Public banks have failed to adapt to modern international banking systems
Experts believe that failure to adapt to new banking systems and loss of people’s money in Iraqi and Kurdish public banks in the past, are among the major factors behind the weakening trust in public banks in Kurdistan.
Iraqi banks have gone bankrupt several times in the past; beginning in 1961 when a law changed all banks to public banks and people consequently lost all their savings.
In 1991, after the withdrawal of the Baathist regime from the Kurdistan Region, the region’s banks went bankrupt once again, with the people once again bearing the cost.
A most recent incident was the disappearance of a large amount of money at the Federal Bank in Erbil, a local public bank.
Dr. Mohammed Salman, economic expert, argues that these incidents made the banks lose credibility and trust among people.
Abdulwahid Taha, eco- nomic expert and Head of Media Department at the Erbil Chamber of Commerce, says that people rarely use banks for their transactions and they trust local exchange and money transfer offices more than the banks, in both the public and private sphere.
“In addition, the banks in the region, whether public or private, are not connected to the other banks in the world,” added Taha.
Commenting on the impact of the recent incident at the Federal Bank, Shireen Rozhbayani, the manager of the bank, where other such cases have occurred in the past, admitted that some of their customers have withdrawn their monies from their accounts.
After three months the case is still under investigation by the police in association with a team from the Ministry of Finance and Economy.
Three employees from the bank and some other people have been arrested on suspicion of been involved in the incident.
Dler Tariq, official spokesperson of the Ministry of Finance, supports the theory that the 1991 incidents weighed heavily on the trust people have towards the public banks.
Tariq, however, argues that people do trust public banks now and added that the money which disappeared from the Federal Bank belonged to the government rather than individuals.
“However, it is still normal if some people remain concerned about the money and withdraw it from the bank,” said Dler in an interview with the Kurdish Globe. “No one will lose money at a public bank, and they always get compensated in any case. Even in the past the Kurdistan Regional Government (KRG) has compensated people for monies confiscated by the Baathist Regime.”
However, Salman argues that people suffered finan- cial losses due to the 1991 incidents, as the money they received as compensation did not have equivalent value and purchasing power as at the time they lost it.
Salman referred to statistics conducted by the Central Bank of Iraq in 2012 about people’s trust in public banks for one of his researches on the issue.
He claimed that accord- ing to the statistics, only between 2.5 and 6% of Iraqi’s trust the public banks in Iraq.
“The procedures and regulations of the public banks are not suitable and have hence failed to attract people to them,” Salman told the Globe. “When people put money in a bank, they get a very low interest while they pay a high interest on loans.”
Although banks play a significant role in driving economic growth in most countries, banks in Kurdistan have failed to attract people’s savings and use them for investment purposes. One major factor behind this would is the evident failure to gain people’s trust.
Exterior view of the Regional Bank of Kurdistan.