Global banks eye Iraq but questions remain
21 Jul 2013
Interest by Citibank and Standard Chartered to expand into Iraq highlights the vast potential of the country’s banking sector, but the experience of a global rival points to the many pitfalls they must navigate.
With tens of millions of potential customers, few of whom have bank accounts, the country could provide a windfall for firms that manage to grab a foothold.
Iraqis are on the hunt for a full range of services, from current accounts to insurance and mortgages, little of which is currently on offer.
But outdated regulations, a preponderance of state-owned banks, poor infrastructure, and a litany of other obstacles mean succeeding in Iraq’s banking sector is no mean feat.
"This is potentially a very, very rich market to do banking in," said one Western diplomat, speaking on condition of anonymity. "Potentially."
The industry has come into the spotlight in recent weeks thanks to moves by banking giants Citibank and Standard Chartered to establish their presence in the country.
"We see Iraq as the next big thing," Mayank Malik, Citi’s head for Jordan and Iraq, told AFP. "We see this as a giant which is waking up."
"We see ourselves as the front-runners. We want the first-mover advantage."
Citi will initially look to serve existing clients — several international energy companies working in oil-rich south Iraq are customers. But in the longer-term the multinational is looking to move into commercial and retail banking, though it has not publicly laid out a timeline.
It has high hopes for the country – Citi economists project that Iraq will have 50 million people and a USD 2 trillion economy in 2050.
The latter figure represents a 15-fold increase on current output, and is roughly equivalent to the size of India’s economy today.
And, as the sector develops, virtually the entire range of banking services are required – at present, Iraqis have limited access to loans, insurance, credit cards, mortgages and a swathe of other financial products.
But while Malik voices optimism over the potential of Iraq’s banking sector, major obstacles persist.
As Citi was opening an office in Iraq last month, HSBC announced shortly thereafter it would pull out of Dar Es Salaam, a local bank in which it holds a 70 per cent stake.
Though HSBC has couched the sale as part of a global strategy, its then Middle East chief said in 2005 that Iraq was a "long-term prospect".
"At this stage, we will not be able to make further comments on the transaction structure and timing," an HSBC spokesman said.
Diplomats and analysts have pointed to a number of key difficulties, including a lack of modern regulations to give Iraqis confidence in finance.
The fact also remains that the two state-owned banks, Al-Rashid Bank and Al-Rafidain Bank, dwarf the competition and have little incentive to innovate.