Trade Bank start-up
The Governing Council in Iraq and the CPA seem to be committed to the restoration of the banking system in Iraq. The CPA recently awarded a consortium led by the US based J P Morgan Chase & Co the tender for operating the Trade Bank of Iraq. The Consortium consists of 13 banks representing 14 countries including Standard Chartered PLC of the United Kingdom, National Bank of Kuwait, The Bank of Tokyo-Mitsubishi, Ltd, and Royal Bank of Canada, among others.
The Trade Bank of Iraq’s start up capital is US$100 million, US $ 5 million from the CPA and US$ 95 million from the United Nations reconstruction fund made up of oil revenues. The Trade Bank of Iraq will provide letters of credit for the Iraq government to purchase heavy equipment and goods.
Initially, the purchases may average around US$ 100 million a month but the bank’s overall business may reach up to US$ 500 million a month after Iraq’s oil industry booms, according to US estimates. The Trade Bank of Iraq is expected to start issuing letters of credit soon. The bank is planned to operate for 12 months but may continue for another two years.
Restructuring ahead
On the same front, the CPA is also tendering the restructuring of Iraq’s two largest state owned banks, namely the Rafidain Bank and the Rashid Bank.
For the banking sector to be revitalised, it will have to be opened up for the private sector. Some state owned banks may have to be privatised and the existing private banks consolidated and restructured. It is also inevitable that the market will witness the entry of foreign banks and financial institutions. As per the new law, the Iraqi Governing Council will permit foreign banks to enter Iraq. The Council will allow the entry of six foreign banks to purchase up to 100% of local banks within the next five years. The Council also allows an unlimited number of foreign banks to purchase up to 50% of local banks. After five years, there will be no restrictions on foreign bank entry. A US $25 million capital requirement will be placed for a foreign majority-owned subsidiary.
Private banks
The Iraqi private sector is already active on the banking sector front with one party reportedly working on obtaining a license for establishing a private bank in the North of Iraq and a few others working on the acquisition of existing private banks. Foreign banks have already expressed their interest in Iraq by participating in the tender for the Trade Bank of Iraq and others have been closely monitoring the situation in Iraq and assessing the possibilities for investment in the war torn country.
The Iraq Holding Company (IHC) is one example of such private sector initiative. Established by Global Investment House, the leading investment bank in Kuwait, IHC has a capital of US$ 200 million which it plans to invest in the financial, services, industrial, health, education and other sectors in Iraq in partnership with Iraqi and foreign partners. IHC has already signed agreements with various partners to establish projects in Iraq and is closely monitoring the developments in the banking sector.
How long it would take to restore the shattered Iraqi banking system is unclear; yet it is certain that much of the private sector contribution to the restoration process would primarily depend on the security situation, the general investment climate as well as macroeconomic developments of pertinence to the banking sector.
