CONGOLESE CENTRAL BANK OPERATIONS

C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 000724

SIPDIS

E.O. 12958: DECL: 04/29/2015
TAGS: EFIN KTFN ECON PTER PGOV CG
SUBJECT: CONGOLESE CENTRAL BANK OPERATIONS


Classified By: Econoff Peter Newman for reasons 1.4 b/d


1. (C) Summary: The Congolese Central Bank (BCC) is currently
undergoing strong scrutiny by the IMF. It has modernized its
methods of open market operations, but still has little
impact in most of the country due to the general weakness of
the banking sector. The lack of effective branch offices -
and in two provinces the lack of branches altogether - also
hinders the BCC's reach into the interior. Numerous money
transfer agencies remain outside the BCC's jurisdiction,
although the BCC heads the GDRC's anti-terrorist finance
team. End summary.

The Role of the BCC
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2. (C) The BCC has three main purposes. It is the banker for
the Congolese government. All disbursal requests should pass
from the Ministry of Finance to the BCC, which is not
supposed to grant any disburals requested outside of the
recently established electronic financial system. (Note: The
IMF has reiterated to the BCC that it must reject all
requests coming outside of the electronic system, even if the
refusal would be politically difficult. End note.) Second,
the BCC is responsible for money supply management. Last, it
regulates the entire banking system.

Managing the Money Supply - Open Market Operations
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3. (C) Until the GDRC signed an agreement with the IMF in
2002, the BCC managed the DRC money supply by making
individual sales to banks on a case-by-case basis. Due to
hyperinflation throughout the 1990s, adjustments of the
interest rate did not strongly affect the money supply.


4. (C) On the recommendations of the IMF, the BCC currently
uses the Holland Method of public tenders to determine the
price of Congolese francs on the market. It is looking for
the lowest exchange rate, or the rate that is closest to the
estimated market price. Once the price is set for the tender,
then all banks are required to pay the tender-determined
price. The BCC works with the Congolese Banking Association
to execute the tenders. Branch offices do not autonomously
perform open tenders, and BCC headquarters in Kinshasa must
approve all purchases and sales of currency. (Comment: This
limits the reach of the BCC into the interior of the DRC. The
lack of an integrated electronic network between BCC branches
and Kinshasa hinders communication and the approval process
for the branches. End comment.)


5. (U) There is not a significant number of banks operating
in the DRC. The primary banks and their ownership are:

-Banque Commerciale du Congo (BCDC) - Banque Belgolaise,
Congolese Government, and private investors

-Citibank - US

-Stanbic Bank - Standard Bank of South Africa

-Rawbank - locally-owned by the Rawjis, a Pakistani family
who arrived in the Congo in 1922, correspondent with Banque
Bruxelles Lambert

-Banque Internationale pour l'Afrique au Congo - multiple
investors including Natexis Popular Bank, Credit Agricole
Indisuez, and Banque Bruxelles Lambert

-Banque Internationale de Credit (BIC) - Belgolaise

-Banque Congolaise - Congolese and Lebanese ownership,
correspondent with Bank of Beirut and American Express Bank

-Union des Banques Congolaises (UBC) - Congo, parastatal

Of these, only BCDC, Rawbank, and UBC have branches in cities
other than Kinshasa. Some recently liquidated banks had
branches in multiple cities. Banking is essentially
non-existant outside of Kinshasa, Matadi and Lubumbashi.


6. (U) There are two microcredit banks currently operating:

-Trust Merchant Bank (owned by an Amcit resident of
Lubumbashi)

-ProCredit Congo (supported by IPC and German Technical
Cooperation)


7. (C) The BCC also adjusts interest rates to try to
stimulate changes in the money supply. It has recently raised
interest rates three times to try to curb speculation against
the franc. Adjusting interest rates has a limited effect on
the money supply, however, due to the extremely low levels of
savings and investment in the DRC.

Branch Offices
--------------

8. (C) The BCC has branch offices in all provinces except
North Kivu and Maniema. This is because those two provinces
were once combined with South Kivu to compose a single Kivu
province, with the provincial capital at Bukavu - now the
capital of South Kivu. The BCC is currently in the process of
establishing an autonomous agency in Kindu, Maniema. It,
however, is not yet considering placing an office in Goma,
North Kivu due to ongoing political complications. In places
where neither a branch office nor an autonomous agency exist,
the BCC signs agreements with a commercial bank operating in
those places (normally BCDC or UBC) to operate for the BCC.
This is currently the case in Beni, North Kivu.


9. (C) Although the BCC Governor previously had the right to
name all the branch office and autonomous agency managers, he
now must submit all nominations to the Conseil
d'Administration (Board of Directors) of the BCC.


10. (C) Branch offices are not permitted to buy and sell
currency without the approval of BCC headquarters in
Kinshasa. Furthermore, the branch offices can only hold up to
a few hundred million francs at any one time. At current
exchange rates, this limits the branch offices to about $5
million. Although for some branch offices, such as Mbandaka,
Equateur, $5 million is sufficient for day-to-day operations,
that quantity is insufficient in major trade zones, for
example Boma/Matadi and Lubumbashi.

Outside The System: Money Transfer Agencies
--------------


11. (C) Most money transfer agencies are outside of BCC
control. They operate with little regulation. They cannot buy
or sell currency with the BCC. Some agencies and "bureaus de
change" operate entirely informally.


12. (C) The BCC has granted certain agencies, including
Western Union and MoneyGram, special status. They are
nominally under BCC regulation and can do limited
transactions with the BCC.


13. (C) Given the presence of a major diamond market, weak
banking system, and rampant corruption in the government tax
and customs services, the potential for money laundering -
through customs fraud, money transfers, etc - is high. The
BCC recognizes the dangers unregulated money transfer
agencies and bureaus de change pose for criminal activity,
but is at present incapable of effectively bringing the
agencies under its surveillance.

Fighting Terrorist Finance
--------------


14. (C) The GDRC has established an interagency
counterterrorism task force. The BCC leads the terrorist
finance commission and maintains lists of terrorists,
including UNSCR 1267 and 1373 lists. Up to now, the GDRC has
neither seized any assets under UNSCR 1267 or 1373 nor has it
filed the necessary reports to the 1267 and 1373 commissions.
The BCC explained that the Foreign Ministry and the National
Security Advisor still need to clear the reports.

Comment
--------------


15. (C) The BCC is making strides with the IMF to liquidate
insolvent banks, better regulate the solvent ones, and
modernize BCC operations. In spite of the BCC's relatively
successful reforms, the banking system in the DRC remains
weak and will continue to be so until economic confidence
returns. The BCC's ability to manage the money supply will
continue to be severely restricted due to the lack of savings
in the economy and intra-governmental pressure to make
disbursals outside of the traceable electronic network. That
most commercial financial transactions occur informally will
also hinder the BCC's ability to monitor money laundering and
terrorist finance. End comment.
DOUGHERTY