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Doors Open to Foreign Banks in Somalia After Half-Century Hiatus

Monday, May 30, 2016

Kenyan banks are competing against lenders from Gulf nations seeking licenses to operate in Somalia as the strife-torn country opens up the industry to international companies for the first time in almost half a century.

Somalia’s central bank has held talks with KCB Group Ltd., the owner of Kenya’s largest bank, and Nairobi-based Commercial Bank of Africa Ltd., Governor Bashir Issa Ali said, without identifying any banks from the Gulf.

“They are expressing an interest to gain a foothold in Somalia,” he said in an interview in the Kenyan capital of Nairobi last week. “Banking is one of the most profitable sectors in the country."

The administration of President Hassan Sheikh Mohamoud is seeking to attract investors to rebuild the Horn of African nation after more than two decades of civil war as the army, supported by African Union peacekeepers, pushes al-Qaeda-linked militants out of urban areas. While its institutions have largely collapsed, the International Monetary Fund predicts that government reforms and donor funds will help the economy expand about 3.7 percent through 2017.

Local Partners

Foreign banks, including Britain’s Barclays Plc and lenders from Italy, India and Egypt, have operated branches in the country between 1920 and 1970, when all international banks were nationalized, leaving the country with two state-owned lenders at the time, according to the central bank’s website. MasterCard Inc. last year formed an alliance with Somalia’s Premier Bank Ltd. to issue debit cards in the last African markets aside from those under sanctions where it wasn’t present.

The central bank will only license “reliable” lenders, Ali said, without saying when applications will be completed. The regulator wants international banks to partner with local financial institutions.

Six commercial banks with assets of $194 million and deposits of $143 million operate in Somalia, mostly concentrated in the capital, Mogadishu, according to the IMF. Only one bank meets the minimum capital requirement of $5 million. There are 13 pending applications for commercial banking licenses, according to the IMF.

KCB Chief Executive Officer Joshua Oigara said in April that the lender may consider entering the Democratic Republic of Congo, Somalia and Djibouti by 2020 as it seeks to strengthen its position in East Africa.

Somalia may begin production of oil and gas in 2020 after exploration work showed potential for larger offshore deposits. Companies including Royal Dutch Shell Plc., Exxon Mobil Corp., BP Plc are in talks about returning, according to the presidency.

Investor trust is “building up” in Somalia, Ali said.


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