BEIRUT: A number of Lebanese lenders are following in the footsteps of their peers and opening new branches in Iraq to service a market where state-owned banks account for 86 percent of assets and 69 percent of credits.
BLOM, Lebanon’s second largest bank in terms of assets, will kick-start operations in Iraq this week with a branch in Irbil, Kurdistan, and another to open in Baghdad a few weeks later, BLOM Chairman Saad Azhari said at a Lebanese-Iraqi banking conference held over the weekend in Beirut.
Last month, Fransabank also opened a branch in Baghdad and one in Irbil, making it the seventh Lebanese bank operating in Iraq after Byblos, BankMed, BBAC, BLF, Credit Libanais and Intercontinental bank, all of which have launched their operations over the past few years.
“Though the unstable security situation has delayed development projects in Iraq, the country enjoys great prospects with a large gap that still exists between state-owned and private banks,” Joe Sarrouh, an adviser to Fransabank’s chairman told The Daily Star.
Sarrouh added that the stable security situation in Iraqi Kurdistan has encouraged Lebanese banks to set up branches in the northern Irbil province to finance development projects across the agriculture, construction, food and beverage and oil and gas sectors.
“Baghdad and Basra are two other locations with a big growth potential but many banks were reluctant to establish a physical presence there due to the unstable security situation,” he said.
While no major international banks have a well-established physical presence in Iraq, many are involved in trade finance and the funding of developmental projects by the private sector, Sarrouh said.
Iraqi state-owned banks had a 67 percent share of cash-credit to the private-sector as of 2011, according to a report by Sansar Capital released in 2013. Their share of credit to government is 100 percent, as government institutions can only borrow from state-owned banks.
Lebanese lenders with branches in Iraq have concentrated their operations in wholesale banking mainly trade finance and foreign currency exchange, Sarrouh said.
Private banks make profit by buying U.S. dollars from the Central Bank of Iraq’s daily dollar auctions and selling them onto the market at a higher rate of exchange.
Retail banking still lags behind due to the absence of a comprehensive regulatory framework, according to Sarrouh, who said the lack of a foreclosure process held banks back from lending to consumers.
Compared to a 55 percent average for the MENA region, private sector loans remain a small business for banks in Iraq, at a mere 6 percent of GDP as of 2012, according to a report by Byblos bank – the first Lebanese lender to establish branches in Iraq, opening in 2007.
Ayman Fatayri, head of Corporate Credit Department at BBAC bank, which has two branches in Irbil and Baghdad, told The Daily Star on the sidelines of the Lebanese-Iraqi conference that one the major challenges to consumer lending is the lack of a credit history.
BBAC, which has a loan portfolio of around $120 million in Iraq, requires collateral equivalent to over 200 percent of the loan value, he said.
“The lack of credit history requires BBAC to adopt a conservative lending strategy,” he said.
The approximately 900 bank branches that exist in Iraq serve a population of 33 million, equating to just one branch per 36,000 people.