Banking Sector Introduction
The two largest banks in Iraq is Trade Bank (Public) and North Bank (Private).
There are 7 state-run banks, 23 private banks, 11 Islamic banks and 11 foreign banks operating in Iraq. The Central Bank of Iraq, established as Iraq's independent central bank by the Central Bank of Iraq Law of March 6, 2004, supervises the banking sector, maintains the price stability, implements monetary policy, manages foreign reserves, issues and manages the currency and issues licenses.
The banking sector and banking infrastructure in Iraq and Kurdistan offers unprecedented investment opportunities. "Basic modern banking practices – like electronic funds transfers for payroll or other banking needs – are almost non-existent and credit facilities are hard to come by. Automatic teller machines remain a novelty while mortgages and loans are limited," says Shwan Zulal, a London-based analyst with a legal background.
Mr. Zulal argues that "Iraq has only a few banks with the ability to transfer funds electronically and the number of branches able to undertake this sits at around 240. Transferring funds directly to Iraqi banks remains a patchy process and it is more often done through other banks in the region, such as more reliable sister bank in Jordan or the United Arab Emirates."
Many Iraqis lack access to a bank account - an estimated 80% vs. 50% in Morocco, a country with relatively low banking penetration rate. The public's trust in the Iraqi banking sector remains low, due to negative past experience.
The most important banks are state-owned giants like Rasheed and Rafidain banks, which account for the vast majority of banking business in Iraq. Recently, there has so been a surge in number of financial and investment firms. Around 40 financial and investment licenses issued to date.
"Iraq currently has around one local banking branch for every 60,000 people. Compared to other countries in the region, this is very low: for example, the average in Saudi Arabia is around one branch for every 3,500 citizens," adds Mr. Zulal.
Thus, Iraqi market is largely under-banked. The growth rates of 200% in a single year are common occurence, for example, North Bank recorded deposit growth of 45% in the first half of 2012 to reach ID917 billion, attracting customers with a deposit rate of 7%. This encouraged the bank to increase loans by 27% in the first six months of 2012.
Policy wise, In recent years, the CBI has implemented two prudential supervision policies: (1) requiring all private-sector banks to meet arbitrary capital targets (The government believes that there is a need for a consolidation and sees 10 strong private banks to emerge, making at least 13 takeover targets.), and (2) imposing an impossibly burdensome anti-money laundering (AML) regime.
While capital adequacy is normally measured as a ratio of capital to risk-weighted assets, the CBI has instead imposed absolute levels of capital (IQD 150 billion by the middle of 2012, IQD 250 billion by the middle of 2013) regardless of the size of the banks' loan books.
"Given that most of the banks have more cash than loans, there is really no justification for this on prudential grounds. The policy is rather an attempt to force the banks to lend more and to coerce the smaller banks into merging with one another. It is, in other words, an attempt to replace market forces with central planning," argues Mark DeWeaver, the principal at Quantrarian Capital Management.
Furthermore, Mr. DeWeaver believes that the biggest challenge to the banking sector in Iraq is not compliance and accounting standards. He says: "The real issue with the banks is not how they're reporting but what they're really doing. And a lot of what they're really doing involves related party transactions, in which the majority shareholder family is using bank funds for projects of its own. An interesting example of this is that majority shareholders apparently sometimes will get a line of credit from their own bank to subscribe to the bank's rights issues. In other words, when their bank has a rights issue, they'll take up the rights on the shares that they're holding by borrowing money from their own bank to pay for them. That means that the capital base of the banks is not quite what it seems. If those majority shareholders don't pay back these loans, the new capital disappears. As long as everything's going fine for the majority shareholder family, such capital is real capital I suppose but it is very contingent on the majority shareholder's ability to repay the bank."
According to the World Bank in 2010:
"Total assets of the system amounted to ID 329 trillion–ID 285 trillion (87 percent) and ID 13 trillion (4 percent), belonging to Rafidain Bank and Rasheed Bank respectively. Official figures indicate that private bank assets only amounted to 3 percent of total assets, but this understates the real picture. Total assets according to official figures are very large in relation to GDP when compared with the average for MENA countries (318 percent of GDP compared to 130 percent for the MENA average) however, as explained below, official numbers significantly overstate the real picture.
The comparison between state-owned and private banks is significantly skewed because the two large state-owned banks' balance sheets are inflated by public sector assets and liabilities accumulated under the previous regime, which have not yet been fully cleaned up (see below). Out of total assets of ID 302 trillion for Rafidain Bank at end 2010, ID 257 trillion reflected valuation losses from previous periods. Once the financial restructuring of the state-owned banks has been completed, the balance sheet of the state-owned banks could be reduced by as much as ID 259 trillion.
