Warka Bank Saga Shows Iraq Political, Business Tensions

Iraqi banker Saad al-Bunia says Warka Bank for Investment and Finance, which was placed in insolvency proceedings by authorities this month, is a victim of its own success, with its growth threatening the near-monopoly of state banks.

“They don’t want a strong bank to operate and compete with state banks,” said British-educated Bunia, a member of one of Iraq’s old and wealthy merchant families, who accuses authorities of waging a campaign to undermine the bank, according to a report from Reuters.

The rise and fall of the country’s largest privately owned bank, and the struggle to ensure it rises again, underline the opportunities and obstacles in Iraq’s chaotic business environment.

The report says the saga also shows how political divisions plague business in Iraq. The controversy over Warka has polarised government officials and members of parliament, highlighting a rift between the Shi’ite-led government and a Sunni Muslim community which lost political dominance because of the U.S. invasion in 2003, but which still retains considerable economic power.

The central bank took custody of Warka, in which the Bunia family owns a 56 percent stake, early this month; an external auditor will study how to restructure it and whether it needs to sell assets to raise capital. Warka’s board of directors filed suit last week to try to reverse the central bank’s decision.

Central bank deputy governor Mudher Kasim said the custodianship decision was prompted by growing liquidity problems at Warka, its difficulties in meeting depositor withdrawals, and its failure to reach an agreement in talks with Standard Chartered on the foreign bank acquiring a majority stake.

“The bank expanded by giving loans – it appeared collateral for these loans was weak. What concerns us foremost is the stability of the financial sector and depositors’ rights, and thirdly shareholders’ rights,” Kasim told Reuters by telephone from Baghdad.

“This is not a bad bank and was one of the best private banks in terms of assets, technology and the number of its branches, which constituted more than a quarter of private bank branches” in the country, Kasim said.

He strongly denied any suggestion that authorities were victimising Warka. “The bank’s investment ability weakened and if capital drops even by 5 percent, the central bank can put any bank under custodianship. We gave the bank several chances to restructure but this did not work.”

(Source: Reuters)

One Response to Warka Bank Saga Shows Iraq Political, Business Tensions

  1. PAFH April 12, 2012 at 9:10 pm #

    Spring Update on the IQD, Warka Wire Transfers and Warka Bank’s Insolvency issues
    This message is meant to be absorbed and then forwarded to anyone you know who has invested in the IQD via a Warka Bank Account and especially to anyone who might be considering wiring USD from their Warka Account back to a Stateside Account.

    Anyone that now finds it prudent, necessary or desirable to wire transfer Warka funds out of Iraq and back into the US should use their Warka E-banking to access their accounts online and move the funds from their IQD Account over to their USD Account. Then they might also want to prepare the following on Word documents so that they can be copied and pasted into email messages later:

    1. Wire Transfer Request Email ~ decide on an appropriate email subject name, refer to the documents that should be attached (such as an Application for Outward Remittance of USD out of Iraq and a color copy of the ID used to open the account originally) plus include some message language that is direct and specific for best effect. You can use Word to customize the message and then copy and paste it into the message box of the actual email being sent. Using Word will allow you to tweak the message with whatever style and size of font you want (for emphasis) and also allow you to check for spelling and grammatical errors before you copy and paste it into your actual email message box. It also helps if you use rich text instead of plain text when composing your email message.

    2. Application for Outward Remittance of USD out of Iraq ~ create the form with Word using your own individual bank wire transfer information, save the customized version (for possible future wire transfers) print it, sign it, scan it, name the scan and save it somewhere convenient and ready to attach to your initial wire transfer request email. A suggested name for the scanned document (and also for the subject of the email) using your six digit Warka Account number might be: 8xxxxx Application for Outward Remittance of USD. That way when Warka receives it they’ll know exactly what it is and from whom.

    3. Follow Up to Wire Transfer Request Email ~ decide what the subject name might be, and include some message language to use for best effect when Warka initially ignores your request to move the funds from your USD Account over to a SWIFT transfer line item (with a reference number) or when they (seemingly) misinterpret your request and do something completely different with your accounts ~ like putting the USD you want transferred to a stateside account back into your IQD account.

