanied by various prescribed
documents. Once approved, a Certificate of Incorporation
is issued. Applications are made to the Central Bank in the
required format.

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Financial Services | 77

157
12.5 million (2009 estimate)

ZWD 1 = USD 0.00266


ZWD: Zimbabwian Dollar

$5.5 billion (2010 estimate)

Themba Mudidi
T: +2634302600
E: tmudidi@kpmg.com

Once the company is appropriately registered, it should be


registered for tax purposes. This requires completion of the
respective tax registration forms and submission of various
specified documentation. Estimated time for this process is
six weeks.

the association with key international anti-money laundering


control agencies. The banks use Promotion and Suppression
of Money Laundering Act, which is the primary piece of
legislation governing the conduct of financial institutions and
their employees in relation to money laundering.

2.2 Foreign investment in local companies

2.9 Tax regime

Foreign investors must obtain an investment licence from the


Zimbabwe Investment Authority (ZIA). They are required
to comply with indigenisation requirements/regulations with
regard to shareholding. The investor must obtain Exchange
Control authority to operate banking business and register
with the Registrar of Companies in Zimbabwe.

The Zimbabwe taxation system is source based, but reforms


to adopt the residency based system are already at an
advanced stage. The following are inter alia the broad types of
taxes applicable to companies:

2.3 Annual costs


External audits are a requirement for listed entities, however,
these are not compulsory for all private entities. Fees are
payable to the Registrar of Companies on a sliding scale,
depending on the issued share capital. Entities where share
capital is in excess of USD 26 000 are required to pay USD
140 per annum. Certain lodgements of prescribed documents
carry a lodging fee of USD 100.

2.4 Restrictions on foreign investment


Indigenisation requirements must be adhered to in order for
foreign investments to be permitted. Taxation clearances
are required on disinvestment, and may result in payment
of capital gains tax, depending on the nature of the
disinvestment. Compliance is required with Exchange Control
regulations for repatriation of proceeds from disinvestments.

2.5 Dividend remittance


Non Resident Shareholders Tax (NRST) is payable on
dividend distributions to non-resident shareholders. Resident
Shareholders Tax (RST) is payable on dividend distributions to
local shareholders other than locally registered companies. All
amounts remitted are subject to Exchange Control regulations
in respect of funds availability.

2.6 Intellectual property rights


Intellectual property laws in Zimbabwe cover such areas as
domain names, traditional knowledge, transfer of technology,
patents/copyrights, etc. Zimbabwe is also party to several
international intellectual property agreements.

2.7 Sustainability and the environment


Business operations which have an adverse impact on land
and the environment are required to undertake rehabilitation
action and submit an environment impact assessment report
every year with the relevant ministry.

2.8 Anti-money laundering


The country adheres to international best practice in
connection with anti-money laundering and control through
adoption and adherence to stringent KYC principles, as well as

Corporate Tax (CT) which is levied at 25%. In addition a 3%


AIDS Levy on the tax is payable, making the effective tax
rate 25.75%.
Value Added Tax (VAT) is levied at 15% for standard goods
and services, and 0% for specified goods and services.
Withholding tax (WHT) mainly levied at 15%, subject to
the provisions of any double taxation agreements (DTA)
between Zimbabwe and such other country.
Capital gains tax (CGT) - the normal rate is 20% on the gain
in respect of specified assets.
Listed securities are taxed at 1% of the gross proceeds
as a final tax, whilst unlisted securities are subject to a
withholding tax of 5% of gross proceeds.
The sale of certain immovable property is subject to WHT
of 15% of gross proceeds.

2.10 Branch taxation


There are no different treatments for the taxation of branches
and subsidiaries. The corporate tax provisions apply to income
derived from trade and investment operations.

2.11 Tax rates


Individual employees tax is administered through the Final
Deduction System (FDS) which is software based and
administered by the employers. Individuals who have no
other sources of income other than employment income are
not required to file annual income tax returns. However, the
employer is required to file annual FDS returns. Income tax
varies from 0% to 45% for income earners in excess of USD
120 000 per annum.

