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Opportunities in the financial services in Iraq

David Morgan

Friday, 03 July 2009 14:11

There are now significant opportunities in the financial services sector in Iraq and the government is seeking to attract new investors to help develop the available services.

A competitive, modern banking system is now considered to be essential for the development of the economy and now that the country is more determined to establish a liberal, market economy all kinds of financial services will be increasingly in demand.
Iraq issued a new banking law in September 2003 to bring the legal framework for banking in line with international standards. The main aim is to promote confidence in the system by establishing a safe, sound and competitive and accessible banking system.
Corporate financial services at present are very limited, according to the Iraqi National Investment Commission. Personal banking and other services taken for granted elsewhere in the world, including cheque books, credit cards, savings products and mortgages, are still only used by a small section of the population located in the major cities. There is tremendous scope for expansion of such services.
Furthermore, very few Iraqis take out insurance or invest in private pension schemes. Sophisticated financial services for business, such as factoring and leasing, are still rare.
Iraq is now experiencing a surging demand for trade finance, In 2008, crude oil exports increased by 13.5% on 2007, while oil revenues increased by 33.6%. Multiple projects are now on the drawing board and demand for both trade and investment finance has grown rapidly.

Lending
Lending by private banks expanded by over 50% last year, which was twice as fast as in 2007.
From September 2007 through to August 2008, the value of letters of credit (l/c) funded by private banks more than tripled from £54 million to £176mn. The vast bulk of l/cs have been provided by the Trade Bank of Iraq, which was set up in July 2003.
By the end of 2008, the bank had written l/cs totalling more than £20bn. More exotic products than l/cs are yet to be developed.
The average daily flow of transfers to accounts outside Iraq has more than doubled from £49mn in November 2007 to £105mn in October 2008.
The demand for trade finance appears assured. The country exports approximately 1.7mn barrels of oil a day and earns 95% of its income from oil production.
It imports about £2bn in oil products a year because of the lack of refineries and downstream processing.

Private Banking
More opportunities for the provision of banking services are emerging as reconstruction continues and as the economy starts to pick up. The Iraq Finance Ministry is calling on international banks to partner with local banks to develop the services provided by the private banking sector in the country.
“We are working hard to encourage international, Arab and Islamic banks to develop a real presence in Iraq, so they can participate in the reconstruction,” Finance Minister Bayan Jabr has said.
Projects that have secured bank support so far include:
-A private sector power plant in the city of Erbil;
-Baghdad Company for Soft Drinks, a mixed public-private sector company for which the Trade Bank of Iraq provided working capital financing.
The private banking sector in the country has been expanding markedly over the past few years. At present, Iraq has 33 private sector banks, excluding foreign banks licensed to operate, as well as seven state-owned banks.
Private sector banks are now expanding beyond Baghdad and taking on more risk in their loan portfolios.
The private banks are seen as well-capitalised, with capital ranging between £36mn to £60mn, but they remain small operations, even by regional standards.
Since the banking sector was cut off from the international financial system for so many years, a large number of local banks still operate little more than current account and deposit facilities. Many lack cross-border payment capabilities and are so small that they can only support limited amounts of commercial trade business.
Banks with SWIFT connections remain limited to the major cities.

Banking Products
Cash points or ATMs are new to the country with the first ATM appearing in March 2006 at the Trade Bank of Iraq head office in Baghdad. In August last year, the bank brought the first ATM machine to the city of Najaf.
Meanwhile, Warka Bank for Investment and Finance is rolling out its network of more than 85 ATMs across the country.
Credit and debit cards have been in Iraq for just a few years. Trade Bank of Iraq was the first Iraqi bank to issue Visa cards in 2005. In November 2008, the Commercial Bank of Iraq became the first bank to receive a MasterCard international licence.
Online banking in Iraq was introduced by the Trade Bank of Iraq and some private banks such as Warka now offer a limited online banking service.
Retail banking opportunities include servicing three-quarters of Iraqis who do not yet have a bank account. Reaching this huge customer base is a task for the private sector. The two state banks, Rafidain and Rasheed, have huge but very underdeveloped networks.

Insurance Sector
The insurance sector in Iraq has been opened up to competition. It was in 1997 that a change in the law permitted the establishment of private Iraqi-owned companies in the sector. Since 2005 foreign insurance providers have been allowed to enter the market.
Now foreign investment has started to find its way into the insurance sector but as yet only to a limited extent.
The Ministry of Finance is responsible for licensing insurers to write both life and non-life insurance cover. Estimated annual gross written premium is estimated at just £3.3mn according to specialist observers.
Foreign investors can now enter the market as long as they comply with the requirements embodied in the 2005 insurance law, which stipulates capital requirements for insurance firms. Foreign investors are also able to open branches in the country.
The insurance industry is overseen by the Iraqi Insurance Diwan whose powers are set out under the Insurance Business Regulations Act of 2005. This is an independent body that sets the overall policy and procedures for the regulation of the insurance industry.

