A SURGE OF FOREIGN BANKS IN DJIBOUTI

UNCLAS SECTION 01 OF 02 DJIBOUTI 000783

SIPDIS

SIPDIS

STATE FOR AF AND AF/E
LONDON, PARIS FOR AFRICA WATCHER

E.O. 12958: N/A
TAGS: PGOV ECON EINV EFIN DJ
SUBJECT: A SURGE OF FOREIGN BANKS IN DJIBOUTI


1. (U) SUMMARY. A branch of the Saba Islamic Bank (SIB) based
in Yemen was inaugurated June 25, the first of three new
banks to open its doors in Djibouti. The Central Bank of
Djibouti has also approved establishment of the International
Commercial Bank (ICB) of Malaysia and the International Bank
of Yemen (IBY). Additional foreign banks have also begun the
licensing process. The arrival of these new banks is expected
to break the decade-long monopoly held by two existing French
banks and boost the local economy. END SUMMARY


2. (U) During the inauguration ceremony of the Saba Islamic
Bank (SIB),CEO Hamid Al-Ahmar (said to be the son of the
Speaker of the Yemeni Parliament) explained that the SIB
opened its first branch abroad in Djibouti following a
request made by the Djiboutian Government. Created in 1997,
the SIB has a capital asset of USD 30 Million, and its
shareholders include the Dubai Islamic Bank, the Islamic
Institution of Private Sector (based in Jeddah),and Yemeni
investors abroad and at home. The Djiboutian Branch is the
first branch of SIB abroad and plans exist to open other
branches in the near future.


3. (U) In his speech, Al-Ahmar cited the stability and
economic boom of Djibouti as the major reasons for the
opening of the branch. He called upon Djiboutians to use the
Islamic way of funding and contracting loans because it is
more licit than western-style banks that charge interest,
which is prohibited by Islam. Al-Ahmar assured the Djiboutian
government that the SIB will boost the local economy and
contribute to the financing of real estate and industrial
expansion projects in Djibouti. The SIB also indicated that
it is planning to offer competitive lending rates.

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International Commercial Bank
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4. (U) The Djiboutian Central Bank has also approved the
establishment of the International Commercial Bank (ICB),
owned by the former Malaysian Finance Minister Tum Daim
Zaibuddin. The ICB has deposited a capital of USD 1.7
Million, and Mr. Coreijelli Shivananda, a Malaysian national,
has been appointed as ICB Director General. The ICB is
renting a space close to the SIB and is planning to start is
activities in August 2006.

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International Bank of Yemen
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5. (U) The International Bank of Yemen (IBY) has been granted
temporary status, until it can provide the required deposit
of USD 2.8 Million since the IBY reportedly intends to
provide a wider array of services compared to the ICB or SIB.
It is believed that the IBY has influential shareholders in
Dubai, and a powerful Djiboutian shareholder, Abdourahman
Mahmoud Boreh.

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Other Foreign Banks
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6. (U) According to Djiboutian Central Bank officials, there
has been a sudden surge of foreign banks interested in
Djibouti. Reportedly, representatives from foreign banks have
consistently visited Djibouti in the last several months.
These banks are mainly based in the Middle East, and include
The Jordan-Kuwait Bank and The Persian Bank, a private bank
from Iran. There is also a proposal to open a postal bank,
which will offer its services to low-income customers who
cannot afford to open accounts in existing commercial banks,
due to the minimum account balance requirements these banks
impose.

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Licensing Requirements
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7. (U) Each bank must apply for a temporary license and
deposit USD 1.7 Million in a local bank, which is kept as a
guarantee in case of bankruptcy. The temporary license is
valid for one year, in which time the foreign bank muQ
complete all administrative procedures and begin its business
activities. Once the bank becomes fully operational, the

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Djiboutian Central Bank issues a permanent license.


8. (U) COMMENT. These foreign banks seem to be attracted by
the opportunities that could result from Dubai-based
investments in Djibouti's port and hotel industries. The
presence of a U.S. military base and its use of port
facilities could also increase the level of confidence in
foreign investors. The upcoming COMESA Summit could also be a
factor. An additional element is a banking regulatory
framework favorable for financial investors. Djibouti already
serves as a banking hub in the Horn of Africa, with customers
from Somalia and Yemen. Many international organizations and
embassies based in Ethiopia utilize Djiboutian banks due to
fewer restrictions.


9. The two existing French banks in Djibouti claim that these
new foreign banks will not constitute a threat for them,
having secured loyalty from their clients. In addition, the
existing banks believe that the new foreign banks will
probably face bankruptcy, as they did in the eighties.
However, the French banks seem to ignore the fact that
current political and economical conditions are much more
favorable than in the eighties. These new banks are likely to
have success if they simply offer better services and
treatment than the French banks, which are less and less
favored by Djiboutians. Moreover, the local population,
predominantly Muslim, seems particularly interested in
utilizing an Islamic bank. END COMMENT.
RAGSDALE