2011 was a good year for HSBC’s 70%-owned subsidiary Dar Es Salam Bank (BDSI). Full-year operating and pre-tax profit rose 921% and 877%, respectively, with almost all of this gain occurring in the second half. Year-end deposits and lending were up 70% and 81% over December, 2010.
Operating profit came in at IQD 9.4 bn, just shy of the IQD 9.7 bn level reached in 2009 though still well below the 2008 all-time high of IQD 16.6 bn. (See Chart.) 2010’s operating profit decline resulted from a 32% drop in operating revenue. 2010 operating expenses were down only 9%.
The erratic character of BDSI’s recent track record might make you wonder whether last year’s earnings growth is sustainable. A return to the 2008 level of IQD 16.6 bn this year would be a still impressive 76% jump. But will that be followed by another drop in 2013?
Deposit growth tells a more encouraging story. At IQD 662 bn, deposits are at an all-time high. This is particularly impressive in comparison with many of the other listed Iraqi banks. Last year deposits at North Bank (BNOR) and Bank of Baghdad (BBOB)—Iraq’s first and second largest private-sector banks by total assets—fell 11%, and 13%, respectively. At Iraqi Middle East Bank (BIME), Kurdistan International Bank (BKUI), and United Bank (BUND) deposits grew by only 9%, 7%, and 4%, respectively.
A significant share of BDSI’s IQD 274 bn increase in deposits may actually have come at the expense of its rivals. This amount is roughly comparable to the combined IQD 183 bn decline in deposits at BNOR and BBOB, for example.
BDSI’s deposits are also likely to have grown as a result of last year’s strong foreign direct investment (FDI) and trade flows. With HSBC as a majority shareholder, BDSI is an obvious choice for foreign companies looking for a local bank they can trust.
In fact, international business seems likely to be the primary source of BDSI’s earnings growth for the foreseeable future. Fortunately for the bank, FDI and trade are set to grow strongly for years to come as Iraq ramps up oil production to its full potential. Perhaps BDSI has at last entered a period of consistently high earnings growth.