Samir Nasiri *: banking reform is achieved government support and the intervention of the Central Bank of Iraq


Despite the numerous measures and instructions issued by the government and the Central Bank of Iraq during the last months of 2016 for the purpose of repairing and organize public and private banking, most recently the dismissal decisions and appointments that [...]

Despite the actions and the many instructions issued by the government and the Central Bank of Iraq during the last months of 2016 for the purpose of repairing and organize public and private banking, most recently the dismissal decisions and appointments issued by the Prime Minister of the general managers of government banks and the launch of the Central Bank of the strategy up to 2020, but the business results unaudited banks, particularly private banks, disappointing indicators are showing and far from the planned expectations. The reason, as is evident for the professionals, is mismanagement in some banks and non-compliance with the central bank instructions, and the intervention of the boards of directors of departments of the Executive domestic banks in particular, and the absence of the boards of directors governance and the disposal of some of them and the bank is the king of the largest shareholders. The problem here is that most of the board members have the capital and manage the bank self their potential without relying on experts and advisers, banks and banking executives are well versed work. In addition, the weakness of the internal pre-emptive censorship of stakeholders, and often twice the diagnosis and accounting, which is also confused and weakened the banking business in Iraq. As well as other external causes that have affected the Iraqi economy, namely:

Falling oil prices and the financial and administrative corruption and the war on terrorism and the lack of economic, financial and monetary stability, which requires, for the treatment and repair of the Iraqi banking sector, government support from the central bank, as well as intervention to take decisive and quick decisions to correct all the negative tracks above and address the imbalance in the Iraqi banking business and restore the public's confidence to deal with banks and the central purpose of increasing the percentage of savings at the expense of the proportion of cash compactness of the block as follows:

First: the role of government support

The formation of a specialized team is linked to the General Secretariat of the Council of Ministers and the membership of representatives of specialists and experts from:

Iraq Central Bank
Ministry of Finance
Iraqi private banks association
Economists and bankers experts selected by the President of the team does not number more than 4 experts

The team shall be considered and discussed executive measures for the reform of the banking and economic reforms first step, as follows:

1. amend laws governing the banking business and is the Banking Act (94 of 2004) and the Central Bank Law (56 of 2004) and the law of Iraq Stock Exchange (74 of 2004) and the Money Laundering Act (93 of 2004) and the Investment Law, as amended, (13 of 2006) The companies Act (21 of 1997).

2. Adoption of new financial monetary policy leads to overhaul and restructure the government and the private banking sector.

3. Develop contexts and mechanisms for coordination between fiscal and executive two policies.

4. activating the supervision and control of pre-emptive e-banking and supervision in accordance with the preparation and issuance of instructions and regulations guiding the new executive.

5. activating the role of government in building a strategy for the development of micro, small and medium-sized enterprises develop, build and clear mechanisms in which the private sector to actively participate so that they can shift from the government sector continued to a major partner and then to the commander of the market.

6. start implementing mechanisms and procedures set forth a strategy the Iraqi Central Bank for the year (2016-2022).

7. focus on increasing credit and finance, soft loans and deposits in the activation of the employment aspects of investment and reconstruction and advancing the process of economic development.

8. development of information and banking technologies in all forms of modern technology with a focus on disclosure and transparency of financial data for banks and customers.

9. instructions and mechanisms that contribute to the development of human resources and banking in particular, the protection of banking experience or leadership cadres as a national economic expertise will contribute to the stability and development of the banking business mode.

10. Develop a plan to address the financial collapse experienced by some private sector banks due to lack of current liquidity conditions and harmed financially and physically, especially in hot areas affected by terrorism.

11. Establish new criteria for the classification of private banks in accordance with international standard norms.

12. reconsider controls selection of members of the boards of Directors and Commissioners and define the duties of the Council planning and non-interference in the executive management of the banks and to focus on economic and banking specialization and expertise of the members and reduce the number of its members to 5 members only, and the adoption of advisers and experts, bankers specialists to supplement the Council's executive management advice and expertise to be nominated Central Bank of Iraq in coordination with the Iraqi private banks association.

13. establishment of investment funds and the contribution of the banks to finance large and strategic projects.

