Notes from Amman
Foreign banks are waiting until security stabilizes in Iraq before entering or expanding their small presence in Iraq. The banking sector in Iraq is seriously underdeveloped and foreign investment has been limited to seven banks that have had no new investment since 2004.
As security and stability increases in all areas of Iraq the banking sector will develop their systems and start investing in their particular Iraqi bank.
Currently, private lending from the Iraqi Banking sector is approximately 4 percent of gross domestic product. As soon as the security increases then there will be a demand for credit and loaning the consumers with credit loans and with out the collateral of a real estate property to secure the loan as it currently stands in Iraq banking operations.
Iraqi private banks are unwilling to accept the risk of loaning credit to the average Iraqi with out securing the loan with a nice piece of property. Most Iraqi's do not own property so Iraqi banks extending credit to them is very small and limited.
The failure of the Iraqi banks currently is their failure to attract deposits and lend money to creditworthy firms, small and medium business.
The Central Bank of Iraq is showing the total assets of the private Iraqi banking have grown 254 percent over the last two years.
The Iraqi banking sector needs to provide banking loans to small and medium size business with no real estate property to use as collateral and use the new Iraq Company for Bank Guarantees to guarantees the bank loan. This is like the FDIC in the USA.
Central Bank of Iraq said last week with the expanded bank capitalization and higher liquidity in the last two years has increased deposits in the CBI and other Iraqi Banks. The Iraqi banks would rather leave their assets on deposit then increase lending to others. With interest rates at 20 percent on deposit with the Central Bank it is no wonder they rather place the banks funds in a safe place with little risk and drawing a nice interest rate.
The Iraqi Banks have very strict rules when granting credit and this has caused the high liquidity that averages 60 percent. The banks will have to begin to lend money to contribute more to the economic growth in Iraq.
Oh, I almost forgot no RV in the month of April.
Comments
Underdeveloped banks in Iraq does not surprise me at all whatsoever. I see this as an opportunity.
Posted by: Darren Chabluk | April 10, 2007 10:55 PM