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C O N F I D E N T I A L SECTION 01 OF 02 DAKAR 000553 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, EB/IFD/ODF, AF/EPS AND AF/W 
USDOC FOR 4510/OA/PMICHELINI/AROBINSON-MORGAN/KBOYD 
 
E.O. 12958: DECL: 03/03/2016 
TAGS: EFIN EINV ETRD SG
SUBJECT: CENTRAL BANK REGULATIONS FORCING CITIBANK TO 
REEXAMINE OPERATIONS 
 
 
DAKAR 00000553  001.4 OF 002 
 
 
Classified By: ECONOMIC COUNSELOR DOUG MEURS FOR REASONS 1.4 (B) AND (D 
). 
 
¶1.  (C) SUMMARY: Citibank officials are struggling with West 
African Central Bank (BCEAO) regulatory issues that make it 
difficult to meet Citibank's universal standard of full 
compliance with local banking regulations.  If these 
regulations cannot be modified, Citibank may be forced to 
shed important customers, endangering an already slimmed down 
portfolio.  Given that the local branch is at negative 
capital levels due to a write-off of Industries Chimiques du 
Senegal (ICS) debt, the continued presence of Citibank in 
this part of West Africa appears to be in question.  Embassy 
will conduct business advocacy on these issues with the BCEAO 
and the Ministry of Finance as appropriate.  END SUMMARY. 
 
¶2.  (C) On March 1, 2006, Citibank Director General Shirish 
Apte briefed us on the status of several regulatory problems 
stemming from Central Bank of West African States oversight 
of banking activity in Senegal.  He indicated that if the 
regulations cannot be modified, Citibank would be forced to 
drop substantial parts of its business portfolio in Senegal 
in order to remain in compliance.  Apte concluded that this 
potential reduction in activity combined with an ongoing 
write-off of debt incurred by Industries Chimiques du Senegal 
(ICS) would make it difficult to implement a profitable 
business model and justify re-capitalization of Citibank's 
Senegal operations.  Consequently, the possibility exists of 
Citibank drawing down its activities in what was once the hub 
of Citibank operations in West Africa. 
 
¶3.  (C) Apte mentioned three specific business problems: 1) 
restructuring of ICS debt and prevention of a regional 
banking crisis if local banks are forced to take provision 
for ICS debt; 2) BCEAO limits on foreign currency holdings; 
and 3) mandatory permission required for use of the 
rediscount window.  Apte believed that of the three, ICS was 
resolvable for Citibank as Citibank has already taken 
provisions for USD 20 million in ICS arrears.  However, he 
warned that the ICS standoff continues to threaten overall 
banking activity in Senegal and West Africa. 
 
ICS: CITIBANK SHOULD ORGANIZE LOCAL BANKS 
----------------------------------------- 
¶4.  (C) Apte stated that Citibank was the first local bank to 
close its books for 2005 according to BCEAO regulations. 
Accordingly, it had taken provisions for ICS debt and 
technically was now at "negative" capital levels.  He had 
told BCEAO executives that while local accounts were 
safeguarded by Citibank, Inc., the parent company, a decision 
to refinance the branch is contingent on whether two BCEAO 
regulatory issues that prevent Citibank from maintaining 
present levels of business can be resolved. 
 
¶5.  (C) Apte noted that BCEAO regulations allow local banks 
until June 30, 2006 to make a final report and close their 
books for 2005.  Immediate resolution of the approximately 
USD 180 - 250 million in exposure to ICS debt is not 
necessary.  However, Apte warned, if banks are forced to 
write-off this debt, most of them will fall to negative 
capital levels, and some local banks will be unable to 
recapitalize.  Banking activity in Senegal could be severely 
constrained, creating a regional banking crisis. 
 
