IRAQ | Banking Sector

[sheytanElKebir]

Iraq places Warka Bank under guardianship

March 05, 2012

We gave Warka a chance to have Standard Chartered to be a partner but that did not happen, so there was nothing we could do as a financial authority ... but to intervene as a guardian,' Kasim said.

He said the central bank would appoint a new administration to run Warka Bank, which would be given a month to appoint an auditor to determine how to restructure it and whether it needs to sell assets to raise capital.

'When the bank loses its capital, fails in its financial operation and faces an unsolved problem, the central bank according to its law, intervenes as a guardian and appoints a new temporary administration to run this bank.'

Abdul-Aziz Hassoun, executive director of the Iraqi Private Banks League, said in August Warka needed less than 100 billion Iraqi dinars ($90 million) to enhance its liquidity. Warka Bank executives could not be reached for comment.

Iraq has seven state-owned banks, 23 private banks and eight Islamic private banks, according to the central bank website.

Its banking sector is dominated by two state-owned banks, Rafidain and Rashid, which are undergoing restructuring to eliminate debt racked up after years of war and sanctions.

Much of Iraq's private banking activity is limited to deposit services and a small amount of personal lending. Warka Bank for Investment and Finance, which was established in 1999, has 130 branches and 350 ATM machines around Iraq.(Source)TradeArabia

[sheytanElKebir]

a nice little latmiya for you all.



Big state banks are inefficient, primitive

* Privately owned banks lack national scale

* Situation deters non-oil investment by foreigners

* Foreign banks entering gradually

* Central bank revising banking laws

By Aseel Kami and Yara Bayoumy

BAGHDAD, March 7 (Reuters) - An Iraqi businessman, trying to cash in on the billions of dollars pouring into the country from lucrative oil contracts, complains that his biggest headache is not bomb attacks or sectarian politics but primitive banks.

"Where are the credit cards?" said the businessman, who represents a foreign automobile company in Iraq and declined to be identified because of his dealings with the government. Elsewhere in the Gulf, he noted, credit cards are widely used. "How far away are we from this development?"

His frustration is typical of investors dealing with Iraq's underdeveloped, bureaucratic and sometimes corrupt banking system, where it can be difficult to perform even the simplest of banking tasks: clear a cheque.

The lack of efficient banking is holding the country back as it rebuilds its economy after the underinvestment of the Saddam Hussein years and the turmoil that followed the 2003 U.S.-led invasion. Without banks that are integrated into the global financial system, foreign investors outside the oil sector are likely to continue hesitating to commit large sums to Iraq.

TWOFOLD

The weaknesses of the banking sector are twofold: the dominance of state-owned institutions, which lack modern banking systems, and a plethora of small, privately owned banks that in some ways are more akin to family vaults than national financial institutions.

Among Iraq's more than 45 banks, seven are state-owned and control 85 percent of bank assets or about 42 trillion dinars ($36 billion), said Abdul-Aziz Hassoun, executive director of the Iraqi Private Banks' League.

"And what do they do? They do not invest the money in the market, they don't do any banking operations," he said. "The Iraqi banking system is still suffering from the same problems of 10 years ago. The handful of government banks are just like safes for the government's accounts, nothing else."

A report last November by Iraq's Dar Es Salaam investment bank said Iraq had only about 900 bank branches for a population of about 30 million. By contrast, neighbouring Jordan, with a fifth of the population, had over 600 branches, it said.

Bank lending in Iraq amounted to a mere $5.8 billion in the first half of 2010, the report said, citing the latest publicly available data from the central bank, compared to $20 billion for Jordan. The World Bank estimated that banks extended $8.1 billion of credit to the economy in 2010, or 9.8 percent of gross domestic product compared to an average of 55 percent for countries in the Middle East and North Africa.

Most banking activities are conducted by two state institutions, Rafidain and Rasheed. Privately owned banks were nationalised in 1964; they were permitted to operate again from the 1990s, but their business remains mostly limited to deposit services and personal lending.

