02 February 2004
BAGHDAD--Iraq’s Central Bank has granted three foreign banks the first licenses. For the first time in 40 years, the banks will be able to open branches and offer full financial service.
Out of 15 applications, the Central Bank chose Hong Kong Shanghai Banking Corp (HSBC), Standard Chartered, and the National Bank of Kuwait (NBK) for the final stage of foreign licensing. The three banks are expected to begin operating in Iraq before the end of the year.
The move coincides with the floatation of interest rates within Iraq, as part of a broader liberalization of banking in the country. Beginning March 1, Iraqi interest rates will no longer be set by the central government, but by the markets themselves .
The Central Bank said it may select other banks at a later stage. The Bank will meet the three selected banks "to explain the remaining technical elements of the licensing process" and anticipates that "all three will be granted a license by mid-March 2004."
"The banks will be required to begin actual banking operations on-ground in Iraq no later than December 31, 2004. These banks will bring modern banking practices, capital and know-how to the Iraqi economy."
The invitation to foreign banks is the first since the banking sector was nationalised in 1964, four years before the former ruling Ba’ath party swept to power.
Private banks were allowed to open in the early 1990s to compensate for the devastating impact of UN sanctions imposed after Iraq's 1990 invasion of neighbouring Kuwait. But the sanctions and political tensions hurt the ability of the 17 local private banks to provide services and grant banking services the rest of the world takes for granted like credit cards and letters of credit.
The liberalization of interest rates is expected to help all banks in the country compete. "Effective March 1, interest rates on deposits, loans, credits, securities, and all other domestic financial instruments will be fully determined by market conditions," a statement from the bank announced.
The CBI deemed the decision as one more step in Iraq's transition from a socialist system to an open free-market economy. Current interest rates on the Iraqi dinar are about 14 percent, but Iraqi economists say they should fall dramatically as cheaper borrowing facilitates the growth of the economy.
The Central Bank also disclosed plans to establish depositor’s insurance to provide additional protection to small and medium sized depositors. The latest steps are part of the new investment law announced in September. The new law allows, among other steps, up to 100 percent foreign ownership of companies and far greater guarantees on investment.
BAGHDAD--Iraq’s Central Bank has granted three foreign banks the first licenses. For the first time in 40 years, the banks will be able to open branches and offer full financial service.
Out of 15 applications, the Central Bank chose Hong Kong Shanghai Banking Corp (HSBC), Standard Chartered, and the National Bank of Kuwait (NBK) for the final stage of foreign licensing. The three banks are expected to begin operating in Iraq before the end of the year.
The move coincides with the floatation of interest rates within Iraq, as part of a broader liberalization of banking in the country. Beginning March 1, Iraqi interest rates will no longer be set by the central government, but by the markets themselves .
The Central Bank said it may select other banks at a later stage. The Bank will meet the three selected banks "to explain the remaining technical elements of the licensing process" and anticipates that "all three will be granted a license by mid-March 2004."
"The banks will be required to begin actual banking operations on-ground in Iraq no later than December 31, 2004. These banks will bring modern banking practices, capital and know-how to the Iraqi economy."
The invitation to foreign banks is the first since the banking sector was nationalised in 1964, four years before the former ruling Ba’ath party swept to power.
Private banks were allowed to open in the early 1990s to compensate for the devastating impact of UN sanctions imposed after Iraq's 1990 invasion of neighbouring Kuwait. But the sanctions and political tensions hurt the ability of the 17 local private banks to provide services and grant banking services the rest of the world takes for granted like credit cards and letters of credit.
The liberalization of interest rates is expected to help all banks in the country compete. "Effective March 1, interest rates on deposits, loans, credits, securities, and all other domestic financial instruments will be fully determined by market conditions," a statement from the bank announced.
The CBI deemed the decision as one more step in Iraq's transition from a socialist system to an open free-market economy. Current interest rates on the Iraqi dinar are about 14 percent, but Iraqi economists say they should fall dramatically as cheaper borrowing facilitates the growth of the economy.
The Central Bank also disclosed plans to establish depositor’s insurance to provide additional protection to small and medium sized depositors. The latest steps are part of the new investment law announced in September. The new law allows, among other steps, up to 100 percent foreign ownership of companies and far greater guarantees on investment.
Ahmed Mukhtar
© Iraq Today 2004
