Tellers at a bank in Baghdad hand out wages to former army officers waiting at a window outside of the bank. Investors from Lebanon, Iran and the Gulf are eyeing expansion in the banking sector in Iraq, because they want to get “the first foot” in a country where many people still hide their savings under mattresses, according to a banking executive Sunday, 16/5/2010
Iraqi banks are hoping for finance boom on oil deals
Baghdad, Iraqi banks are hoping lucrative financing opportunities will spring from a series of oil deals Baghdad has signed with global firms, while security remains a big obstacle for investors, an Iraqi banking executive said.
Investors from Lebanon, Iran and the Gulf are eyeing expansion in the banking sector in Iraq, because they want to get “the first foot” in a country where many people still hide their savings under mattresses, Fouad Mustafa, managing director of the Credit Bank of Iraq, told Reuters in an interview.
As security slowly improves and as the war-damaged country moves ahead with its mega oil and rebuilding plans, the Iraqi market is starting to interest foreign banks.
Britain’s HSBC already has a presence in Iraq through a stake in Dar es Salaam bank, and Bahraini, Turkish, Iranian and Lebanese banks have set up shop here.
National Bank of Kuwait (NBK), Kuwait’s biggest bank by market value, owns 75% of Credit Bank of Iraq, while the World Bank’s International Finance Corp owns 10%, and the rest is owned by Iraqi investors. It is listed on the fledgling Iraqi stock exchange.
Kuwait’s Burgan Bank is a majority shareholder in Bank of Baghdad with a 50.6% stake, while Abu Dhabi Islamic Bank, the second-largest Islamic lender in the UAE, has won a licence to operate in Iraq.
“The most important thing is security... Banking regulations are open and policies are very easy, but the security situation makes investors take a wait and see attitude,” Mustafa, who also heads the Iraqi Banking League, said.
“Look around you. The environment is not encouraging,” he added, minutes after police managed to defuse two roadside bombs near the bank’s headquarters in Baghdad.
Overall violence in Iraq has dropped sharply from the dark days of sectarian carnage in 2006-07, but bombings are still common and a March 7 election that produced no outright winner has fuelled tensions.
Gunmen and bombers killed about 125 people on Monday in a series of attacks across the country, in what appeared to be at least in part a message to Iraqis that insurgents are still powerful despite suffering a series of setbacks.
Despite the violence, Iraqi banks hope that the multibillion-dollar deals signed with international companies to develop Iraq’s vast oil reserves will spur lending and help private banks to flourish, Mustafa said.
“We are all waiting for the oil deals. If we are lucky, I think we could have a boom here like Dubai used to have.”
Credit Bank of Iraq plans to boost its capital to $250mn in 2012 from $100mn now, following instructions issued by the Central Bank of Iraq for private banks to raise their capital over the next two years.
The lender also aims to open about 10 new branches across Iraq in the coming 18 months in anticipation of increasing demand for banking services as foreign firms start operating.
“The oil companies are in south Iraq, so definitely we will go there,” he said. The bank now has 14 branches.
Iraq’s economy is dominated by the state and oil, and its banking sector by state banks. Much of the private banking activity is limited to deposit services and there is a small amount of personal lending.
“People still think that state-owned banks are much safer than the private ones. We don’t have a law to guarantee deposits,” Mustafa said.
Mergers among Iraq’s small private banks, many of which are family owned, is expected over the coming months, he said.
“Most of the current banks are family banks and they can’t afford to pump money, they can’t work without merging,” he said.
Credit Bank of Iraq is not in talks to merge with another lender, but might consider a stake in a local Islamic bank to tap rising demand for Shariah-compliant business, he said.
“Why not? We can at least think about buying one of the existing Islamic banks.”
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