Iraq to welcome two foreign banks

Iraq's central bank will approve a licence for two 'regional' banks soon.

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Iraq’s central bank will be approving licences for two foreign banks to operate in the country.

The bank has received “several applications” but so far only two have been approved.

“We are going to give approval for two, they are from the region but not the Gulf. One of them will immediately open seven branches,” said Abdul Bassit Turki, the governor of the Central Bank of Iraq and chairman of the Federal Board of Supreme Audit.

Speculation at the Iraq Finance conference in Dubai pointed to the two lenders being Lebanese banks, some of which are already operating in the northern Kurdish region of Iraq.

The country is looking to open its doors for foreign players to operate in the country by modernising infrastructure, increasing services and consolidating the banking sector, which comprises mostly private banks.

The banking watchdog imposed capital increase requirements on private lenders in a bid to improve their risk management, strengthen corporate governance and separate shareholder equity from the bank’s management. Private banks had to each raise 250 billion Iraqi dinars (Dh789.2 million) by last June.

Mr Turki said five lenders were “expected to face problems now”. In addition, Warka Bank, which was considered for an acquisition by Standard Chartered a few years ago, had legal issues it would not be able to resolve, he said, adding that Basra Bank was being liquidated.

Two government banks, which have had their operations suspended since the 2003 second Iraq war as a result of their inability to pay back government debts dating back to Saddam Hussein’s regime, are expected to complete their restructuring efforts by the end of this year.

“We have been late to do the restructuring. I think we should have done it before, but I think by the end of 2014 it will be resolved. The financial and accounting problems have been well treated. The only remaining problems are administrative,” said Mr Turki.

According to Standard Chartered, in 2003 Iraq’s debt-to-GDP ratio was about 800 per cent. After several debt-relief programmes, mostly the Paris Club’s 80 per cent debt write-off, the country’s debt has fallen and external debt should be about 25 per cent of GDP by the end of 2013.

“Things are picking up. Iraq’s banking sector is evolving,” said Andrew McCartney, a global banking specialist at the International Financial Corporation. “As the economy diversifies away from oil, the key challenge as the banking industry is how to engage in profitability and sustainability.”