Here we are six years later and they say the security in Iraq has improved that maybe true for now and all we have are terrorist actions or incidents in the country. If the security has improved how about the banking industry for the last six years has it improved just the same as the security.
Listening to a news program broadcasting from Baghdad and the newscaster starts talking about the Iraqi Banking and says, “Despite the 28 private banks in Iraq, it still needs to start the role of its public and private banking sectors to further stimulate the Iraqi economy, particular as Iraqi development processes need greater activation of this role. It is worth noting that the performance of these banks has been ineffective, because their role has been restricted to absorbing liquidity from the citizens.”
Their are 28 banks in Iraq that cannot develop themselves due to many reasons such as the legislation that restricts their work and hampers the reconstruction phase of Iraq. The restrictions are but not all are in the investment field which says private banks can only invest 20 percent of their capital.
Some bank owners think this prevents them from succeeding and growing their own banking operations in Iraq especially the Islamic banks that make up 25% of all banks in Iraq.
A few banking experts are calling for special legislation for Islamic Banks that would be different then the current Law ‘Law of Banks No 54 Year 2004’ or they would like to see an amendment to this law that would include regulations governing the work of Islamic banks.
Their are many problems with the banking industry in Iraq with all the conflict for the past several years and longer with no interaction with the rest of the banking world things are not up to standard with most banking practices.
Some bank owners say that this law is backwards and they should be allowed to invest more or all there capital on reconstruction projects. Islamic banks are prohibited from charging interest which is against Islam, so these type of banks are crippled from any bank loans. The Islamic banks would like to invest all of there capital in reconstruction projects so that they can grow their banking operations. To do so they would have to ask the Central Bank of Iraq (CBI) for an amendment which the CBI was just not interested.
Do you still want to invest and or deposit your money in Iraq?
You are probably wondering after reading this what about the Iraqi banks that have partnered with foreign banks?
We are slowly learning that none of the Iraqi banks that have partnered with foreign banks have not benefited in any way.
Did you know that foreign banking partners did not send any Iraqi employees abroad to be trained rather, the foreign banks sold there own banking systems software hardware for millions of dollars paid for by the banks shareholders.
It is tough to be a smaller bank with less capital and to compete with foreign partnered Iraqi bank’s capital which is 70-85% of foreign capital.
To attempt to fix this problem the Central Bank of Iraq (CBI) have suggested or made several proposals but all the private Iraqi bank owners had rejected them all. Such as the Iraqi Private banks should restructure and to consider merging and some private banks have responded and the others had rejected the CBI suggestions.
The CBI expert stated why the merger was rejected by saying “This proposal is two fold: First, these banks have small capital and cannot survive with competition with international banks. This is because when Letters of Credit that need liquidity are opened and the Central Bank refrains from cooperating in this regard, these banks have then to depend on their own capital and their only options would be to merge, restructure themselves, or establish a new partnership in order to become large banks or companies that are capable of competing in the market”.
One of the main reasons for the Iraqi private banks to not merge is that a lot of them are family owned. I wonder which Iraqi bank first comes to mind!
Those family owned private Iraqi banks don’t want to be taking orders from a foreign banks chairperson and have no control. They don’t want anyone watching over them to tell them how much money they can and cannot spend while they live the high life.
There are problems and difficulty in Iraq’s banking industry and it is going to take time to move the industry to the 21st century.