VZCZCXRO3839
RR RUEHROV
DE RUEHDJ #0553/01 1781135
ZNR UUUUU ZZH
R 261135Z JUN 08
FM AMEMBASSY DJIBOUTI
TO RUEHC/SECSTATE WASHDC 9342
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS SECTION 01 OF 03 DJIBOUTI 000553 
 
SIPDIS 
SENSITIVE 
 
DEPARTMENT FOR AF/E 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PREL DJ
SUBJECT: DJIBOUTI'S GROWING FINANCIAL SERVICES SECTOR 
 
REF: 2006 DJIBOUTI 783 
 
¶1. (U) SUMMARY:  Djibouti has long served as a regional financial 
services center for the Horn of Africa.  As Djibouti increasingly 
seeks to position itself as a world-class shipping and services 
platform, it has looked to cement its status as a financial services 
hub.  Three new banks have recently joined the two longtime grande 
dames of Djibouti's banking sector (reftel), and several other banks 
are slated to open in the near future.  Given that Djibouti offers a 
liberal economic regime, a small but relatively untapped domestic 
market, and--most importantly--an excellent vantage point for 
providing services to shipping and logistics firms, neighboring 
countries, and eventually the 300 million-strong COMESA market, 
Djibouti's banking sector will likely continue to expand.  END 
SUMMARY. 
 
--------------------- 
TWO VENERABLE ANCHORS 
--------------------- 
 
¶2. (U) BANQUE INDOSUEZ-MER ROUGE (BIMR): Founded in 1908, BIMR is 
Djibouti's oldest bank, and recently celebrated its 100th 
anniversary.  For ten years, BIMR has been affiliated with Credit 
Agricole Indosuez.  According to BIMR's Deputy Director-General, 
2006 and 2007 were both excellent years for BIMR.  The Deputy 
Director-General attributed part of this success to strong U.S. 
growth, explaining that a high proportion of BIMR's transactions are 
in dollars, and that BIMR had invested their dollar reserves 
primarily in U.S. markets.  The Deputy Director-General said that 
while only a few years ago BIMR was considering pulling out of 
Djibouti, recent strong performance and a favorable outlook for 
future growth have reversed that decision, and BIMR is now even 
looking to expand its range of products and services in Djibouti. 
In an effort to attract business from some of the 11 out of 12 
Djiboutians who do not currently use formal banking services, BIMR 
has recently simplified its account opening procedures, and has 
lowered the wage thresholds for account ownership, from 150,000 DJF 
to 70,000 DJF (USD 850 to USD 395).  BIMR is also expanding its real 
estate loan products, and offering small (USD 500 to USD 850) loans 
for the purchase of household solar energy kits. 
 
¶3. (SBU) BIMR employs approximately 135 staff members, of whom six 
are expatriates.  According to the Deputy Director-General, 
Djiboutians returning home after years spent working abroad have 
already proven a new and promising hiring pool in recent recruitment 
efforts.  While the Deputy Director-General was generally sanguine 
about BIMR's ability to hold its own amidst challenges from new 
arrivals, he said that competition could drive down interest rates 
below what was sustainable for Djibouti's high-risk environment.  He 
also complained that some of the newly opened banks had gained 
special privileges through the backing of powerful sponsors, and 
were opening accounts without requiring proper bona fides.  He also 
pointed out that BIMR's main traditional rival, the Banque pour le 
Commerce et l'Industrie (BCI), was partially owned by the GODJ, and 
therefore enjoyed a monopoly on salary transfers for government 
employees, and preferential access to major government contracts and 
international grants. 
 
¶4. (SBU) BANQUE POUR LE COMMERCE ET L'INDUSTRIE (BCI): In terms of 
volume of customers, size of assets, number of employees, and 
country-wide reach, BCI claims to be the largest bank in Djibouti. 
BCI employs 170 workers, and with outlets in Tadjourah and 
Ali-Sabieh, is the only bank in the country with branches outside of 
Djibouti City.  BCI maintains ATMs in Djibouti City and in the 
district offices, and plans to offer more electronic banking options 
in the future.  The GODJ holds a 33% stake in BCI, with the 
remaining shares owned by Groupe Banque Populaire (51%) and a Yemeni 
bank (16%).  According to BCI's Deputy Director-General, high 
transaction costs have led BCI to focus less on low-income clients, 
and more on high-income, large-volume customers, including both the 
French and U.S. militaries.  The Deputy Director-General welcomed 
competition from the newly-opened banks, which he said were 
absorbing some of the lower-income accounts, freeing BCI to focus on 
more lucrative clients.  However, the Deputy Director-General 
emphasized the new banks' responsibility to follow established rules 
and procedures, including full and transparent accounting for the 
origin of their funds.  He said that this kind of transparency was 
necessary to maintain Djibouti's overall banking reputation, and 
underscored BCI's commitment to upholding its own reputable 
history. 
 
