An unusual feature of many of the listed Iraqi banks is that investments account for a greater share of their deposits than loans. This is true, for example, of Mansour Bank (BMNS), National Bank of Iraq (BNOI), Commercial Bank of Iraq (BCOI), Gulf Commercial Bank (BGUC), Bank of Baghdad (BBOB), and Middle East Investment Bank (BIME). (See chart. Ratios are based on year-end 2009 annual reports. Asterisks denote foreign invested banks.) From the point of view of the minority shareholder, these names are really more like Asian-style conglomerates (known as hongs in Hong Kong) than conventional banking businesses.
Consider the case of Gulf Commercial Bank, for example, where the year-end ’09 investment/deposit ratio came to 72%, compared to a loan/deposit ratio of just 20%. You can get some idea what this investment might consist of by going to the website of the Bahraini Group, BGUC’s controlling shareholder (www.bahrainigroup.com), which describes the group as being involved “primarily in the food and packaging industry” while also active in the financial services, real estate, construction, and household appliance sectors. If you hold BGUC shares, you are likely to be exposed not only to the bank itself but also to a business empire including a dairy, tomato paste manufacturer, hotel and furnished apartment complex, construction materials supplier, and Iraq’s exclusive distributor of Carrier air conditioners, among other things.
This would be a familiar seeming list of businesses to investors in companies like Singapore-listed Jardine Strategic Holdings, which has stakes in a convenience store chain, property developer, Mercedes-Benz distributor, and the Mandarin Hotel group. An obvious difference, of course, is that deposits are a less stable source of debt financing than the bank loans and securities that JSD relies on. But given the primitive nature of Iraqi banking and finance, these generally aren’t really going to be options anyway.