In State Banks We Trust

By Mark DeWeaver.

2013 was another strong year for deposit growth at the ISX-listed banks. Deposits at the 19 names that have so far reported year-end financials were up 17% year-on-year as of December 31. (Only BDFD and BELF, which together accounted for 8% of 2012 listed-bank deposits, have yet to report.)

While their deposit growth slowed from 32% in 2012, these 19 banks nonetheless continued to outpace the rest of the sector, where deposits rose by only 10%. As a result, their share in the deposits component of Iraq’s M2 money supply rose for a second year to reach 13%. (Click here for full-sized chart.)

This is the highest share in at least six years. Nevertheless, it represents only a modest improvement from the 10% low in 2011.

Clearly the playing field remains steeply tilted in favor of the state-owned banks. These lenders not only enjoy a virtual monopoly on government deposits but also accounted for 60% of private sector deposits as of year-end 2012. They held about 85% of total deposits, despite having only a fifth of total bank-sector capital and somewhat fewer branches—479 versus the private banks’ 515. (See pages 27 and 112 of the central bank’s 2012 bulletin.)

From the depositor’s point of view, the state-owned banks’ obvious advantage is their lack of bankruptcy risk. While private banks have been allowed to go under, it is highly unlikely that state-owned institutions would be permitted to suffer a similar fate. The central bank can always be counted on to rescue them in a crisis.

This means that the private banks’ deposit share is likely to remain low for the foreseeable future. In the absence of deposit insurance or any effective mechanism for dealing with bank failures, depositors can hardly be blamed for continuing to view the state banks as their safest bet.

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