Iraqi banks rely on govt to re­cover from IS dev­as­ta­tion

Kuwait Times - - BUSINESS -

Iraq’s pri­vate banks are pin­ning hope on the oil-rich govern­ment to bring back into the black their bal­ance sheets se­verely af­fected by Is­lamic State’s takeover of parts of the coun­try.

In an in­ter­view with Reuters yes­ter­day, Iraqi Pri­vate Banks’ As­so­ci­a­tion Pres­i­dent Ali Tareq said that sev­eral lenders would not be able to pass a stress test of in­ter­na­tional stan­dards at their cur­rent level of cap­i­tal­iza­tion.

“Col­lec­tively, banks have lost nearly 100 branches in hot ar­eas with all their as­sets, funds, build­ings, ev­ery­thing with­out any com­pen­sa­tion,” he said. “If a stress test is held cur­rently, it should take into con­sid­er­a­tion the cur­rent sit­u­a­tion of the coun­try and the Iraqi bank­ing sec­tor.”

The weak­ness of the pri­vate banks does not af­fect the bank­ing sec­tor as a whole, dom­i­nated by state-owned banks feed­ing on busi­ness from the oil-rich coun­try’s govern­ment.

But it is a set­back for govern­ment ef­forts to de­velop the pri­vate sec­tor and reduce the OPEC na­tion’s re­liance on oil. As a way to rein­vig­o­rate pri­vate lenders, the cen­tral bank may offer them the pos­si­bil­ity of set­ting up a 500 bil­lion Iraqid­i­nar fund that will in­vest in the govern­ment’s “strate­gic in­fra­struc­ture pro­jects” like hous­ing, trans­port and sewage pro­jects, Tareq said.

The govern­ment would thus pro­vide the banks with a steady stream of busi­ness that will help re­store their bal­ance sheets. “The cen­tral bank is in the fi­nal steps, it has sent a let­ter to the par­tic­i­pant banks to de­ter­mine their shares, all banks are al­lowed to par­tic­i­pate,” Tareq said. “Other than levy­ing in­ter­est, the banks will be en­gaged in long-term, guar­an­teed pro­jects.”

Other than dam­age to the as­sets of the banks and the banks clients, the mil­i­tants’ sweep­ing ad­vance across north­ern and west­ern Iraq also caused a rush on liq­uid­ity that weak­ened the lead­ers. Peo­ple got wor­ried that they would no longer be able to ac­cess their money de­posited in banks. Iraq re­lies al­most en­tirely on cash for day-to-day trans­ac­tions.

Iraq has been prey to war and in­sur­gency since the over­throw of Sad­dam Hus­sein in 2003. As a re­sult, Iraqis are re­luc­tant to use banks in case vi­o­lence pre­vents them ac­cess­ing their cash or re­stric­tions are placed on with­drawals.

Pri­vate banks suf­fered a lot more than the state owned banks that re­lied on govern­ment liq­uid­ity and trans­ac­tions to stay afloat through­out the 36 years of wars and sanc­tions that the coun­try went through. Iraq’s state-owned banksRafidain, Rasheed, Agri­cul­ture, In­dus­trial, Real Es­tate and the Hous­ing Fund-con­trol to­gether 86 per­cent of to­tal de­posits or $48 bil­lion, while the 45 pri­vate banks share the re­main­ing 14 per­cent, or $7 bil­lion, said Tareq.

“There were many with­drawals of de­posits by ci­ti­zens be­cause the cir­cum­stances at the time re­quired that they have liq­uid­ity,” said Tareq. “Bank trans­ac­tions were dealt a heavy blow at the same time, as lend­ing and let­ters of credit” to the pri­vate sec­tor “de­creased as the govern­ment ex­e­cuted fewer pro­jects,” he added. — Reuters

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