“They want us to direct our attention to the private sector. So our plan is how to support the private banks in all fields.” said Fadhil Nabi, the deputy finance minister.
In 2006 Iraq decided to revamp its financial system, particularly through a restructuring of Rafidain and Rashid, re-organising the central bank’s supervision department and developing the private sector.
Both the World Bank and the IMF agreed in 2009 to help advise and implement the plan although progress has been slow.
Rafidain bank has $28 billion in external and internal debts, while Rashid has debts of $1 billion. Most external debts were racked up by the government during Saddam’s time.
Part of the plan is a capital-raising scheme for private banks to boost capital for each institution to $213 million by June 2013, which is also expected to spur some consolidation within the sector.
However, industry officials say while raising capital will aid private banks, more needs to be done to modernise Iraq’s financial system to open up banking for private banks.
“Our banks are lagging other banks and they cannot deal with the international and world banks because we do not have a full electronic system,” Nabi said.
Only eight private banks offer ATM machine and credit card services. Interbank and international payments do not exist, a worry for foreign firms seeking to invest in Iraq and help with its reconstruction.
The central bank is working with the U.S. Agency for International Development (USAID) to create a single gateway for interbank and international payments.
“Imagine a foreign investor coming to Iraq and carrying money in a suitcase,” said Smeism. “We should have a developed banking system to ensure capital flow and movement operates in the same way as the rest of the world.”