Lending still anemic at foreign-invested banks
Last month, Central Bank of Iraq governor Al-Shibibi told AFP he was hoping foreign banks would play a bigger role in developing Iraq’s financial system. From the banks’ point of view, he said, “the prospects are good, except for security.”
But the foreign institutions that have already entered the Iraqi market through investments in local banks don’t yet seem to be finding all that many good opportunities to grow their lending businesses. In fact, their loan-deposit ratios tend to be even lower than those of their wholly locally owned counterparts.
Consider the 13 ISX-listed banks in the chart, for example, of which the following five (the starred ones) have foreign investors: BMNS (National Bank of Qatar holds 23%), BBOB (Burgan Bank, 50.6%), BCOI (Ahli United Bank, 49%), BNOI (Capital Bank, 59.2%), and BDSI (HSBC, 70.1%). As of the end of last year, the last four of these had the lowest loan/deposit ratios in the sample. Only one of the five had a ratio above 20%, while the subsidiary of global giant HSBC ranked last with a ratio of just 4%. (The ratios are computed by dividing the “monetary credit” by the “current and deposit accounts” balance sheet items given in the companies’ 2009 annual reports.)
And while capital adequacy might be a constraint on lending even for banks with large deposit bases, this doesn’t appear to be the explanation for the poor showing of the foreign-invested banks as they don’t tend to have less capital. In fact, from the chart you could only conclude that capitalization and the L-D ratio are completely unrelated.
So why aren’t the foreign-invested banks lending? Presumably security is not the primary issue for banks that have already entered the market. More likely reasons can be found in the responses of executives polled by the Economist Intelligence Unit last July, 64% of whom said they would not invest in Iraq. In addition to violence and lack of infrastructure, they were deterred by “corruption, the bureaucracy, inadequate contract protection, and credit risks.”
If these are the main obstacles to bank lending as well, the real problem is not the security situation but the weakness of the Iraqi state. Until there is some improvement on this front, it would not be surprising if lending remained anemic at private-sector banks in general, whether foreign-invested or wholly locally owned.
http://www.iraq-businessnews.com/201...nvested-banks/