2.12 Tax returns


Corporate entities are required to submit annual returns to
the Registrar of Companies within the first 18 months for a
newly registered company, and thereafter within every fifteen
months. Corporates are required to file provisional tax returns
quarterly, and an annual self assessment tax return by
30th April of the year following the end of the tax year, which is
January to 31 December.
The annual self assessment tax returns can be filed
electronically.

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78 | Africa Banking survey

VAT returns should be filed by the 25th of the month following


the end of the tax period. PAYE returns and payments should
be made by the 10th of the month following the month
in which the PAYE has been withheld. WHT returns and
payments should be made by the 10th of the month following
the month in which the WHT is deducted. CGT withholding
tax is due within three days of payment of the sale proceeds,
whilst the CGT return should be submitted within 30 days of
the sale.

Section 3
People

With regards to hiring, each organisation is required to have


an internal recruitment policy, but there are restrictions when
hiring ex-pats, as the one above.

3.6 Contractors
The use of contractors is tolerated, provided that the
period of employment is clearly defined in the contract
e.g. three months, six months. This is common in the NonGovernmental Organisations (NGO) sector where there are
donor funds, and the funds usually come for a specific period
and or project. When hiring someone, it is not permitted for
an employee to work for a period of more than three months
without a contract. Should the three months lapse, they are
deemed to become permanent employees.

3.1 Skills availability

3.7 Retirement and Medical Aid

Local learning institutions offer industry-appropriate diplomas


and degrees. The Institute of Bankers of Zimbabwe offers
banking diplomas, while the National University of Science
& Technology and the University of Zimbabwe offer banking
and finance degrees. There is limited knowledge in derivative
instruments, as the country has not had experience in these
for over of a decade.

There is National Social Security Authority (NSSA)


- a national pension scheme - which is compulsory. A
contributory scheme, where both parties contribute to the
monthly subscription. Over and above the NSSA, it has
become a common trend for organisations run mostly private
defined contribution pension schemes. The contributions
vary depending with an organisation. Medical aid and group
life assurance is not compulsory, but it is commonplace
for organisations to have these schemes in place. Some
organisations are moving towards a total cost to employer
model, where they will gross up all the benefits together
into one basic salary, which will then form the employees
monthly package.

3.2 Foreign nationals


Ex-pats are permitted only in cases where it can be justified
that the skill is not available locally, or where an exchange
program is in place. All ex-pat appointments have to be
approved by the Central Bank. Some of the foreign-owned
banks have expats in their local leadership hierarchies.
Immigration laws also require that ex-pats obtain work
permits.

3.3 Labour legislation


Zimbabwe has a number of labour laws in place. Key aspects
of this legislation include matters relating to employee rights,
termination of employment contract, remuneration and
deductions from remuneration, and employee dismissal.

Section 4
Banking Environment
4.1 Major loan and deposit products
Loan products
Short term loans, overdrafts and bankers acceptances.

3.4 Trade union presence

Deposit products

Each sector has a National Employment Council (NEC) that


covers employees below the managerial grade. Organisations
in these sectors are therefore encouraged to register their
employees with the NEC. The NEC represents all employee
welfare, from remuneration to welfare. The Zimbabwe
Banks and Allied Workers Union (ZIBAWU) represents the
interests of non-managerial employees in the banking sector.

Call accounts, savings and term deposits (fixed).

3.5 Hiring and Firing of employees

4.3 Insolvency provisions

Hiring and firing is required to be performed in compliance


with the Labour Act. It should be noted that this act supports
employees to a greater extent than the employer, making it
very difficult to fire employees. There are certain procedures
to be followed before an employer can fire an employee.

