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Private Banks Flourish amid Iraq's Chaos - ASHARQ AL-AWSAT English Archive
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BAGHDAD, (Reuters) – Privately-owned banks are flourishing in Iraq as lower violence and increasing savviness among Iraqi bankers fuel a lending boom, U.S. officials and Iraqi banking executives say.

Iraq’s tiny banking sector is dominated by two of seven state-owned banks which alone control 86 percent of assets, but private banks are expanding rapidly around the country and targeting growth areas like lending to family-run firms.

Credit from private banks to the economy jumped 80 percent in the past year and looks set for double-digit growth in the future, said a U.S. aid official, who declined to be named.

“It’s growth that’s coming off a very small base,” he said at a Baghdad banking conference where private banks touted their expertise on items like car loans and letters of credit.

“But the expectation is that the private sector will show sizeable growth — maybe not 80 percent again — but certainly people expect to see strong double-digit growth.”

Violence triggered by the 2003 U.S.-led invasion has fallen sharply over the past 18 months and Iraqis are hoping that plans to boost oil output will reverse decades of economic decline.

The Iraqi market is starting to interest Western banks, though high security costs and lingering violence have deterred them from taking concrete steps like opening an office here, the official said. But the Iraqi central bank’s willingness to issue new licences means the market is open to them, he said.

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. Others in the Middle East and Asia are eyeing opportunities in Iraq, Boston Consulting Group said earlier this year.

A look at Iraqi banks like the Ashur International Bank for Investment shows why. While many Western banks are still hurting from the financial crisis, Ashur is prospering — it expects profit to rise 50 percent to $15 million this year and plans to open three new branches to add to the four it already has.

Lending to small, family-run firms like restaurants and shops has proven to be particularly good business for Ashur, which has boosted loans to the segment six-fold this year.

“I think the best existing projects in Iraq are opening new Iraqi banks,” said Wade al-Handal, the bank’s chairman.

“We have had only one default from someone who didn’t pay back his loan.”

BANKER’S GREED

Getting Iraqis to bank with private rather than state-run banking companies like Rafidain and Rasheed may be a struggle.

But with up to 40 percent of the population using the banking system, Iraq already has higher banking usage than Egypt, where the figure stands at 20-25 percent, the U.S. official said.

Still, Iraq’s banking sector remains in its infancy.

The banking system has just over 40 banks with more than 800 branches, but loans by state-run banks stand at just 3.6 trillion Iraqi dinars ($3.1 billion) while those by private banks total 1.8 trillion Iraqi dinars, central bank data show.

Much of Iraqi banking activity is limited to basic lending and deposit services. But there are signs Iraqi banks are getting more confident about lending freely and becoming savvier about focusing on profitable areas, officials say.

Lending to small and medium-sized firms by private banks with the help of a U.S.-backed project stood at $2.5 million a year ago, but has now jumped to $23 million, said Joel Antal, technical director of the Iraqi Company for Financing SMEs.

A year ago, banks viewed loans maturing in 18 months as too risky, whereas now two-year loans are commonplace, he said.

“This tells us that they’re getting more confident,” said Antal. “What we’re trying to teach them is that this is a profit sector … That’s where banker’s greed gets started.”

Asharq Al-Awsat

Asharq Al-Awsat

Asharq Al-Awsat is the world’s premier pan-Arab daily newspaper, printed simultaneously each day on four continents in 14 cities. Launched in London in 1978, Asharq Al-Awsat has established itself as the decisive publication on pan-Arab and international affairs, offering its readers in-depth analysis and exclusive editorials, as well as the most comprehensive coverage of the entire Arab world.

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