* Banks very exposed to small number of large borrowers
* Raises risk that defaults could destabilise banking system
* Regional central bank implementing reforms
By Joe Bavier
JOHANNESBURG, July 12 (Reuters) - Heavy exposure to a handful of borrowers has endangered the banking sector in regional financial hub Ivory Coast and reducing that risk will be a slow process despite reforms, a senior analyst with rating agency Moody's said on Thursday.
Ivory Coast, one of Africa's fastest growing economies, accounts for around 30 percent of total banking assets in the West African Economic and Monetary Union, whose members share a common CFA-franc currency pegged to the euro.
Low banking penetration - only 15 percent of the population possess an account - and a lack of credit information, however, have pushed Ivorian banks to focus on what they consider reliable borrowers. These are often large private conglomerates or entities in which the state holds a stake.
"Asset concentration is very high," Olivier Panis, Moody's senior credit officer for Europe, Middle East and Africa financial institutions, told Reuters.
International Monetary Fund analysis took the outstanding loans to each Ivorian bank's five biggest borrowers, aggregated the figure and compared it to the total capital of the banking system.
It found lending to the five largest borrowers equated to 98.9 percent of the banks' capital.
"It means that, from Moody's perspective, there's a cliff risk if one of these large borrowers defaults, because it's very likely you'll find the same borrower in various banks and it would represent a very large amount of capital," Panis said.
Though 25 banks operate in Ivory Coast, the sector is dominated by the five largest, which represent around 60 percent of banking system assets. Four of those are owned by foreign banks with activities across the region.
They include the local units of France's Societe Generale , Togo-headquartered Ecobank as well as Banque Atlantique and SIB, controlled by Moroccan lenders BCP and Attijariwafa respectively.
"Because the large banks are part of pan-African banks, that creates cross-border risk," Panis said.
"That being said we also consider that you have solid Moroccan banks, solid French banks who can support the banks in (Ivory Coast) in case of financial stress."
As part of efforts to meet Basel III international regulatory standards, West Africa's central bank, the BCEAO, is implementing reforms including stricter credit concentration limits.
Though the changes should improve the credit environment, pushing the banks to diversify their lending clientele will not be immediate, Panis said.
"It will take time for banks to get comfortable with lending to SMEs and expanding their lending beyond a few blue chips, until sufficient credit information will be available from a recently created credit bureau," he said. (Reporting by Joe Bavier Editing by Alexandra Hudson)