Low investment harms banking in Kurdistan
Economic experts in Kurdistan Region argue that the recent financial crisis in Kurdistan Region and lack of liquidity in the banks are a result of an accumulated economic phenomenon, which has become more serious with the recent demonstrations and the drop in investment.
Economic experts in Kurdistan Re- gion argue that the recent financial crisis in Kurdistan Region and lack of liquidity in the banks are a result of an accumulated economic phenomenon, which has become more serious with the recent demonstrations and the drop in investment.
According to some banking experts, the banks in Kurdistan Region are in an urgent need to a large banking conference to address this issue and regain the trust of people and investors, which will eventually help in recovering from the current liquidity crisis.
Sirwan Mohammed, a local economist, told a local Kurdish daily newspaper that this situation has been repeating every year recently and this is the result of lack of a sustainable economic and financial policy.
“Hence a scientific policy has never been developed to renew the financial system,” Mohammed said. “In the past 22 years we have been working on the same financial and fiscal system, something which has made the job of the banks more difficult, and led to current situation that banks are out of liquidity.”
According to Mohammed the reason is that the money deposited in the banks are immediately withdrawn and given to people: i.e. it does not circulate among the banks.
Pay system has to be changed
Mohammed suggests that the Kurdistan Regional Government (KRG) has to change its salary system.
The function of a bank is investment and financing, the government uses them just to pay salaries.
“KRG has to develop a sustainable plan to regulate this issue. For instance if a thousand employees of an institution get their pays from a bank, why should all of them withdraw at the same day and immediately as it is debited to their accounts.”
He says if only the ones who need cash withdraw it, and then some people may withdraw it with some delay, which will leave the banks with some liquidity.
Another theory is that cash is where investment is, and this is due to the fact that investment is risk-averse. This explains why Erbil banks do not face same liquidity crisis as Suleimaniya banks.
There are a lot of giant companies and investors in Erbil, being the capital of the region.
“Investment figures are the best proofs of the huge difference between Erbil and Suleimaniya,” Mohammed says. “Erbil people have more trust in the banks, and there are rumors that some Suleimaniya investors are opening bank accounts in Erbil and putting their monies there.”
Demonstrations and trust in banks
The local economist argues that the major reason behind the liquidity issue in Suleimaniya was the series of demonstrations and unrest in the city, which led to investors and people worrying about keeping their capital in the banks.
Experts believe that KRG has to develop a plan that makes all the economic organs of Kurdistan work in harmony and balance, in a way that in case a city faces a financial or liquidity issue, it could be recovered from other cities.
Shamal Noori, another economist and journalist at the Kurdistan Economists Syndicate, argues that bank is the backbone of any economy, and bankruptcy of a bank in developed countries is a sign of crisis.
“In the past 3 years Europe tried not to allow any bank to announce bankruptcy, and mainly the companies were reaching bankruptcy, the impacts of which are lower than the banks,” Noori says. “Government should protect banks from bankruptcy. It should help return trust to the people, like what Shawkat Sheikh Yaziddin did by refunding all bank deposits of people to gain their trust again. This is the only way to address liquidity issue in the banks.”
Noori also suggests that a conference has to be organized for the banking sector to address all these issue and set a new roadmap for improving and supporting the banking sector by the government, experts and investors.
Immediate impacts of the crisis
Investment projects have been paralyzed since the beginning of this year due to this liquidity crisis, loans have stopped and government salaries have delayed.
Representatives of the Suleimaniya Contractors’ Union have visited Suleimaniya Governorate and warned if they don’t receive their due install- ments from the government for project under implementations, they would hold the projects.
On the other hands, public bank managers claim that Ministry of Finance have ordered to halt paying housing loans and even salaries.
Sabaha Hamad, Director of Erbil Real Estate Bank, says based on the order of the ministry of finance they are now not receiving any loan applications till further notice from the ministry.
Shirin Rozhbayani, Director of the public Federal Bank, on the other hands, says that they were asked to hold distributing salaries of this month, while refuting the claim that their banks have run out of liquidity.
The reason behind holding salary payments is apparently that the Peshmarga Forces have not yet received their December salaries completely, and hence government wants to address this issue first.
Qadir Samad, a high school teacher says that they have been told that this month’s salary will not be paid on time.
“If I don’t receive my salary on January 25th as normal, I would face a big problem since I have rents, installments and bills to pay, all of which are dependent on this salary,” Samad complains.
According to Dler Tariq, the official spokesperson of the ministry of finance they are now paying the salaries of the Peshmarga and right after that they will pay January salaries to ordinary employees.
Though not giving any specific dates, Tariq said the salaries will not be delayed that much.
This picture depicts the building of Erbil Bank in Salim Street, Downtown Suleimaniya.