Iraq banks rely on govt support to recover from IS devastation

BAGHDAD, Dec 5, (RTRS): 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 take over of parts of the country.

In an interview with Reuters on Monday, 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 capitalisation.

“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 Iraqi-dinar 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.’’