A Year of Change for BDSI

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.

7 Responses to A Year of Change for BDSI

  1. emmett April 8, 2012 at 6:09 am #

    Nice artice…I wounder what is holding the banks back in the market. I think alot of people are still waiting on the auditors report to come back. However it was always thought of that Dar Salam was a strong bank anyway.

  2. emmett April 8, 2012 at 6:16 am #

    Wever someone you might want to interview is Rand Hultz…I knew the guy back in the day in Iraq during the IPO days of alot of banks.He started hedge fund but was kiddnaped and recently he was released and the story was explained of his business dealings with the ISX and various banks. I think his opinion and interview will be very noteworthy….He raised over 5 milllion and some state he rasied 25 million to buy shares. I know he even launch a trading company on the ground in Iraq trading wheat, oil, and sugar…Here is the article…If you talk with him tell him I said hello and wish things would of been different.
    An Entrepreneur Surfaces, as Do Questions
    http://www.nytimes.com/2012/03/22/world/middleeast/rand-hultz-reappears-in-iraq-but-mystery-remains.html?pagewanted=all

  3. DeWeaver April 10, 2012 at 4:55 pm #

    Hi Emmett: Thanks for that link. That is quite a story.

  4. DeWeaver April 10, 2012 at 4:56 pm #

    Thanks, Emmett. It is funny how no one seems to have noticed BDSI’s good results, isn’t it.

  5. Tom April 12, 2012 at 4:43 pm #

    Mark, are there any updates on Warka Bank and the CBI’s intervention? Do you know whether the conserverator issued his report. Thanks for any imput.

  6. DeWeaver April 13, 2012 at 5:46 pm #

    Hi Tom:

    There was an announcement by the central bank (posted on the ISX website on April 3) stating that:

    First): The board of the Central Bank of Iraq in its extraordinary session number 1481 held on February 29, 2012 decided the following:
    In accordance with the provisions of Article (40) of the Law of the Central Bank of Iraq, Number 56 for the year 2004 authorizing the bank to maintain supervisory power over banks operating in Iraq.
    And Pursuant to the provisions of Paragraph (D) of Article (59) of the Banking Law Number 94 for the year 2004 which stated that ((The Central Bank of Iraq shall appoint a trustee over a bank if the Governor of Central Bank of Iraq decides that the appointment of a trustee for a bank is necessary to ensure the stability and integrity of the banking system as whole)).
    Due to the deteriorating financial situation of Al-Warka’ Bank for Investment and Finance and its inability to meet its financial obligations due to errors and improper practices committed by the bank outside the legal banking practices and its mistakes in the performance of its obligations.
    Based on the above, and in order to ensure the integrity of the banking and financial system in Iraq, the Central Bank of Iraq has hereby decided to establish a trusteeship over Al-Warka’ Bank for Investment and Finance (LLC), in accordance with the provisions of 59 of Banking Law Number 94 for the year 2004, as of the date of issuance of this decision.
    Second): A committee of trustees shall be formed over the bank and comprised of the following and should exercise its duties as of March 1, 2012
    1. Mr. Khalid Shaukat Assistant Director – President
    2. Mr. Qais Dakhil Assistant Director – Member
    3. Mr. Salamn Aidan Assistant Director – Member

    That’s all I’ve seen on this so far.

  7. Tom April 18, 2012 at 8:15 pm #

    Thanks Mark for the Warka Bank update.