¶6.  (C) Apte agreed that the local banking community needed 
to take a more proactive approach to negotiations, 
undertaking their own examination of ICS accounts and 
fashioning a restructuring plan.  He noted that most parties 
are hopeful that the Government will provide a sovereign 
guarantee for medium and long-term ICS debt.  Apte discussed 
a proposed debt restructuring and an eventual sale of the 
government interest in ICS to the Indian Farmers Fertilizer 
Cooperative (IFFCO), which owns 20 percent of ICS, and the 
Indian Government, which holds another seven percent.  In 
doing so, Apte commented, Indian interests would need to 
preserve capital for restructuring the ICS venture, perhaps 
putting proportionately more investment funds into 
strengthening transportation links to the Port of Dakar. 
Citibank, Apte said, was willing to play a more active role 
in brokering a comprehensive restructuring plan agreeable to 
all parties, given its existing business dealings with IFFCO. 
 
BCEAO LIMITS ON FOREX HOLDINGS 
------------------------------ 
¶7.  (C) Apte stated that Citibank has asked the BCEAO to 
 
DAKAR 00000553  002.4 OF 002 
 
 
modify present regulations on the size of foreign currency 
holdings by individual account holders.  Currently, those 
regulations do not exclude aid organizations and NGOs that 
may maintain substantial foreign currency levels in their 
accounts for long periods of time.  Apte stated that while 
BCEAO officials have privately expressed willingness to amend 
the regulations, the Banking Committee has denied Citibank's 
request.  Accordingly, given Citibank's policy of maintaining 
full compliance with local regulations, Citibank would have 
to drop several major customers in order to stay in 
compliance.  Citibank plans to raise this issue again with 
the Banking Commission in Cote d'Ivoire. 
 
BCEAO PROBLEM 2: OVERREGULATION OF THE REDEPOSIT WINDOW 
--------------------------------------------- ---------- 
¶8.  (C) Presently, the Central Bank required submission of 
all lending accounts that are seeking refinancing due to 
liquidity problems.  Apte noted that given ample, if not 
excessive liquidity in the WAEMU countries, there would not 
seem to be a pressing necessity to maintain this policy 
instrument in its present form if it impedes routine 
transactions with established clients.  In response, BCEAO 
officials have been reluctant to discuss modification of the 
regulation as they see close regulation of use of the 
rediscount window as an important tool in forcing banks to 
screen and classify accounts according to risk.  The BCEAO 
requires 65 percent of borrowers to be classified as low 
risk, qualifying for preferential interest rates. 
Historically, close regulation of redeposit activity has been 
linked to the Bank of France's close scrutiny of BCEAO 
activity prior to the 1994 devaluation. 
 
¶9.  (C) Citibank has submitted requests for refinancing for 
several large customers, including Shell and France Telecom 
and has yet to receive permission.  Instead, the BCEAO 
continues to issue letters notifying Citibank that it is not 
in compliance, causing potentially serious problems with 
audits and oversight by Citibank's home office and the U.S. 
Federal Reserve.  If the regulation is not changed, Apte 
said, to maintain compliance, Citibank would be forced to 
drop major clients, shrinking its balance sheet by 70 
percent. 
 
IMF ON BCEAO REGULATIONS: COMPREHENSIVE REVISION OVERDUE 
--------------------------------------------- ----------- 
¶10.  (C) IMF Resident Representative Ousmane Dore provided 
additional perspective.  He noted that BCEAO has a wide range 
of mandatory ratios that are routinely flouted by local and 
French banks in West Africa.  Dore believes that the BCEAO 
will ultimately resolve Citibank's issues by making those 
ratios non-binding indicators.  According to Dore, the IMF 
last year recommended to the BCEAO as a general principle, 
concentrating on the more pressing problem of 
over-concentration of risk and a lack of diversity among 
borrowers.  For the IMF, Dore commented, this meant focusing 
on meeting the Basle II 12 percent capital reserves ratio for 
emerging markets. 
 
NEXT STEPS 
---------- 
¶11.  (C) Apte indicated that he may seek Embassy assistance 
on communicating the seriousness of these issues, 
particularly over-regulation of redeposit activity both in 
Dakar and Abidjan.  Citibank,s potential withdrawal from 
Dakar, while understandable in terms of changes in the local 
market, would be highly symbolic, given Citibank's long 
history of introducing banking innovations to West Africa 
while training generations of local bankers, many of whom 
have gone on to revitalize local banks or start new financial 
institutions.  Embassy plans to pursue advocacy with BCEAO 
and the Finance Ministry as appropriate in the months ahead. 
JACKSON