    Note: And this is especially important. After you’ve sent your initial email (with attachments) requesting your wire transfer from Warka, one of two things will continue to happen: Either Warka will answer you with an email and you’ll need to respond to it, or Warka will ignore your email request and you’ll have to follow up. Either way, I think it’s important to keep all of the email transmissions to and from Warka in a single string so that the entire history of your wire transfer request is always shown with each transmission and there is less chance of confusion (on Warka’s part) as to what you’re trying to do.
    To accomplish this you will always be faced with two options:
    1. When Warka responds to your email, select the Reply option to send your answering email
    2. When Warka ignores your email, select the Forward option to send a follow up email

    It took 26 days to complete my last wire transfer in February – March 2012. The previous wire transfer in November – December of 2011 took a total of 17 days to complete and the one previous to that in September 2011 took a total of 14 days.
    It should be noted that another Warka client that I know managed to receive a successful wire transfer within 9 days in January 2012, but that might be the exception to the rule now because of Warka’s insolvency issues.
    At present, I know of still another Warka client who initially applied for a wire transfer of USD back to a stateside account over a month ago and all that the Warka staff has done so far is pluck the funds out of his USD account and put them back into his IQD account.
    Fairly frustrating, especially since the signed Application, the initial email and the 3 follow up emails he sent all contain language that is pretty succinct as to what his request actually is.
    Bottom line is be prepared to dig in and nag (politely) if you’re determined to wire funds back before the insolvency issues are resolved. Hopefully, that won’t take too long though.

    The email addresses that you’ll need to be aware of are as follows:
    • Warka Wire Transfer Department ~ [email protected]
    • Warka SWIFT Department Manager ~ [email protected]
    • SWIFT Operations Team ~ [email protected] ~ outside of Warka
    • Mohammad K Issa ~ [email protected] ~ Warka Bank International Foreign Relations Department Director at the main branch in Baghdad.
    • Rowaida Mohammed ~ [email protected] ~ Warka Bank Customer Services for International Foreign Relations at the main branch in Baghdad.
    • Central Bank of Iraq ~ [email protected] ~ for when Warka keeps ignoring you or misinterpreting your request and you have to include a cc to a higher authority.

    In order to understand what is currently going on with the IQD and with Warka Bank, it might be good to read articles at http://www.iraq-businessnews.com under the Banking and Finance link.
    You might have to keep scrolling and continue to click on the Older Entries link at the bottom of the page to find and see them all, but here are the titles and links to some of the articles to read:
    • APRIL FOOL: Worldwide Celebrations as Iraqi Dinar Revalues 1:1000! (2 pages)
    • Warka Bank Saga Shows Iraq Political, Business Tensions
    • Warka Bank placed under ‘Guardianship’
    • Cash Only: Why the Messy Banking Sector Endangers Iraqi Development (4 pages)
    • Removing Zeros from Iraqi Dinar to Start in Sept
    • Iraq has More than $60 billion in Foreign Reserves
    • Iraqi Dinar Increases in Value
    • Iraq to Grow 36% in Three Years
    • Warka Bank enters Djibouti Market
    • Central Bank Defends Weak Iraqi Dinar
    • Impact Iraq: Can the Country Save Itself from Global Economic Crises? (3 pages)

    Of course, there are plenty of other articles to read at this site, but these few should inform you as to the current state of an Iraqi Dinar/Warka Bank Account investment. Sometimes it is helpful to read the comments attached at the bottom of each article, sometimes not; but at least some of the comments may widen the scope of the article for a better understanding as to what it actually means to be an IQD investor.
    After going through 3 extended Warka wire transfer sagas myself, helping 2 other people to get through their wire transfer ordeals and reading all of the above mentioned articles, my take on the current IQD investment situation is this:

    • Warka Bank is still the largest private bank in Iraq and is not about to go under.
    • The Central Bank of Iraq won’t allow Warka to go under because it needs the 300 plus ATMs and the 100 plus branch banks that Warka’s owners (the Bunnia family) created in order for the CBI to deal with the upcoming redenomination of the IQD.
    • Warka Bank might have grown too fast for its own good, but that only makes it an extremely successful bank, not a bad one.
    • There is also an (unreasonable) mindset of distrust of private banks in Iraq and perhaps even throughout the other Arab nations in the region as well; which only serves to hinder all private enterprise growth. This prejudice against and envy of individual success is rampant, unfortunately.
    • Warka Bank being under the guardianship of the Central Bank will (I think) serve to calm down all the local haters of success and eventually will mean a lasting stability for us foreign investors as well as for Iraqi depositors to bank on.
    • The question which has been apparent for approximately a year now is whether or not the Bunnia family owners are willing to give up controlling interest in Warka Bank (presently they own 56%) in order to achieve a greater liquidity with the influx of cash which a merger and the subsequent reduction of control would bring.
    • When Warka started experiencing liquidity problems, they entertained offers of a merger from the British based bank Standard Chartered and while those negotiations were going on Warka borrowed 100 Billion IQD (US$91 Million) from the Central Bank of Iraq as a bridge loan until the deal was completed.
    • The Standard Chartered deal fell through (probably because Standard Chartered wanted a 51% stake in Warka) and so Warka was left with the same liquidity problems as before plus an additional debt to the Central Bank.
    • The auditor which will be appointed under the guardianship of the CBI will probably be actually working for the CBI (even if publically he claims neutrality) and so will probably come up with a solution which will mean that the Bunnia family and Warka Bank will get a public sector partner (such as a State run bank) ~ whether they like it or not.
    • The Bunnia’s might hate it, but in the end it will be good for depositors who are trying to withdraw their dough.

    I’ve had to withdraw from Warka lately to pay bills, but I’d rather have left the investment alone for the long run up to a significant revalue of the IQD.

    When I am again flush enough to afford it, I plan to replace all that I’ve withdrawn so that I can again have the chance to get 7% on savings, 10.5% on CD’s, (hopefully) more than 10.5% by investing in the ISX and (possibly) double or triple everything I’ve invested when the IQD starts to revalue past 1 to 1 with the USD towards 2 or even 3 to 1 with the USD ~ similar to what the Jordanian Dinar or the Bahraini Dinar or the Kuwaiti Dinar are today.
    I don’t see the USD recovering from its decades long decline any time soon (if at all), so I’m sticking with gold, silver and copper bullion and the IQD in a Warka Account to put my USD savings into.

    Buying IQD on the internet and/or holding IQD in cash form, in my opinion is useless for a foreign investor especially since the CBI is about to recall all the existing banknotes and exchange them for the new banknotes (and the new banknotes probably won’t be available for trade-in or purchase via the internet once they are introduced into circulation).
    It will be the new low denomination banknotes that will be subject to revaluation, and eventual recognition by the international community, not the existing high denomination banknotes that everyone is holding now (including all the Iraqi citizens).
    I was in Iraq when the then local IQD banknotes (with Saddam’s picture on them) were phased out and exchanged for the currently used banknotes and/or USD. It took about 90 days back then; before the Saddam banknotes were declared void.
    That was because of the war and the Coalition Provisional Authority (the US and the British) introducing both the USD and the currently used IQD banknotes (made in England) into the Iraqi economy. Everybody was in a hurry so that the economy didn’t collapse completely.

    This time around the CBI is going to allow both kinds of banknotes (the newer lower denomination bills and the existing larger denomination bills) to co-exist for a (reportedly) 2 year period until the CBI is satisfied that the redenomination has been successful.
    Redenomination success would mean that the majority of the existing large denomination IQD banknotes are exchanged out of circulation and the Iraqi citizens become confident enough in the value of their own new low denomination currency that the use of USD banknotes is phased out as well.

    The Saddam banknotes could not be spent outside of the borders of Iraq.
    Instead, there was an international version of the IQD that was made in Switzerland and recognized and exchanged for other currencies by the international community.
    Similarly, the existing IQD banknotes cannot be spent outside of the borders of Iraq.
    Instead of an international version of the IQD made in Switzerland, the Iraqis currently use the USD, made in the US, and recognized and exchanged for other currencies by most of the international community.