Deputy central bank governor Mudher Kasim said the state banks' biggest weakness was their lack of internal networks connecting their branches. They have also struggled with electronic cheque clearing because they lack an electronic link with the central bank's payments system, he said.

"These two banks have a monopoly of about 83 percent of Iraq's banking activities. If we take all the government banks, that figure goes up to 90 percent and their technological abilities are zero," Kasim told Reuters at his office in central Baghdad.

The Iraqi businessman representing an automobile company said Rafidain had refused to cash his cheque at a branch other than the one where it had originated. Returning to the original branch would have meant a six-hour car journey. In desperation, he cancelled the cheque and asked for payment in cash.

But carrying suitcases stuffed with cash is risky in a country where bombings, kidnappings and shootings still happen daily. The central bank and finance ministry have been hit by bomb attacks in recent years and remain targets. To reach Kasim's office, journalists had to be dropped off beyond blast walls and barbed wire and go through three checkpoints, pat-downs and bag searches, leaving their mobile phones behind.

"In the end I was obliged to open the company account in a Turkish bank in Arbil," the businessman told Reuters. Arbil is in the Kurdish north of Iraq, which has enjoyed an investment boom because it is the only part of the country to have largely escaped the violence of the past decade.

A World Bank report said Rafidain and Rasheed banks were "inefficient and both suffer from the legacy of past losses, as well as from performing quasi-fiscal operations" -- that is, activities linked to the government's spending policy rather than their own business interests. The government needs to clean up banks' balance sheets, boost supervision of the financial system and level the playing field for competition from the private sector, the World Bank said.

Infighting and political wrangling among government agencies makes it uncertain whether the state banks will reform any time soon, however.

"Corruption is rampant in government banks, their activity is weak...all the wretchedness is there," said Kasim, whose institution supervises the banking sector. "And nobody can touch it because it's the government -- they are sacred."

Officials of Rafidain were not available to comment, despite several attempts to contact them.

TOO SMALL

Privately owned banks tend to be outfitted with more modern technology such as ATM machines and equipment to handle credit cards. But they are generally small, family-oriented outfits that do not have large amounts of capital to handle a wide range of business or expand across the country.

The central bank laid out a three-stage programme in 2009 for banks to raise their capital; by June 2012 each bank will need to boost its capital to $128 million, and a year later to $213 million.

In a sign that some banks may have difficulty reaching the minimum capital requirements, the central bank said this week that it had placed privately owned Warka Bank under guardianship to supervise it through an insolvency process.

However, most banks are likely to raise the necessary capital quite easily, often by using retained earnings, bankers said. The World Bank said late last year that while "several banks have questionable financial strength", most banks including Rafidain and Rasheed had plenty of cash and the banking system as a whole did not seem to face major risks.

The gradual entrance of foreign banks into Iraq may help to develop the industry. Since early 2006, several foreign banks have acquired stakes in local banks, including British-based HSBC in Dar Es Salaam Bank, Qatar National Bank with Mansour Bank and National Bank of Kuwait with Credit Bank.

Banks from Lebanon and Turkey, both of which have strong trade ties with Iraq, are due to start operating in the country by this June, Hassoun said. These are Fransabank, Banque Libano-Francaise, Lebanon & Gulf Bank and Turkey's Isbank , he said.

The hope is that the foreign presence will increase Iraq's access to international markets, luring more foreign investors and banks.

"That strengthens financial integration with the world, strengthens trade, the investment environment," Kasim said.

He said the central bank was in the early stages of reforming banking laws to include separate legislation on Islamic banking, as well as a clause that would impose mergers on institutions that did not hold a minimum amount of capital. Islamic banking, which operates under religious principles such as bans on interest and monetary speculation, did not exist under Saddam; Islamic banks now operate in Iraq, but there is no specific law governing them.

"The banking law has to be improved because as it stands now, it's for a previous era," Kasim said.

