The Iraqi subsidiary of UK bank HSBC is eyeing opportunities to fund infrastructure projects as the country is being rebuilt, while the lender gradually opens more branches, the unit’s chief executive said, in an interview for Reuters.
As Iraq’s economy recoves slowly after years of violence since the US-led war in 2003, regional and some international banks are establishing a presence in the country as they hope to capture some of its long-term, mostly oil-driven growth.
“Iraq is at the next stage of development, we’re moving beyond security considerations and into the economic recovery. And the banking sector is an interesting proxy for the wider economy,” said James Hogan, chief executive for HSBC in Iraq.
HSBC re-entered Iraq in 2005 when it bought 70 per cent of local lender Dar Es Salaam bank, which has 16 branches across the country and has plans to open an additional four to six in the next 12 to 18 months, Hogan said.
The UK banking giant was active in Iraq at the beginning of the previous century, originally operating as the Imperial Bank of Persia, until the country’s lenders were nationalised in 1964.
Iraq’s banking sector comprises seven state-owned banks and 36 private lenders, which are expected to gradually consolidate, especially after Iraqi regulators requested that all banks increase their minimum capital to 250 billion Iraqi dinars [$210m] by 2014.
In the case of HSBC’s subsidiary, the new capital requirement means its current capital base of 57 billion dinars will be increased five-fold in the next five years, Hogan said.
Iraq’s economic prospects are largely dependent on oil- and gas-related income, but the government is expected to spend heavily on the country’s infrastructure, offering opportunities to lenders like HSBC.
“Once we have a new government in place, they will likely focus on the budget for next year, and we will see capital spending largely being driven by new infrastructure such as road projects, the need for cement, and building a telecommunications infrastructure,” Hogan said.
HSBC is currently working with an international organisation, which it did not name, that is buying up cement plants in Iraq for which it hopes to be the arranger and lender, Hogan said.
Most of the infrastructure spending is still government-led but a private sector is slowly emerging, providing potential new sources of income to the banks operating there.