Iraq is moving towards restructuring government banks, after this apparatus became unable to provide modern banking services, and it became burdened with a deep legacy of accumulated burdens, credit defaults, and other problems.
The demands for restructuring came after years of pressure and demands from the International Monetary Fund to restructure Iraqi government banks, which hold most of the country’s deposits, to develop its banking system and enable it to enter the global banking market and make it more in line with the economy.
Government Bank Acquisition
The Prime Minister’s Advisor for Economic Affairs, Mazhar Mohammed Saleh, said in an interview with Shafaq News Agency that “the restructuring of banks came in accordance with the government’s program that outlined the features of comprehensive banking reform, as government banks, as they dominate 88% of the banking system’s investments, and the private banking system only has 12% of those investments. Therefore, the competitive foundations of the banking market are incomplete unless government banks are placed on the rules of market work in terms of efficiency, administrative governance, and the development of compliance levels similar to global banking,” noting that “the reform will include private banks with the same standards.”
He added that “the basics of reform in private banks are viewed from the perspective of what is called financial depth, one of the most important indicators of which is (the ratio of cash credit granted to total deposits in private banks), but in contrast we find that the market share of no more than 63 private banks still does not exceed 15% of those credit and creative operations, compared to the government banking system’s acquisition of 85% of credit activity, deposits and banking investment operations, which indicates dominance with its assets or assets over the total assets of the banking system.”
He pointed out that “it is time to reform the banking sector, both governmental and private, in a way that achieves homogeneity, unity and high competitiveness in the banking market, in addition to its governance and digital integration with the global banking market. This is what the banking reform policy that the government is currently adopting is working on, in coordination with stakeholders included in the reform steps and its current program in the governmental and private banking sector.”
The process of studying the restructuring of Iraqi banks began after Prime Minister Mohammed Shia Al-Sudani met with a delegation from the global company Ernst & Young, where he directed on 1/27/2023 to implement a plan to develop the performance of Rafidain Bank for an eight-month period, through the global company.
Difficulty of the structuring process
The former director of the Central Bank of Iraq, Mahmoud Dagher, said in an interview with Shafaq News Agency, “The government banks and the process of restructuring and developing them and making them consistent with modern banking work is very difficult for several reasons, including that these banks have become a treasury for distributing salaries to government employees more than they are banks for carrying out banking operations.”
He added that the other reasons are that the technical level in these banks is almost non-existent. In fact, these banks, especially Rafidain and Rashid Banks, would not have been able to accomplish any work without the electronic payment companies that support them. Therefore, they would not work without these companies. In addition, the huge number of their branches and the large number of employees in them makes it difficult to change the reality of these banks.
He pointed out that “there are international sanctions and decisions by courts abroad, proving the indebtedness of some government banks that are not resolved, and this is the reason for imposing international isolation on them, and therefore they cannot deal internationally,” stressing that “it is absurd to spend huge sums of money that do not lead to decisive results, as all the costs spent on these banks will not lead to restructuring in order to coordinate the work of government banks, especially Rafidain and Rashid and some specialized public banks in a way that is parallel to the modernization and technological development work that took place in banks such as the Trade Bank of Iraq.”
The two government banks, Rafidain and Rashid, were subjected to international sanctions during the 1990s following Saddam Hussein’s invasion of Kuwait, and they are still imposed on international dealings with them, especially with regard to the issue of financial transfers.
old banking system
Economic expert Basem Jamil Antoine said in an interview with Shafaq News Agency that “government banks have been operating for a long time within an old banking system without modernization, and these banks must keep pace with international banks,” adding at the same time that “these banks are the safety valve.”
He added that “these banks still need to develop and eliminate administrative routine and have employees take training courses to keep pace with the developments that have occurred in global banks,” indicating that “banks are not cash stores, but rather they must provide advanced credit banking services.”
He stressed that “the idea of restructuring banks has been on the table for twenty years, and ideas and studies have been presented in this regard, but they have not been adopted,” stressing that “the bank needs security and administrative stability and independence in its work.”
The Ministry of Finance owns six government banks: Rafidain Bank, Rashid Bank, Al-Nahrain Islamic Bank, Agricultural Bank, Industrial Bank, and Trade Bank of Iraq.
Rafidain Bank is an Iraqi government bank, established in Baghdad in 1941, as the first Iraqi commercial bank. It has 146 branches inside Iraq, and some other branches are spread outside it in Jordan, Egypt, the United Arab Emirates, Lebanon, Bahrain and Yemen.
Rashid Bank is an Iraqi government bank, established in Baghdad in 1988, as an Iraqi commercial bank, with 162 branches spread across Iraq.
shafaq.com