Second: the role of the Central Bank of Iraq

We believe that one of the important solutions essential to overcome the Iraqi banking sector problems currently faced by the majority of private banks and also in the coming stage will face the government banks, is thinking seriously by the Iraqi Central Bank and the Ministry of Finance in collaboration with the Economic Commission of the Council of Ministers and the Association of Private banks of direction for the study and analysis of results Business and financial indicators for the sector, as in the Iraqi banking 31/12/2015 and 30/06/2016, and focus on deposits, liquidity and financial position, capital and reserves and income from domestic and foreign banking operations and earnings achieved. And most importantly, the economic outlook for the continuing repercussions of the financial crisis plaguing the country during the years 2016 and 2017 in light of the changes of global economic fluctuations, relying on it to involve the bankers experts in the private sector and take advantage of their experience and the reports of the World Bank about the overall financial situation in Iraq to get out of the outcome of the important decisions to save the Iraqi banking sector from collapse, and one of the first solutions, most notably in the light assign a neutral auditing work according to international standard criteria for determining the efficiency of performance for each bank as follows:

1: In light of the evaluation results above are classified as private banks, according to the standards adopted in the areas of capital investment and operating cost of operation and activity funding, investment and liquidity ratio and capital adequacy, and the development of services provided to clients and the most important technical development according to modern banking systems. As well as in light of the damage that has borne the banks because of the terrorist acts and distressed debt repayment.

2: banks are classified into three types:

First place: large banks, including the size and financial position and good financial position and funding.

Second place: include medium-sized banks and put the average financial position and capable of evolution.

Third place: it includes banks that suffer from weakness in its banking and falling levels of liquidity in which to a minimum which is less than 5% of the total real deposits and capital of less than 250 billion dinars and distressed debt has more than 50% of the paid-up capital and expenditures higher than revenues.

3: after the announcement of results of the evaluation of the Central Bank of The Report seed banks rank third Optional merger agreement with another bank or more of the same rank, according to the Article 150 of the Companies Registration Act No. 21 of 1997, and no later than the third quarter of this year, otherwise apply The central bank powers to compel the banks to merge and forced Balhalten must identify the concepts and procedures for banking merger as follows:

: One definition of the banking merger

It is an agreement or a union two banks or more amicably (reflex) or compulsory (decision of the central bank) and melt-in-one banking entity and that the new entity has the ability and effectiveness in achieving the objectives of bankers merged and objectives of monetary policy and the national economy.

2 : types of banking mergers

(A) Optional integration (friendly)

This type of merger agreement and match the will of the bankers or more are after negotiations and agreements between the Governing Council and public bodies for the two banks or more after the feasibility study in all respects and will achieve the new entity of the goals with a commitment to perform all obligations and entitlements of former customers.

(B) integration (Compulsory)

That is the decision of the monetary authority (central bank) after access to the full conviction that the target bank is limping and to preserve it from the imposition of guardianship or filtered for the purpose of maintaining the funds and shareholders' equity and extraordinary circumstance, which passes by the Iraqi economy. That is, and with the help of the monetary authority, provide incentives for the troubled bank, such as tax exemptions and loans granted aid in exchange for a clear and specific guarantees.

3: For the purpose of the success of the banking merger requires:

(A) provision of data and information in accordance with the principle of disclosure and transparent for each bank of the banks covered by the merger

(B) the economic feasibility and expected results at the time of the merger study is evaluating these studies by the monetary authority before making the decision to merge.

4: carrying out financial and administrative restructuring target for banks before the merger and determine the manpower necessary technical and administrative management of the new entity.

5: The operations of the banking merger if it has, according to the above will check the following:

(A) increasing the capacity of the new bank to activate the banking activities in all areas, most notably the rise in the capital and revenues of banking operations and financial position.

(B) net profit increase that results in increasing the value of its shares in the stock market and increasing deposits and the high number of customers and increase the number of its depositors and therefore boost confidence, which is the most important thing in the banking business.

(C) the new bank's commitment to meet all its previous obligations towards financial institutions and to customers.

4: Another successful solutions to save private banks in the third arrangement is to buy some of its shares by the government banking sector and subjecting audited for BSA.

5: Transforming the Rafidain and Rasheed after Hiklthma to large private banks after merging with a large and reputable private banks.

6: the establishment of a development bank and an investment a new partnership between the public and the private banking sector and the contribution of the government of not more than 25% to be managed with the mentality of the private sector and the role of government guidance and supervision.

(*) Banking expert, member of the World Union of Arab Bankers