A company may be wound up, either by the court or


voluntarily by resolution of the members. Each of these has
very specific provisions with regard to process. Only upon
dissolution does the company cease to exist as a legal entity
and, even then, its existence may usually be revived within

4.2 Payments/clearing system


Payments are done through the Real Time Gross Settlement
System (RTGS), managed by the Central Bank. With the
adoption by all banks of the straight-through process (STP)
daily RTGSs have to be processed the same day.

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Financial Services | 79

two years on application by the liquidator or an interested


person.

4.4 The taking of Security


A borrower is restricted from providing himself as a guarantee
for intangible security. Depending on the security type, banks
apply a discount factor to establish the extent of coverage e.g.
moveable and immovable property.

4.5 Banking branch and IT infrastructure


The enhanced ICT platforms have enabled most banks to
introduce internet and mobile banking services, and products
such as account balance enquiries, bill payments and money
transfers. Electronic banking is fast becoming popular in the
banking industry. Banking institutions have partnered with
mobile operators to provide various mobile banking and other
electronic-based products to the previously un-banked and
marginalized communities. However cash-based transactions
continue to be the order of the day, due to low confidence in
the banking system by the general public, the confidence is
increasing but at a slower pace.

4.6 Active exchanges


The Zimbabwe Stock Exchange is the main exchange. The
Commodity Exchange of Zimbabwe (that trades commodity
linked contracts) was launched in January 2011, but is yet to
start trading, due to funding constraints.

4.7 Banking sector overview


There are approximately 180 financial institutions in
Zimbabwe, including micro lenders (132) and asset
management companies. There is competition, with most
banks offering the same products. The market has a gap
for home and car loan financing, and partnering with mobile
network operators to provide products.

vandalised, and will need to be rebuilt. The NRZ is one of


the parastatals that has been earmarked for privatisation,
restructuring or commercialisation.
Air Zimbabwe is the main airline operator. The country is busy
upgrading its airport infrastructure.

5.3 Communications infrastructure


The telecommunications industry in Zimbabwe is one of
the fastest growing sectors in Africa. The voice penetration
rate has improved, reaching 68% in 2011, of which mobile
penetration accounted for 65% (18% in 2009). The internet
penetration rate is at around 13%.

5.4 Political environment


Zimbabwe has been under the administration of the
Government of National Unity (GNU) for over two years.
The GNU took effect in February 2009, following the
signing of the Global Political Agreement in 2008. Since the
formation of the GNU, the country has experienced relative
political stability and gradual economic growth. There was an
original general understanding that the GNU, as a transitional
arrangement, would subsist for a period of up to two years,
after which the country would choose its political leadership
in a combined general and presidential election. There is,
however, uncertainty on when the country will hold the
anticipated elections, as these depend on certain milestones
which are yet to be fulfilled. Chief among these is the revision
of the countrys Constitution.

5.5 Economic overview

Section 5

Zimbabwe experienced a positive GDP growth rate of


5.7% in 2009, for the first time in 10 years, and the betterthan expected performance in agriculture underpins this
growth rate. The economy grew by 8.1% in 2010 due to
improvements in the production of all minerals. Zimbabwe
holds reserves of chromite, coal, asbestos, gold, platinum and
copper. Historically farming and tourism formed Zimbabwes
main industries. GDP in 2010 is estimated at USD 5.6 billion.

Physical Environment

5.6 Social environment

5.1 Property ownership


The laws of Zimbabwe guarantee title of residential and
commercial property/land, except for agriculture land, which
is owned by the State. Farmers are given a 99 year lease that
allows them to use agricultural land. Foreigners are entitled to
purchase property.

