Djibouti financial sector

Central Bank of DjiboutiMay 2013

Djibouti's banking sector which was only served by two banks experienced a strong growth since 2006 by attracting nine more banks making a total of eleven different banks today.

This improvement in the banking sector was driven by:

◦ A strong and stable monetary system (Currency Board)

◦ An efficient macroeconomic framework

◦ A continued adjustment of regulation by national authorities

◦ A particularly attractive general business environment

General Introduction

A strong sustainable economy over the past decade and maintained macroeconomic stability despite external negative shocks.

The growth rate of GDP rose on average by 2.4% over the period 2001-2005 to almost 5% over the period 2006-2012.

Emergence of Djibouti as a regional logistics hub with a strong development of port activities, construction and tourism accompanied by a large influx of Foreign Direct Investment (FDI).

Between 2006 and 2012, the cumulative amount of FDI amounted to USD 988 million, against only 12 million between 2001 and 2005. The share of FDI in GDP was estimated at 27.2% in 2012 after recording 24.6% in 2011.

Controlled inflation (4.3% in 2012).

Sound Macroeconomic Framework: Recent Developments

The stability and strength of the monetary system of Djibouti contributes greatly to the emergence of a healthy and secure financial local market.

The monetary system of Djibouti operates under the principle of "currency board.” Introduced in March 1949 this system is still in force with the Central Bank of Djibouti as the issuing authority.

This system is characterized by:- A fixed parity with the U.S. dollar (U.S. $ 1 = DJF 177.721) - A full coverage of the fiduciary currency issuance- A free and full convertibility of the DJF in all foreign currencies- The absence of exchange controls and discretionary monetary

policy

Specifications of the Monetary System

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-3,000

2,000

7,000

12,000

17,000

22,000

27,000

32,000

37,000

42,000

100

110

120

130

140

150

160

170

180

190

200

Coverage rate of the fiduciary issuance

Foreign assets Fiduciary currency issuance Coverage rate

in D

F m

illio

ns

en

%

Political stability in a regional context deeply affected by socio-political instability.

Availability of some of Africa’s most efficient communications infrastructure (new generation fiber optic submarine cable).

Full opening of the capital account: absence of all restrictions on capital movements (free repatriation of profits, absence of exchange controls).

A tax incentive framework (Investment Code, non-taxation of banking and / or financial products).

A conducive General Environment

Development of the banking sector

The Djiboutian financial sector has not been affected by the global financial crisis.

The financial sector is dominated by banks with 97% of financial assets and a 10% contribution to the GDP.

To date, there are: 11 operational banks 16 currency exchange agencies Two insurance companies Three MFI One development fund

Capital banks are largely owned by foreign groups.

Development of the banking industry

The amount of credit towards the private sector has experienced a significant increase, going from 20% in 2005 to 32% of the GDP in 2012.

At the end of 2012, the banks agreed to inject 68 Billion DJF of loans in the economy of the country. It has been noticed that the banks have been increasingly investing in financing large development projects.

From 2005 to 2012, there has been a substantial increase in the total of deposits in the banks from 90 Billion DJF to 193 Billion DJF.

A great accessibility to financial services as evidenced by the growth in the population with access to banking services from 5% in 2007 to 12% in 2012

A sound financial sector according to the recent evaluations undertaken by the IMF and the World Bank with a creditworthiness ratio of 10%

The rate of doubtful loans have continued to decline in the last 5 years going from 14.4% in 2006 to 9% in 2012 and the provisioning rate has increased to 76%.

Access and strength of the banking system in Djibouti and Sub-Saharan

Africa

Population with a bank

account in %

Number of agencies

per 100.000

inhabitants

Core capital ratio (%

risk weighted assets)

Non performing loans (% of total loans)

Sub-Saharan

Africa

12,6 2,6 15,5 14,7

Low income

countries of SSA

7,0 1,2 15,7 17.5

Djibouti 12,0 3,6 15,4 9,0

Overview of the banking regulation

The full regulatory reform implemented in 2000, 2005 and 2011 helped bring up-to-date the financial sector in order to meet the new national and international requirements in regard to the prudential ratios, the management of the banking risks, AML-FT and Islamic Banking.

The entire sector is under the control and the supervision of the Djibouti Central Bank. The latter has the exclusive right to give license to the banks.

The access to the banking profession represents the liberal commercial regime and is therefore not restricted to Djibouti nationals.

The minimum capital requirement has been increased from 300 to 1, 000 million DJF which is equivalent to $1.7 to $5.6 million respectively in order to attract only safe and sound banks.

The minimum value of the solvency ratio is expected to increase from 10% in December 2012 to 12% at the end of 2013.

Bank Taxation The banking operations are not imposed to tax by the

general tax code in force. Apart from the taxation of common law, the banking transactions and the financial revenues are not subject to any other tax.

The banking operations are likewise excluded from VAT. The tax rate on profits is fixed at 25% of the net taxable profit.

In terms of tax incentives the investment code has a number of tax benefits according to the investment scheme such as:

Exemption from licence fee over a period of 10 years.Exemption from property tax for properties built over the

period of 10 years. Exemption from tax on profits over a period of 10 years. Exemption from imported ICT goods in the framework of the

investment project over a period of 10 years.

Financial sector perspectives

To develop the financial sector, the Djiboutian Authorities want to:

Widen accessibility to banking services.Continue the reinforcement of the monitoring capacities

of the Central Bank.Promote and update the development of payment

systems.Establish a guarantee fund to finance small and medium

enterprises.Promote the implementation of a regional stock

exchange.

THANK YOU FOR YOUR ATTENTION