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. -------------- International Commercial Bank -------------- ¶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. -------------- International Bank of Yemen -------------- ¶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. -------------- Other Foreign Banks -------------- ¶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. -------------- Licensing Requirements -------------- ¶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 DJIBOUTI 00000783 002 OF 002 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