    In order for the new low denomination IQD banknotes to replace the USD as the Iraqi international currency, the new low denomination IQD banknotes will have to recognized and be exchangeable by the international community in order for them to be used for the purchase and importation of goods and services into Iraq.
    UN Sanctions under Chapter VII will probably have to be resolved and the Iraqi HCL will have to be in place (and effective) before the international community will unilaterally recognize the new lower denomination Iraqi banknotes (yet to be issued) as the legitimate international (and exchangeable) currency of Iraq.
    That being the case, when the redenomination process starts, all three types of currency (the existing high denomination IQD, the new low denomination IQD and the USD) will at first all be recognized, exchanged and used inside the borders of Iraq and only the USD will (still) be spendable outside of Iraq. The existing large denomination banknotes will be exchanged at the current CBI rate of $1:1166 (or whatever the exchange rate is by the time redenomination starts) and the new lower denomination banknotes will be exchanged at the new rate of $1:1.166.
    That way an existing IQD10000 banknote and a new IQD10 banknote will both be able to be exchanged for US$8.57 and the economy will absorb the two different rates and the 3 different currencies (including the USD) smoothly and without a lot of strife.
    Iraqi merchants will just have to decide whether to advertise their goods and services at the existing currency rate or the new currency rate. Either way, IQD10000 or IQD10 or US$8.57 will all spend equally.

    When the rest of the international community finally recognizes and accepts the new lower denomination IQD banknotes as legitimate payment for goods and services outside of Iraq, then they will be exchangeable for the USD and all the rest of the accepted international currencies outside of Iraq. At that time, the CBI and the GOI will undoubtedly institute laws and policies that will severely limit the use of the USD inside Iraq in order to cut down on black market activities and also to help install confidence in the new currency on the part of the Iraqi citizens.

    When all of this redenomination has successfully taken place, the Iraqi currency as a whole (including the new lower denomination IQD banknotes, electronic Warka accounts and stock prices on the ISX) will (finally) be in a position to incorporate a significant revaluation to match the growing Iraqi economy.
    A revaluation could take the exchange rate from $1:1.166 to $1:1 or even more; but while the rest of the world wouldn’t mind a revaluation to $2:1 or even $3:1, the CBI and the GOI are going to want to keep that exchange rate as low as possible in order to be competitive exporting Iraqi oil, natural gas, gold, silver, dates, copra, etc……
    The GOI will also want to encourage tourism and outside investment into its infrastructure, so it will serve the Iraqi economy best to be the new international “bargain” by keeping the exchange rate of its currency as low as possible.

    For us IQD investors it will mean a chance to possibly double or triple our Warka investments in the future; but in the meantime while we are waiting, we can still enjoy 7% on savings, 8.5%, 9.5% and 10.5% on CD’s and possibly even more by investing in the ISX.
    You never know when an Iraqi company might suddenly take off and become the next “Microsoft” of the investing world, especially with the encouragement of foreign investment and technology.
    No foreign investor or any Iraqi citizen for that matter is suddenly going to be a millionaire based just on a new revaluation of the IQD, but that doesn’t mean the investment is a bad idea. In fact, in my opinion it’s still the best choice available to the average investor.

    For additional information on the owner’s of Warka Bank go to:
    http://www.al-bunnia.com/HMBS.pdf

    The Bunnias also have a substantial stake in Baghdad Soft Drinks which has the majority (approximately 90%) of the Pepsi distributing rights in Iraq.
    The Bunnia’s are an old and wealthy family and the privately owned company (HMBS) is over 100 years old so they are not going to let go of the success of Warka Bank without a fight.
    By sticking with your deposits in Warka, and investing in Warka Bank (BWAI) and Baghdad Soft Drinks (IBSD) on the ISX you’d be bettin’ with the Bunnias ~ which might not be a bad idea as the East inevitably rises towards and eventually passes the West financially.