June 15, 2011
22 out of 32 private banks reach $85
million capital target needed to spur
banking activity. Banks that fail may
have licenses revoked.
Most of Iraq’s private banks have reached the central bank’s $85 million capital requirement level aimed at diversifying the financial sector’s activities, the head of a private banking association said on Tuesday.
Iraq is slowly getting back on its feet as it emerges from years of war and economic sanctions, and Iraqi banks hope that multi-billion dollar deals signed with international firms to develop the country’s vast oil reserves will spur lending and help private financial institutions flourish.
The central bank laid out a three-stage programme in 2009 for banks to raise their capital. The deadline for the first stage is end-June, when banks should reach capital levels of 100 billion Iraqi dinar ($85 million).
By June 2012, banks need to boost capital to $128 million and the third stage is for June 2013, by which time capital levels need to be at $213 million.
Abdul-Aziz Hassoun, executive director of the Iraqi Private Banks League, an independent organisation to support private banks, said 22 banks had so far reached the $85 million target.
He said another three banks were in talks to merge in order to reach the required level.
“The private banks are on the right path,” Hassoun told Reuters during an interview.
“Only seven banks did not undertake increasing their capital and they have to explain this to the central bank,” he said, adding that the central bank may withdraw the licences of banks that failed to meet the target.
According to the central bank website, OPEC oil producer Iraq has seven state-owned banks, 23 private banks, and eight Islamic private banks.
Its banking sector is dominated by two state-owned banks, Rafidain and Rashid. Much of the private banking activity is limited to deposit services and a small amount is personal lending.
“I personally agree with the capital increasing (decision)…in order to be able to enhance the financial entities’ capability to handle huge banking operations which are monopolised by the government banks,” Hassoun said.
He said private banks also needed to increase other services such as credit cards and ATM machines. Only eight private banks currently offer these services.
Ahmed al-Buraihi, a central bank deputy governor, told Reuters on Tuesday it was important to increase private banks’ capital to help raise their lending capacity.
“This planning is based upon anticipating the future of Iraq’s economy,” he said, referring to expected huge growth in the country’s oil and industry sectors. (By Aseel Kami; Editing by Serena Chaudhry and Toby Chopra)