Stock Exchange
The Iraq Stock Exchange (ISX) increased in value by 64% in 2008. The ISX’s overall capitalisation stands at around £1.36bn and in March this year it was 41% more than the year before. Around 100 companies are now listed on the exchange and a new electronic trading system was recently introduced. Foreign companies are allowed to trade directly on the exchange.

Global Arab Network

This article first appeared in Arab-British Business, the fortnightly bulletin of the Arab-British Chamber of Commerce.

Comments

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carlos jones - dinare rate

|2009-07-04 14:16:15

When do you see the dinar exchange rate being set back to where it was befor the war. What are some key factors causing the rate to return so slow. It seem that they are producing more oil now then ever.

175

john g brown - Humanitarian

|2009-07-05 14:56:27

I know of a Preacher in Arkansas that
gives his flock a $50.00 dinar every Sunday. He says the dinar will be worth
$5.25 and it will happen any day. Can
anyone verify this.

Kenny Blackshear - New Iraq Dinar

|2009-07-08 19:05:03

When do you think Banks will be trading or exchanging them with the private citizens?

monica

|2009-07-16 01:42:43

i would like to know as well

JENNIFER JONES - Dinar exchange

|2009-09-28 22:39:16

When would it be the best time to make an exchange, I am hearing by Oct 13th.Could anyone tell me more info on this. Thank you.

buddy - iraqi dinar rate

|2009-07-04 22:13:57

what is your opinion as to the future of the dinar rate to the us dollar. has a rate been determined by the parliment? does the us government own any dinar? what should it take to revalue the rate to the rate it was before the us invasion?

Edward Bailey

|2009-07-04 22:14:35

Hi Carlos,in my opinion reval will take place shortly after Oct.1 due to a major event that must take place and that being the de-dollarization of the Iraqi economy. That was posted on another web site.

Edward - Rate of Iraqi Dinar

|2009-07-04 22:27:51

Nobody really knows for sure, but it could be anywhere from a nickle to $5.00

A.J Cruz - Pegging Dinar

|2009-07-05 15:18:39

It seems to me at this point good things are happening in the Iraq economy. Why is the Dinar not pegged at this time.

What else must occur before the Dinar can be traded like any other currency on the world market?

Edward - Pegging Dinar

|2009-07-05 17:56:08

In my opinion,the government has to solve the problem of dividing oil profits among the Shites, Sunni's and Kurds. Everybody has to be happy and share in the wealth so they can achieve stability. They are making steady progress day by day.

Nanette King - currenc conversion

|2009-07-05 15:57:23

If you look in the right hand corner of this page there is currency converter.
It says 1 dollar to 1 dinar??? Is that a penny or a dollar.

Edward - Currency Conversion

|2009-07-05 18:26:45

Well, according to that conversion chart it is 1US dollar to 1Iraqi dinar. I don't know what is going on. I don't know if this is something funny going on or what!

has - Currency Conversion

|2009-07-05 18:35:17

The currency converter in this site says:
1 IQD = 0.0008632 USD, try and let me know?
not as Nanette said.

Nsnette - conversion

|2009-07-05 21:56:19

carl	\|2009-07-06 12:08:42

100.000.00 dinar equal $ 86.32 USD.....NOTHING HAS CHANGED

David M. Renner - Security Officer

|2009-07-10 11:26:42

when is the new iraqi dinar going to revalue, and what is the value of the iraqi new dinar thank you david m. ranner

Annie - Smaller Denomiations

|2009-07-11 03:51:12

They will need smaller denominations
for day to day business and I don't
see that happening, any thoughts?

Edward - Annie, Smaller Denominations

|2009-07-11 14:45:00

They do have smaller denominations for the Iraqi people in their daily living transactions and expenses, however as investors we don't need smaller denominations. That problem can be solved at your local bank when you do an exchange.

Annie - Thanks

|2009-07-11 16:15:47

Thank you for your reply, glad to hear that,this means they can pay workers
buy bread & pay every day bills, go to
the doctor. I realize that it's only
a small percentage of privately owned
banks, but they have to start somewhere
it would be nice to make a few bucks but these poor people need to get their infrustucture realigned. Annie

Annie - speaking of banks!

|2009-07-11 16:22:54

Anyone, have an idea which, banks will
be exchangeing the dinar? You would think that when the money pegs, all the banks would jump on board, they'll
get plenty by the time everone who has
dinar, starts exchanging, and trasfering it. It will help our own
economy too, since we can then pay our
own bills,and lets not forget the poor IRS; they'll be the fat cats now.

Edward - Banks with Dinar Exchanges

|2009-07-11 18:47:24

As near as we can tell the only banks that will be doing currency exchanges are Wells Fargo, Chase and Bank of America. There shouldn't be any taxes on currnacy exchanges because there are no capital gains-it's just a straight currency exchange.

Annie - Thanks

|2009-07-17 01:28:45

Thank you. I read everything I can find, but sometimes there is no easy answer. Originally the peg was to happen in 2010, just hoping it would happen before that, but we're getting closer all the time. I don't know about the rest of you, but the little bit I have is mere chump change compared to the Kurds and the rest.