This is a lofty goal, however, since Iraq's legislature has been paralysed by squabbling among rival political parties, hindering passage of much legislation.

And even if banking laws are reformed, state banks are restructured, many foreign banks enter Iraq and small, privately owned banks merge into bigger ones, it may take some time to create a truly service-oriented culture in Iraqi banks.

"The problem with restructuring is it's not simply a superficial issue, it's restructuring the whole working environment. It will take years and years to change that," said local banking analyst Majid al-Soori.

[elusive]

FOL! (f*** our lives)

[SumerianKing]

Small latmiya? lool.
I hope that no international banks take most or any control of Iraqis economy. Especially the IMF or World Bank. Otherwise we will be in the same crap hole as Europe and America. We need a smart system like the Chinese banking system, it is the strongest and safest. Iraqi government should strengthen their ties with china, they should become best friends. I even advise Maliki to do sexual favours with the Politian’s/bankers of china to strengthen ties if it gets to that point! Maliki needs a 85X strength pro Viagra pill with the speed of the country developing today! Because Iraq can be a booming country. China will be the new super power in the years to come. Also the dollar is worthless.

[pedrik]

Great work friend, images shows your hard work..

[sheytanElKebir]

Owners claim bank victimised by authorities

* Central bank insists it's protecting financial sector

* Controversy could shake faith in privately held banks

* Dispute politicised by sectarian charges

* Warka's fate may become clearer in a few weeks

By Suleiman Al-Khalidi

AMMAN, March 28 (Reuters) - Iraqi banker Saad al-Bunia says the country's largest privately owned bank, which was placed in insolvency proceedings by authorities this month, is a victim of its own success: its growth threatened the near-monopoly of state banks.

"They don't want a strong bank to operate and compete with state banks," said British-educated Bunia, a member of one of Iraq's old and wealthy merchant families, who accuses authorities of waging a campaign to undermine the bank.

The rise and fall of Warka Bank for Investment and Finance - and the struggle to ensure it rises again - underline the opportunities and obstacles in Iraq's chaotic business environment as the country recovers from years of war and economic sanctions.

The saga also shows how political divisions plague business in Iraq. The controversy over Warka has polarised government officials and members of parliament, highlighting a rift between the Shi'ite-led government and a Sunni Muslim community which lost political dominance because of the U.S. invasion in 2003 but retains considerable economic power.

The central bank took custody of Warka, in which the Bunia family owns a 56 percent stake, early this month; an external auditor will study how to restructure it and whether it needs to sell assets to raise capital. Warka's board of directors filed suit last week to try to reverse the central bank's decision.

Central bank deputy governor Mudher Kasim said the custodianship decision was prompted by growing liquidity problems at Warka, its difficulties in meeting depositor withdrawals, and its failure to reach an agreement in talks with Standard Chartered Plc on the foreign bank acquiring a majority stake.

"The bank expanded by giving loans - it appeared collateral for these loans was weak. What concerns us foremost is the stability of the financial sector and depositors' rights, and thirdly shareholders' rights," Kasim told Reuters by telephone from Baghdad.

"This is not a bad bank and was one of the best private banks in terms of assets, technology and the number of its branches, which constituted more than a quarter of private bank branches" in the country, Kasim said.

He strongly denied any suggestion that authorities were victimising Warka. "The bank's investment ability weakened and if capital drops even by 5 percent, the central bank can put any bank under custodianship. We gave the bank several chances to restructure but this did not work."

[SumerianKing]

When will Iraqis start using credit cards? Do they even exist yet?

[sheytanElKebir]

DEBIT CARDS are in widespread use. Credit cards not so much.

[SumerianKing]

I see, I read somewhere that the insufficient supply of credit card use/money transfer is whats slowing down the economy. Most payments that are done in Iraq are via cash, which makes sense why things are so slow. Is this correct?

[sheytanElKebir]

no. most transfers nowadays are via bank as its dangerous to carry cash around with you. also people are worried about counterfeit notes which encourages the use of transfers.