5.2 Transport infrastructure


20% of the road network is classified as good, 40% is fair,
and 40% is poor and in need of resurfacing.
A large portion of the railway network is maintained by the
public sector through the National Railways of Zimbabwe
(NRZ). Portions of the railway network have been

There is a significant housing back log caused by ruralurban migration and expansion in urban settlements. The
Government since 2010 has availed USD 25 million through
the Infrastructure Development Bank of Zimbabwe for
housing projects in various localities.
Education is one of the sectors most affected by the brain drain
as qualified personnel migrated to neighbouring countries.
Prior to 2009, the economic challenges lead to a deterioration
of health infrastructure, loss of experienced health
professionals, drug shortages and a drastic decline in the
quality of health services. The health sector is currently
facing insufficient financial resources to procure essential
medicines, equipment and anti-retroviral therapy.

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80 | Africa Banking survey

The population is estimated between 12.2 and 12.4 million.

5.7 Trading partners


Zimbabwe has a number of trading partners. In terms of
exports, the following countries are included as Zimbabwes
trading partners: South Africa (56%), China (6%), United Arab
Emirates, Mozambique, Switzerland and Zambia each with
3%, and others.

5.8 Crime and corruption


It is difficult to get statistical data. Crime in Zimbabwe is
generally non-violent. There are, however, press reports of
police officers aiding criminals. Corruption is unfortunately
prevalent, and this has contributed negatively to the economy.

5.9 Language
Zimbabwe has three official languages English, Shona, and
Ndebele. The official business language is English.

Section 6
Governance and reporting Issues
6.1 IFRS implementation
Zimbabwe has a very active accounting and auditing
profession. Practising Accountants and Auditors are
registered with the Public Accountants and Auditors Board,
a statutory body.
The accounting framework used in Zimbabwe is International
Financial Reporting Standards (IFRSs), issued by the
International Accounting Standards Board (IASB).

6.2 Basel II and III


Basel II implementation is in progress in the financial services
sector. Full compliance is expected by 31 December 2012.

6.3 FATCA
FATCA has not yet been addressed.

6.6 Annual financial reporting


All business institutions/enterprises are required to formally
prepare annual financial statements. This applies to all
companies registered under the Companies Act, listed under
the Zimbabwe Stock Exchange (ZSE), or regulated by the
Reserve Bank of Zimbabwe.
The Zimbabwe Stock Exchange, listed entities, and banks,
are required to have their annual accounts audited.
Industry-regulated firms also have similar requirements to the
above. For instance, even if the bank or financial institution is
not listed, there is a requirement to have its annual accounts
audited. The same applies to municipalities and councils.

6.7 Governance structures


Listed entities, multinationals, industry-regulated firms like
banks (but not listed), and large firms, adhere to the King
Corporate Governance guidelines.
Most entities are constituted as follows: Main Board of
Directors, Audit Committee, Human & Remuneration
Committee and Risk (including IT, Credit, Market etc).
The RBZ has published corporate governance guidelines
that apply to all banking institutions.

6.8 Government ownership and management


Ownership by Government is not prevalent.

6.9 External auditors


Use of external auditors is mandatory for listed entities,
all banks regulated by the Reserve Bank of Zimbabwe,
multinationals, large corporate, municipalities and councils.
Auditors in Zimbabwe use the framework of the International
Standards on Auditing (ISAs), issued by the International
Auditing and Assurance Standards Board (IAASB).

6.10 Local regulatory developments or plans


Indigenisation & Economic Empowerment Act , which
requires that at least 51% of share ownership be in the hands
of local indigenous Zimbabweans, for all entities with share
capital of US$ 500 000.

6.4 Anti Money Laundering (AML) laws/regulations


AML laws in Zimbabwe can be considered to be fully
implemented. Details of parties to financial transactions are
required to be disclosed and confirmed as being clean
before conclusion of the transaction.

6.5 Know Your Customer (KYC) laws/regulations


All financial institutions and service sectors are expected
to comply e.g. banks, hotels, telephone and cellular service
providers. The Reserve bank of Zimbabwe enforces KYC
compliance for banks.

