There has recently been a lot of activity in the Djibouti banking sector. BNP Paribas sold its stake in the country’s main bank, Commerce & Industry Mer Rouge to Banque Populaire, and the second bank Indosuez Mer Rouge was put on sale by Credit Agricole.
In 2009 eight new banks were granted licenses, and there are reports of several new licences being issued in 2010. Some new entrants like Dahabshiil, engaged in money transfer and consolidation of hawaladar activity, and Exim Bank Tanzania, appeared to operate successfully, but other entrants and prospective entrants have experienced problems in their relations with the authorities – some project related such as Shoura Bank from Egypt.
There are two sets of problems in banking in Djibouti – industry structure and regulation. The structure of the industry does not meet market needs well. There are no regular commercial banks – most are providing trade finance and shorter term project-specific funds. In addition, most have a high percentage of non-performing loans, which may be even higher due to poor regulation.
The regulatory problems are severe. Despite banking regulation featuring in IMF loan conditions over several years, there is still no fully formed bank regulation function in the Central Bank. Licensing is still not based on fully enforced internationally compliant rules. More seriously in security terms, the Central Bank agreed with the IMF and other institutions to institute regulations to address money laundering and both pirate and terrorist finance. Full implementation remains to be effected.
The most important reforms to be implemented immediately are those relating to the formation of a fully functioning bank regulation unit, attached to the Central Bank, implementing anti-money laundering, anti pirate & terror financing rules.
Second, the establishment of better disclosure and capital adequacy rules is urgent.
Third, individual bank monitoring is required to ensure that non-performing loans are worked out of the system, and proper provision for write downs is made.
It will be necessary to ensure that decisions are made quickly as to which banks to withdraw licenses from.
Getting things done
Banking reforms in Djibouti need to be underatken in cooperation with the IMF, who have been giving the government the benefit of the doubt for many years. Complying with, and going beyond, IMF conditions is an urgent priority for Djibouti. With better regulation and an environment no longer characterised by impunity, the medium term goal is to ensure market entry by more internationally secure banks, and the development of retail commercial and personal banking across the country.