Lebanese banks undeterred by Iraq war

Low liquidity and insecurity are some of the problems facing Lebanese banks in Iraq. (Facebook) The raging war in some parts of Iraq hasn’t deterred Lebanese banks from expanding in the oil rich country, said bankers at a banking forum at Phoenicia Hotel. “One of the many challenges facing banks operating in Iraq is low liquidity due to the drop in oil prices and the Iraqi government’s allocation of huge amounts of money for military purposes,” Georges Andraos, head of International Banking Division at Fransabank, told The Daily Star on the sidelines of the Iraqi Banking Forum on Tuesday. “But we are still keen on exploring the Iraq market because we believe that it has some great potential,” he added. The Iraqi banking forum was organized by Al-Iktissad Wal-Aamal to discuss the various challenges facing Lebanese banks operating in Iraq, in addition to giving an overview about the country’s economic and financial outlook. Andraos said that banks operating in Iraq are trying to find solutions to the low liquidity issue with the support of the Iraqi central bank.
“In some areas of the country, salaries are not being paid on a regular basis and this is having a very bad impact on the economic activity there,” he said.
His comments were echoed by Muhieddine Fathallah, head of business development at Bankmed, who told The Daily Star that one of the problems facing his bank is low liquidity as well as the security problems in the country. “But we are doing well there and we may be expanding our operations in the country soon,” he said. “We have Lebanese as well as Turkish clients in Iraq,” he added.
Likewise, Andraos said Fransabank is now present in Irbil and Basra but was looking forward to expanding its operations in the country, especially as a good number of Lebanese companies are operating there and are in great need of banking services. “We have been present in the Iraqi market for only two years but we have had clients there for 20 years,” he said. “If the situation gets better in the country, we will surely have a better potential for business,” he added.
Andraos said his bank is involved in Iraq in infrastructure projects such as power stations and bridges but not to a great extent because of the high risk involved in such activities for the time being. “We need to get some guarantees to be able to increase our activities in this area,” he added.
He said the Iraqi central bank has requested from foreign banks with branches in Iraq to raise their capital to $25 million in June 2016 and then to $50 million in June 2017.
“This is a very big investment and when a bank invests such an amount it expects a good return on it,” he said. “We need to broaden our services to generate a good return on our investment such as lending to SMEs, but this market is still small in Iraq for now,” he added.
For his part, Wadee al-Handal, president of the Iraqi Private Banks League, said a capital of $50 million is not too high for the Iraqi market. “This amount is not really big relative to the Iraqi market and Lebanese banks were capable of meeting this criterion,” he said.
He added that Lebanese banks had a great interest in operating in Iraq. “Iraq has a budget surpassing 120 trillion dinars ($100 billion) and its imports stand at no less than $30 billion, while Lebanese banks are experts in letters of credit and letters of guarantee, which enable them in grabbing a good market share in this area,” he said.
Handal also spoke with The Daily Star about challenges facing Lebanese banks in Iraq. “The Iraqi banking market was too conservative and closed for a long time, posing a great challenge for Lebanese banks to operate there,” he said. “Our market was mostly dominated by the public sector,” he added.
However, he noted, Iraqi banks are keen to raise their expertise by learning from the Lebanese model.
Meanwhile, Ali al-Allag, acting governor at the Iraq’s central bank, said that Lebanese banks are expanding their presence in Iraq while emphasizing the need to strengthen cooperation between Lebanese and Iraqi financial institutions.
Allag said that the Iraqi central bank is keen on providing the private sector with a healthy environment to improve its operations in the country which would reflect positively on the Iraqi banking sector. “We want to increase confidence in our banking sector,” he said.
Likewise, Lebanese Central Bank Governor Riad Salameh emphasized the importance of cooperation among regional banks.
He also gave an overview about the financial situation in Lebanon, saying that the exchange rate of the Lebanese pound was stable while reserves of the Central Bank had reached a record level.
Salameh said that deposits increased by 7 percent this year while the capital adequacy ratio is 12 percent. “We expect this ratio to reach 15 percent between 2015 and 2018,” he said. “This is very important to maintain confidence and normal relations with international banks,” he added.
Salameh said growth rate is expected to stand close to 0 percent and prompted the Central Bank to plan new incentive packages worth $1.5 billion in the year 2016 with a low interest rate of 1 percent. “These include lending to SMEs, sustainable energy projects, education and real estate,” he said.
Joseph Torbey, chairman of the Association of Banks in Lebanon, said Lebanese banks could be of a great support and help to Iraqi banks because of their great expertise and the broad range of products they offer including services for the retail and corporate sectors.
He added that Lebanese banks also have great expertise in electronic banking, which can benefit the Iraqi banking sector.