[SumerianKing]

Originally Posted by sheytanElKebir

no. most transfers nowadays are via bank as its dangerous to carry cash around with you. also people are worried about counterfeit notes which encourages the use of transfers.

Thats very good to hear! How about pinpad services, are they offered in any shops?

[sheytanElKebir]

Iraq's parliament has sent a letter to the cabinet telling it not to interfere in monetary policy, a parliamentary source said, in a skirmish over central bank independence that reflects concerns over the extent of Prime Minister Nuri al-Maliki's influence.

Maliki won a court ruling in January 2011 putting independent bodies like the Central Bank of Iraq under the cabinet, alarming critics who view with suspicion signs of authoritarianism in some of his actions.

He said this would not affect the CBI's independence, but other moves by Maliki, a Shi'ite, against senior Sunni politicians and his control over key security ministries have raised concern that he is trying to consolidate his power.

A source in the office of parliament speaker Osama al-Nujaifi said parliament had sent the cabinet a letter reminding it that setting monetary policy was not in its mandate and that it should not assert its authority unconstitutionally.

Parliament sent the letter after cabinet wrote to the CBI stating that it should have a say in its monetary decisions, lawmakers who received a copy of that letter said.

"This is not the first time the government has tried to impose its control over the central bank," Jaber al-Jaberi, a lawmaker and member of parliament's finance committee, told Reuters.

"Every time they try, and then talks erupt, and then they reach an agreement. But then they try all over again," he said.

Parliament said on its website that Nujaifi met with CBI Governor Sinan al-Shibibi on Tuesday to confirm its support for the bank's independence in accordance with the constitution.

"It is necessary that the central bank remains independent from government in order to prevent a hand (controlling) Iraq's money and to execute international rulings issued against Iraq by its debtors," Nujaifi told Shibibi, according to the website.

"The central bank has $60 billion in reserve and this reserve should (be safe)," said Najiba Najib, a lawmaker and a member of parliament's financial committee.

"Central bank policy should be away from any executive side in order to work professionally and independently."

Much of Iraq's external debt was settled via the Paris Club of sovereign creditors in 2004, in a deal that required Baghdad to seek similar settlements with all other creditors.

But some commercial creditors have won court cases and do not accept the terms of that settlement, meaning Iraq has yet to settle its debts with them.

[BigDreamer]

the insanity

[Basrawii]

Hey regarding BUNIA, his WARKAA is playing a dirty laundry job for a while now, not as big as Chalabi owned TBI but still big. On the other side, Warkaa is a major player in selling Iraqi currency outside Iraq. Many Iraqi dinar investor as well as CBI/ISX foreign investors (yes, we have some, mostly not big investors), use warkaa as a mediator.

[Basrawii]

I used WARKAA for a while in Iraq, and I need to say that the safest banking sector in Iraq is the government owned banks, all other banks are simply a joke, mostly can disappear and then CBI is obliged to pay for their bankrupcy. Imagine how much start-up banks would we have had if we didn't have that CBI protection law. And regarding, the govt. controlling CBI, they cannot, World Bank and WMF would not approve or accept that. To make it easier, it is something like govt. trying to control the FA and FIFA says no.

[Basrawii]

About my WARKAA experience, the employees are under-trained, services are not state of the art, ATMs sometimes not functioning, service is terrible, laws and legislation unclear and most importantly, the scary part of no fund availability in each branch, no dollars or dinars! everything they have is figures on computers and you have to come again (several times) to get cash, no much in ATMs either as they are afraid they might be stolen. You have limit to withdrawal.

Of course going to govt. banks, is like a visit back to the 60s and 50s, even the decor is!

[sheytanElKebir]

Byblos Bank in Baghdad is ok. Although its still pitiful.

[Basrawii]

Have you experienced Baghdad Bank?

[sheytanElKebir]

no. but dar al salam (HSBC) is pretty good. my uncle banks with them. Its probably the best private bank in Iraq and quite safe.

[Basrawii]

Is it owned by HSBC?