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Financial Services | 81

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82 | Africa Banking survey

COUNTRY
BOTSWANA

GHANA

KENYA

MAURITIUS

MOROCCO

NAMIBIA

NIGERIA

SENEGAL

BANK

REPORTING DATE

TOTAL ASSETS

TOTAL LIABILITIES

$000's

$000's

Barclays

31-Dec-10

1591240

1418930

First National

30-Jun-11

1794352

1637788

Stanbic

31-Dec-10

1225381

1169959

Standard Chartered

31-Dec-10

1446257

1361674

Barclays

31-Dec-10

913905

778668

Ecobank

31-Dec-10

849180

722104

Ghana Conmmercial

31-Dec-10

1179419

1039631

Standard Chartered

31-Dec-10

931045

821645

Barclays

31-Dec-10

2055022

1680589

Co-operative Bank

31-Dec-10

1832404

1591995

Equity

31-Dec-10

1593291

1256431

Kenya Commercial

31-Dec-10

2653992

2167563

Barclays

31-Dec-10

3045303

2754838

HSBC

31-Dec-10

1016594

952412

Mauritius Commercial

30-Jun-11

4840136

4528287

State Bank of Mauritius

30-Jun-11

2863265

2609354

Attijariwafa

31-Dec-10

35878672

32599714

BMCE

31-Dec-10

21900944

20050125

Group Banque Centrale Populaire

31-Dec-10

25181422

22493858

SG

31-Dec-10

8661697

7782813

Bank Windhoek

30-Jun-10

2091454

1885662

FNB

30-Jun-11

2082079

1848743

Nedbank

31-Dec-10

936748

827658

Standard

31-Dec-10

1870271

1680127

First Bank

31-Dec-10

9405709

10333189

Guaranty

31-Dec-10

4151193

4869509

United Bank for Africa

31-Dec-10

6179666

7960051

Zenith

31-Dec-10

6160266

9218163

CBAO

2010*

1313444

1150832

SGBS

2010*

1174495

1008600

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Financial Services | 83

EQUITY

NET INTEREST
INCOME

NON INTEREST
REVENUE

NET PROFIT
AFTER TAX

$000's

$000's

$000's

$000's

172310

136604

50571

68106

156564

90236

68796

78249

55422

31889

22772

14211

84584

65976

31008

30202

135237

93239

41706

33072

127077

60881

39689

33592

139788

158695

25962

31317

109401

85267

36439

40308

374433

186514

123168

126128

240409

109219

74083

52113

336860

131573

108732

89897

486430

220131

117666

104944

290465

74906

83668

78331

64194

21453

17830

13152

587206

416319

38717

148779

453604

232058

48932

60179

3278958

1041157

638479

555099

1850819

568214

289042

166676

2686363

919144

230597

358392

878884

315792

114252

130628

204769

87835

60401

42982

233337

109939

82219

56791

109090

46381

26452

18755

190144

65775

73803

40997

2184199

82859

83832

172666

1315177

486024

30424

234048

1203398

403378

290558

13891

2310345

538263

62455

213685

162612

84549

12249

15269

165895

65030

36192

33413

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84 | Africa Banking survey

COUNTRY
SOUTH AFRICA

TANZANIA

UGANDA

ZAMBIA

ZIMBABWE

BANK
Absa

REPORTING DATE
31-Dec-11

TOTAL ASSETS

TOTAL LIABILITIES

$000's

$000's

102666830

93739977

FirstRand

30-Jun-11

91369053

82697850

Nedbank

31-Dec-11

84580574

77705181

Standard

31-Dec-11

195414615

179490614

CRDB

30-Sep-11

1623926

1456090

Federal Bank of the Middle East

30-Sep-11

2329357

2169963

National Microfinance

30-Sep-11

1377438

1211523

NBC

30-Sep-11

1003946

899302

Citibank

31-Dec-10

264754

208818

CRDB

31-Dec-10

322895

276666

Stanbic

31-Dec-10

960059

868028

Standard Chartered

31-Dec-10

722894

631098

Barclays

31-Dec-11

863965

793488

Stanbic

31-Dec-11

798944

752840

Standard Chartered

31-Dec-11

871278

800418

Zambia National Commercial

31-Dec-11

877088

780371

BancABC

31-Dec-11

379384

343888

CBZ

31-Dec-11

981767

903500

Stanbic

31-Dec-11

361404

326856

Standard Chartered

31-Dec-11

325106

271109

Note 1: Some groups incorporate the results of non-banking activities


Note 2:
Bank names may be abbreviated
Note 3:

Transalation and rounding may cause slight differences in balancing

Note 4: Although these figures were extracted from the public domain, some may be unaudited
Note 5: All numbers are translated as at 17 March 2012 with the exception of Nigeria where date of translation
is 31 December 2010
Note *: Senegal not on IFRS

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Financial Services | 85

EQUITY

NET INTEREST
INCOME

NON INTEREST
REVENUE

NET PROFIT
AFTER TAX

$000's

$000's

$000's

$000's

8926853

3187985

2793092

1329012

8671203

2675381

3111642

1533636

6875393

2353437

2011266

848642

15924002

3761924

3879113

1590665

167834

24476

15021

10651

159394

14545

12346

7191

165914

29366

13728

12396

104643

13728

9011

5089

55935

11576

9056

10515

46229

36424

11689

11759

92035

69084

46564

28833

91796

48898

26421

29208

70477

57168

44306

34716

46104

43034

40193

14550

70860

48908

44828

25166

96717

73949

43482

23291

35496

19876

16584

7253

78267

70631

35153

24698

34548

25342

31046

11146

53997

14481

45778

21990

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Contacts
Botswana

Nigeria

Gerry Devlin
T: +2673912400
E: gerry.devlin@kpmg.bw

Bisi Lamikanra
T: +23412718962
E: bisi.lamikanra@ng.kpmg.com

Ghana

Senegal

Nathaniel Harlley
T: +233302770454
E: nharlley@kpmg.com

Pape Bocar Gueye


T: +221338492727
E: pbgueye@kpmg.sn

Kenya

South Africa

Eric Aholi
T: +254202806000
E: ericaholi@kpmg.co.ke

Richard Buchholz
T: +27116476204
E: richard.buchholz@kpmg.co.za

Mauritania

Tanzania

Pape Bocar Gueye


T: +221338492727
E: pbgueye@kpmg.sn

Ketan Shah
T: +255 22 2118866
E: kshah@kpmg.co.tz

Mauritius

Uganda

Ashish Ramyead
T: +2304069885
E: aramyead@kpmg.com

Morocco
Jamal Saad El Idrissi
T: +212537633702
E: jsaadelidrissi@kpmg.com

Namibia
Silvia Rosado
T: +26461387500
E: srosado@kpmg.com

Benson Ndungu
T: +256414340315
E: bndungu@kpmg.com

Zambia
Dumi Tshuma
T: +260211372900
E: dumitshuma@kpmg.com

Zimbabwe
Themba Mudidi
T: +2634302600
E: tmudidi@kpmg.com

We acknowledge with thanks the permission we have received to publish the Ease of Doing Business Rank 2011 which formed part of a co-publication by The World Bank and The
International Finance Corporation entitled Doing Business in 2011 Making a Difference for Entrepreneurs ( 2010 The International Bank for Reconstruction and Development/World Bank).
The Ease of Doing Business Rank is a worldwide ranking, based on 9 criteria, being Starting a Business, Dealing With Construction Permits, Registering Property, Getting Credit, Protecting
Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts and Closing a Business. The survey included data from 183 countries.
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The survey shall not in any way constitute advice or recommendations regarding whether or not the reader or any third party should proceed with a proposed transaction and/or regarding any
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The information contained in this survey is based on prevailing conditions at 17 March 2012. KPMG has not undertaken to nor shall KPMG be under any obligation in any circumstances to update
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