Business | Banking
Iraqi instability curtails foreign bank presence
Foreign banks are waiting until security stabilises in Iraq before entering or expanding a limited presence in the country's banking market, bankers said on Friday.
- Reuters
- Published: 00:00 April 8, 2007
- Image Credit: AP
- Cash is stacked high at Iraq's Central Bank.
Amman: Foreign banks are waiting until security stabilises in Iraq before entering or expanding a limited presence in the country's banking market, bankers said on Friday.
Iraqi bankers and US officials agreed at a US-funded banking conference on Iraq that four years after the US-led invasion of the country in 2003, the private banking sector, which comprises 25 licensed banks, was still underdeveloped.
Foreign investment that would have squeezed out weaker banks and helped create larger more competitive banks has also been limited after banking laws in 2003 opened the door to outside capital, bankers said.
"Unfortunately foreign banks have yet not committed themselves to Iraq in terms of investing, training and putting systems," said Hussain Al Uzri, chairman of Trade Bank of Iraq.
Under former Iraqi leader Saddam Hussain, Iraqi banks were cut off from the outside world, perpetuating an antiquated banking system with rudimentary investment and retail products.
Since 2003 some Arab and international banks such as HSBC, National Bank of Kuwait, Jordan's Capital Bank and Qatar National Bank have bought shares in local banks.
But foreign investment has been limited to seven banks, with no new investment since 2005, said David Munro, senior official in IZDIHAR, a USAID-funded outfit to promote a market economy, and organisers of the Iraq Banking conference.
Munro said security was a main concern even for banks granted preliminary approval for licences such as Bank Melli Iran, the Commercial Bank of Kuwait and Jordan's Arab Bank.
"A lot of them are poised waiting to see the way the wind is blowing... We need obviously some time where there is relative stability before people start coming," Munro said.
Lebanese Bank Audi and Byblos Bank are slated to open soon in Kurdistan, northern Iraq, where security is better than in Baghdad.
In a country where private lending by small family run banks is just four per cent of the gross domestic product (GDP), there are plentiful opportunities, Munro added.
"There is huge pent-up demand for credit in Iraq... and once there is a measure of stability, then I think there will be demand for credit, and those banks that are willing to make loans and know how to make loans will benefit enormously by being able to go into the market."
The principal shortcoming remained the failure of banks to function as financial intermediaries to attract deposits and lend funds to creditworthy firms, the US aid official added.
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