The central bank of Iraq is considering licensing several foreign banks to operate within the country, mostly in the region of Kurdistan, Sinan Al Shabibi, the bank's governor, said yesterday.
"There have been some applications to operate in northern region of Kurdistan, but their eyes are on Baghdad eventually," Al Shabibi told Zawya Dow Jones in an interview.
Al Shabibi said that the bank is considering several Turkish and Lebanese banks, but declined to disclose the names of the banks.
The Iraqi government licensed six foreign banks in 2004, including the National Bank of Kuwait, Arab Banking Corp., HSBC and Standard Chartered.
However, only Arab Banking Corp. operates a fully-fledged branch in the country as the rest chose to enter Iraq via a local partner.
"Because of the security situation, most join forces with local banks. There are a lot of banks that have expressed their interest Iraq, but they are waiting for the right time," said Al Shabibi.
The country also has six state-owned banks, the biggest of which are Rafidain and al Rasheed.
Al Shabibi hopes that Iraq's banking sector will be strengthened as it opens up to foreign banks, as they bring capital, modern banking systems, technology and management.
The government is also pushing for 25 private banks to merge.
"Our idea is to have some kind of minimum capital for banks, at least 20 billion Iraqi dinars. Some of the very small banks which do not have the capacity will have to merge, otherwise they will have to raise the capital alone," he said.
The central bank wants private banks to participate more in the country's economic activities, and for the country to be less dependent on the Trade Bank of Iraq, which is financed by a consortium of foreign lenders such as Citigroup and JP Morgan. It provides financing services Iraqi banks are unable to offer.
"We would like the government's import activities to be more diversified. We want all banks to participate. This is our policy for the future. The Trade Bank is doing fine, but we don't want to have to be completely dependent on that," he said.
Al Shabibi said the central bank is currently succeeding in its fight against inflation.
"We are using the interest rate and we sell our own bills to skim liquidity. The inflation rate now is 51 per cent, down from 70 per cent previously. Whether it will continue to go down, we will have to see," he said.