------------------ 
THREE NEW ARRIVALS 
------------------ 
 
¶5. (SBU) BANQUE DE DEPOT ET DE CREDIT DE DJIBOUTI (BDCD): Djibouti's 
newest bank opened its doors in December 2007, and was officially 
inaugurated by President Guelleh in February 2008.  BDCD is 
affiliated with Geneva-based Swiss Financial Investments SA, but is 
also backed by private French, Dutch, and Italian investors.  BDCD, 
 
DJIBOUTI 00000553  002 OF 003 
 
 
which eventually hopes to establish a banking network in the region, 
currently employs 11 people, including two expatriates.  According 
to BDCD's CEO, the new bank has three main aims: 1) traditional 
banking services, 2) comprehensive business financial services, 
including special loans and firm restructuring, and 3) private 
banking for wealthy clients.  While targeting large business clients 
and wealthy individuals, BDCD simultaneously hopes to reach out to 
the large number of Djiboutians who do not have a bank account. 
(NOTE: According to the Central Bank of Djibouti, only 8% of 
Djiboutians hold a bank account. END NOTE)   BDCD already has a 
reputation for offering the least onerous account opening 
procedures.  While the CEO agreed that BDCD had tried to simplify 
paperwork, he was also careful to point out that the bank strictly 
follows all established Central Bank documentation guidelines. 
According to the CEO, BCI and BIMR host about 50,000 individual 
accounts, with the three new banks hosting an additional 5,000 
between them.  BDCD hopes to attract more clients with personalized 
customer service, including account statements available in French, 
English, and Arabic.  BDCD's CEO praised Djibouti's open investment 
climate, and said that the bank had received excellent support from 
the Central Bank and the National Investment Promotion Agency during 
its set-up process. 
 
¶6. (SBU) INTERNATIONAL COMMERCIAL BANK (ICB): This Malaysian-based 
bank opened its first branch in Djibouti in November 2006, and added 
a second location in March 2008. ICB has already acquired additional 
land parcels for a further branch, as well as for a housing 
development.  According to the CEO for Djibouti operations, ICB is 
particularly interested in serving customers who have never held a 
bank account.  With the GODJ, ICB is planning to put specialized 
ATMs in poorer areas of Djibouti to dispense government pensions. 
These ATMs would potentially save elderly pensioners on a fixed 
income time and money by eliminating a trip downtown to the pension 
office or bank. According to the CEO, ICB has also made an effort to 
educate first-time banking customers on good banking practices, 
especially after a spate of bad ICB checks passed in town hurt the 
new bank's initial reputation.  ICB currently employs 23 people, 
including three expatriates.  The CEO--himself an 
expatriate--praised the aptitude of locally-hired staff members, but 
stressed the need for continuous training.  He also said that ICB 
had had a negative experience with a local employee who stole 
$80,000 in bank funds, of which 70% were eventually recovered. 
 
¶7. (SBU) SABA ISLAMIC BANK (SIB): When it opened in June 2006, SIB 
became the only Islamic bank in Djibouti.  SIB is a private Yemeni 
bank with 12 branches in Yemen; Djibouti represents its first 
overseas branch.  According to SIB's Djibouti Deputy Director, the 
bank sees Djibouti as a good jumping-off point for future expansion 
into the neighborhood, including into Ethiopia if restrictions on 
foreign banks are lifted, and eventually into the greater COMESA 
market.   SIB already has accumulated 6,000 individual and business 
accounts.  The Deputy Director estimated that about 45% of these 
customers also maintain accounts in other local banks, while the 
remaining 55% maintain accounts only with SIB.  SIB currently 
employs 34 people, including 12 of Yemeni origin.  All employees 
must speak Arabic and English. SIB has the only ATM in Djibouti that 
accepts international cards, and is planning to put in additional 
international ATMs at the showcase Kempinski luxury hotel and a 
local supermarket, as well as more ATMs for local customers.  The 
Deputy Director--who recently returned to Djibouti after working for 
several years for Scotia Bank in Canada--also has plans to introduce 
other electronic banking options in the future. 
 
------------------------- 
FOUR MORE ON THE HORIZON? 
------------------------- 
 
¶8. (SBU) According to contacts at the Central Bank of Djibouti, 
there are currently four additional banks that have been licensed to 
operate in Djibouti.  The Yemen-based Cooperative & Agricultural 
Credit Bank (CAC), to be located within the Dubai Customs offices at 
the Port of Djibouti, is likely to open later this year.  The 
privately-backed East African Islamic Bank is also planning to open 
this year, in a downtown location.  Further down the road are the 
Kuwait-based Zumorrodah African Bank, and the International Bank of 
Yemen. 
 
¶9. (U) To open a bank in Djibouti, the candidate must apply for a 
one-year temporary license, and deposit 1.7 million USD in a local 
account.   This deposit is kept as a guarantee in case of 
bankruptcy.  After all administrative requirements have been 
fulfilled, the Central Bank of Djibouti issues a permanent license. 
 
¶10. (SBU) COMMENT: Djibouti's growing number of banking choices 
gives regional businesses and investors yet another reason to use 
Djibouti as a logistics platform.  By increasing competition and 
offering new kinds of services, the new banks are also a boon to the 
vast majority of ordinary Djiboutians who have never used formal 
banking services.  While most Djiboutian banking professionals agree 
that there is still enough pie in the sector for everybody to get a 
 
DJIBOUTI 00000553  003 OF 003 
 
 
slice, a recent history of banks opening and then failing has made 
some Djiboutians nervous about too-rapid expansion.  To avoid past 
mistakes and ensure that this growing sector supports and 
complements Djibouti's up-and-coming service economy, careful GODJ 
oversight will be needed.  END COMMENT. 
 
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