Thus assets of the state-owned banks could amount to as little as ID 60 trillion, nevertheless still dwarfing the ID 10 trillion for the private banks
Rafidain Bank is the largest bank in Iraq and Rasheed Bank is the third largest; together they account for 62 percent of Staff adjusted bank assets (but more than 90 percent of bank assets, according to official figures). They also have the only nationwide branch systems (165 for Rafidain Bank and 137 for Rasheed Bank. Depositors believe Rafidain Bank and Rasheed Bank carry an implicit Government guarantee, which gives them an advantage in deposit mobilization. They are also recipient of Government deposits. These advantages are to some extent balanced by non-remunerated treasury functions on behalf of the Government."
List of Largest Banks in Iraq and Kurdistan (Private)
North Bank for Finance & Investment (Baghdad/ Al Alwea)
Market Capitalization: US $ 473 million (2013)
North Bank is currenlty the Largest Bank in Iraq (Private)
United Bank for Investment (Baghdad)
Market Capitalization: US $ 398 million (2013)
Baghdad Bank (Baghdad/Karada outside)
Market Capitalization: US $ 316 million (2013)
Commercial Bank of Iraq (Baghdad)
Iraqi Middle East Bank for Investment (Baghdad)
Investment Bank of Iraq (Baghdad)
Dar Al-Salam Investment Bank (Al-Sadoon Park)
Mosul Bank for Development & Investment (Mosul)
Babylon Bank (Baghdad)
Basrah International Bank for Investment (Baghdad)
National Bank of Iraq (Baghdad)
Credit Bank of Iraq (Baghdad /AL-Sadoun)
Economy Bank for Investment & Finance (Baghdad /Mansour)
Sumer Commercial Bank (Baghdad)
Gulf Commercial Bank (Baghdad)
Warka Bank for Investment & Finance (Baghdad)
Union Bank of Iraq (formerly: Union Bank of Industrial Investment) (Baghdad)
Ashur International Bank for Investment (Baghdad)
Mansour Bank for Investment (Baghdad)
Trans Iraq Bank (Baghdad)
Emerald Bank (Erbil)
Bank Al-Huda (Baghdad)
Erbil Bank For Investment & Finance (Erbil)
List of Largest Banks in Iraq (Public)
Rafidain Bank (Baghdad)
According to the World Bank, Rafidain Bank was established as a private bank in 1941 but was nationalized in the 60s. Rasheed Bank was established in 1988 by carving out non-performing assets from Rafidain Bank. Both banks suffered losses during the two gulf wars and economic sanctions, including through looting and physical damage to branches. Both banks have been performing quasi-fiscal activities including certain treasury functions without fees, directed lending, and foreign borrowing on behalf of the Government. The latter led to very large foreign exchange valuation losses because of the sharp depreciation of the Dinar following the second Gulf war. Past losses on account of war and valuation changes are still carried on the books of the banks, and assets are accordingly highly inflated (revaluation losses were equivalent to 185 perent of GDP in 2009).
Aassets: US$ 20,3 billion
Trade Bank of Iraq (Baghdad)
Trade Bank of Iraq (TBI), wholly owned by the Government of Iraq, was established in July 2003 to facilitate Iraq's international trade and the reconstruction of the country after the expiration of the UN Oil-For-Food Programme. The bank quickly developed into a highly credible and effective organization. In a short period of time, TBI built relationships with an international network of 134 prime banks - the Consortium banks being at its core - covering 63 cities in 39 countries. This gave TBI a truly global reach, a competitive advantage and the ability to provide a diverse range of services.
Assets: US$ 14,3 billion
Rasheed Bank (Baghdad)
Rasheed Bank was established in accordance with law (no.52/1988). It became a public company in accordance with law of public companies(no.22/1977)on 4.Dec. 2001. Its capital reached ID.2billion fromID.1billion. The Bank has (138) branches (61) branches are in Baghdad and (77) branches are outside Baghdad . The General Administration includes within its formations (13) divisions and (56) departments.
Assets: US$ 7,3 billion
Industrial Bank of Iraq (Baghdad)
Agricultural Cooperation Bank (Baghdad)
Real Estate Bank (Baghdad/Karada Outside)
Iraq Bank (Baghdad/Al-Mansour)